What types of business loans are available?
Main types: SBA 7(a) loans — government-backed, best rates, most paperwork. Term loans — fixed payments, banks or online lenders. Equipment financing — collateralized by the equipment being purchased. Business line of credit — revolving, draw what you need. Merchant cash advance — advance against future sales, daily repayment, very expensive. Invoice factoring — sell outstanding invoices at a discount for immediate cash. SBA 504 — specifically for commercial real estate and large equipment.
What do lenders look at for a business loan?
The '5 Cs' plus revenue: (1) Credit — personal and business FICO score. Most banks require 680+, online lenders may accept 550+. (2) Cash flow — monthly revenue and DSCR (≥1.25x required). (3) Capital — down payment or existing assets. (4) Collateral — what secures the loan. (5) Conditions — industry, economic environment, loan purpose. Most lenders also require 1–2+ years in business, and revenue documentation (bank statements, tax returns).
What is the DSCR and why does it matter?
Debt Service Coverage Ratio = Net Operating Income ÷ Annual Debt Service. It measures whether your business generates enough cash to cover loan payments. DSCR of 1.0 = break-even. DSCR of 1.25 = business generates $1.25 for every $1.00 of debt payments — minimum for most SBA and bank lenders. DSCR below 1.0 = operations can't cover payments (lenders will decline). Improve DSCR by increasing revenue, cutting expenses, or taking a smaller loan.
Why is a merchant cash advance so expensive?
MCAs use factor rates, not APR — making them appear cheap. A 1.25 factor rate sounds modest, but on a 6-month advance it's roughly 70–80% APR. On a 3-month advance, the same factor = 150%+ APR. Additionally, repayment is typically a daily percentage of sales or fixed daily ACH withdrawals, creating cash flow strain. MCAs should be a last resort. Before accepting an MCA, get quotes from online term lenders (Kabbage, OnDeck, Fundbox) and credit unions — almost always cheaper.
How do SBA loan rates work?
SBA 7(a) rates are variable, tied to the WSJ Prime Rate. As of March 2026, Prime = 7.50%. SBA caps the spread lenders can charge: for loans over $250K: Prime + 2.75% = ~10.25%. For loans $50K–$250K: Prime + 3.75% = ~11.25%. For loans under $50K: Prime + 4.75% = ~12.25%. Additionally, SBA charges a guarantee fee (typically 2–3.5% on the guaranteed portion). Despite fees, SBA rates are usually the cheapest available for businesses that qualify.
What credit score do I need for a business loan?
Traditional banks: 680+ personal FICO, 2+ years in business, strong revenue. SBA loans: typically 680–700+ minimum. Online lenders (Kabbage, OnDeck, Bluevine): 580–620+, sometimes 500+. Merchant cash advances: 500+, focus on sales volume not credit. Equipment loans: 600+ (asset reduces credit importance). Startup with no revenue: usually can't get traditional business loans — SBA Microloan program (up to $50K) or CDFI lenders serve newer businesses.