Small Business Loans in 2025: Best Options & How to Apply

By CASEY FROST
Casey Frost is a small business loans (finance) writer and content strategist with 8+ years covering business lending, SBA programs, and fintech. Casey previously worked as a lending analyst at a regional bank and regularly writes practical guides that help business owners compare loan options and select the most cost-effective funding.

Last updated: 2025 — rates & lender info reviewed for accuracy.

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Small businesses today have more financing options than ever, from government-backed SBA loans to bank term loans, credit lines, and receivables-based financing. Even as rates rise, lenders across the spectrum now offer financing suited to different needs and credit profiles. For example, Federal Reserve data shows average bank loan APRs in early 2025 were roughly 6.6–11.5% for qualified borrowers, while fintech or alternative lenders can charge much higher rates (often well above 20% and in extreme cases up to 99% APR or more). To secure the lowest-cost funding, it’s important to understand each loan type, compare APRs (interest + fees) and terms, and match a loan to your business use case.

In this guide, we break down the major small-business loan categories – including SBA loans, bank and online term loans, lines of credit, equipment financing, and invoice financing – and show how to shop for the best rates. We also cover fast short-term options (merchant cash advances, credit cards) and outline steps to apply so you can find the right capital for your needs.

Which loan to pick

• SBA 7(a) — Best for large expansion or refinance; long terms, lower APR if you qualify.

• SBA 504 — Best for real estate or major equipment; low fixed rates tied to Treasuries.

• Bank term loan — Lowest cost for established businesses (good credit, 2+ years).

• Online term loan / MCA — Fastest funding but much higher APRs — use only for urgent needs.

• Line of credit/invoice financing — Use for short-term cash flow; lines are cheaper if you qualify, and factoring is faster but costly.

Types of Small Business Loans

SBA Loans: 7(a) vs. 504 vs. Microloans

The U.S. Small Business Administration (SBA) partners with banks and other lenders to offer low-down payment, long-term loans. By partially guaranteeing these loans, the SBA makes lenders offer more flexible terms and funding to businesses with good plans but modest collateral.

• SBA 7(a) loans: These are the SBA’s most popular loans. You can borrow up to $5 million from Lendio.com for working capital, equipment, expansion, or refinancing. Loan terms are long (often 5–25 years). Interest rates are typically based on the prime rate, plus a fixed spread, and can be either fixed or variable. As of mid-2025, SBA 7(a) rates are roughly 10.5–14.0% (variable) or 12.5–15.5% (fixed), depending on loan size. In practice, larger loans ($250K+) get the lowest rates (around prime+3%) while small loans ($50K or less) hit the upper end of the scale. Because they’re government-backed, SBA loans usually have lower interest than similar unsecured loans, loans with no collateral.

• SBA 504 loans: Designed for major fixed-asset purchases (land, buildings, heavy machinery), 504 loans are fixed-rate and very long-term (often 10–25 years). You can borrow up to $5.5 million for these projects. Rates are tied to 10-year U.S. Treasuries plus a small margin. In 2025, that translates to about 5%–7% APR in total, making 504 loans among the cheapest financing available for real estate or large equipment.

• SBA Microloans: These small loans (typically $500–$50,000) are made through nonprofit lenders. They help very small or startup businesses buy inventory, furniture, or light equipment. Microloan terms run up to 6 years. Interest rates vary by lender but generally fall in the 8%–13% range. SBA microloans often require minimal collateral and may have more flexible approval criteria, making them ideal for new ventures needing under $50K.

(The SBA’s Lender Match tool is a useful starting point to find SBA-approved lenders quickly.)

Bank & Online Term Loans

Traditional bank term loans are lump-sum loans repaid monthly with fixed or variable rates. Banks and credit unions offer the lowest rates, but typically require good personal credit (often 680+) and at least 2+ years in business. According to Fed data and industry reports, well-qualified small businesses can often find bank term loans in the 6.6%–11.5% APR range. Loan sizes typically start around $10,000 and can go well above $500,000, with terms from 1 to 5 years.

By contrast, online term loans (lenders like Kabbage/BlueVine, OnDeck, Funding Circle, etc.) take applications online and can fund in days. They often approve newer or lower-credit businesses, but charge higher rates. Online term loan APRs commonly run from 14% up to 99%, depending on the lender, loan size, and credit history. Use an online loan only if you need cash very fast or if traditional credit isn’t an option – otherwise, a longer wait for a bank loan can save tens of thousands in interest.

Business Lines of Credit

A business line of credit acts like a corporate credit card: it gives you a revolving credit limit that you draw on as needed. You pay interest only on the amount you withdraw. Lines of credit are great for short-term cash flow needs like seasonal inventory, payroll gaps, or emergencies.

• Bank lines: Many banks offer lines of credit starting around 10% APR for top-tier borrowers. Lower down payments or guarantee requirements may apply.

• Fintech lines: Online providers compete aggressively on small business lines. For example, Bluevine offers lines up to $250K with rates as low as 7.8% for prime customers at bluevine.com. Fundbox advertises draws from 4.66% up to 8.99% APR (for 12- and 24-week terms, respectively). Of course, your rate depends on your credit profile.

Lines typically have one-year terms (renewable if you pay on time) and are best for ongoing capital needs since you can reuse the credit as you repay. (See our small-business line of credit guide for details.)

Equipment Financing

When you need to buy fixed assets (machinery, vehicles, computers), equipment financing or leasing can be ideal. The equipment itself secures the loan, so rates are lower. Many lenders (banks and specialty firms) finance up to 100% of the equipment cost. Terms usually match the useful life of the asset (often 3–7 years).

According to NerdWallet’s rate survey, equipment loan APRs can start as low as about 4% (for new equipment and strong credit), though average rates are higher if credit is weaker. Because the collateral is the equipment, these loans are often easier to approve than unsecured debt. The SBA 504 program above is also a form of equipment financing for very large purchases. In sum, equipment financing lets you get the tools you need while spreading the cost in a low-rate loan.

Invoice Factoring & Financing

If your cash is tied up in unpaid invoices, receivables financing can unlock that cash fast. There are two main forms:

• Invoice factoring: You sell your invoices to a factoring company at a discount. The factor advances you usually 70–90% of the invoice face value immediately. Once your customer pays the invoice, the factor remits the balance, minus fees. Leading factoring firms can advance up to 90% of an invoice’s value with discount rates (fees) starting around 0.8% per 30 days of invoice value. Factors pride themselves on speed: many advertise funding within 24–48 hours of application. In essence, you trade a fee for instant cash.

• Invoice financing (accounts receivable financing): Here, you borrow against your invoices as collateral instead of selling them. You still receive most of the invoice value up front, and when customers pay you, simply repay the loan and interest. This keeps you in control of collections.

Both methods are fast but relatively expensive forms of credit. Fees are typically 1–5% of the invoice per 30 days, which translates into high APRs once annualized. NerdWallet notes that the effective APR on factoring can range as high as 79% when you include all fees. For context, 1–2% monthly fees (common on a 30-day invoice) become roughly 12–24% APR. The upshot is you get cash quickly without traditional debt, but at a steep price compared to bank loans. (If you have steady monthly revenue, a bank line of credit is often cheaper than factoring, but factoring is faster and more flexible on credit criteria.)

(For more on these options, see our Invoice Factoring Explained.)

Other Options

• Merchant Cash Advances (MCAs): These provide a quick lump-sum repayment via a fixed percentage of daily credit-card sales. MCAs approve in hours and fund within 1–3 days, but they are very expensive. APRs commonly range from 40% to 350%. Only use an MCA as a last resort when speed is critical, as the cost is extremely high.

• Business credit cards: For small, short-term expenses, you can borrow on a business credit card. Average small-business credit card limits are about $50K. These cards typically carry ~17% APR on purchases. Cards are convenient for ordinary expenses, but for large financing needs, they can be too expensive.

• Personal loans or family lending: Very new businesses might tap personal credit (own cards or loans, or loans from friends/family). This can work if you have strong personal credit (often 670+) or supportive relatives. Treat personal debt carefully, though — mixing business and personal finance has risks.

• Peer-to-peer/crowdfunding: Online platforms can match you to lenders or investors. These usually fall into one of the above categories (term loans, lines, etc.), but can broaden options.

Comparing Loan Options

It helps to directly compare loan features. The table below summarizes typical ranges for popular small business loan types:

(Rates are illustrative and vary by credit, lender, and market conditions.)

As a rule, secured loans (e.g., equipment loans, SBA real estate loans) have the lowest rates, while unsecured short-term credit (online loans, MCAs) costs the most. Always check the APR – which includes fees – before signing.

How to Apply for a Business Loan

1. Assess Your Needs. Decide exactly why you need funding. Is it for a one-time equipment purchase or ongoing expenses? This guides your loan choice: a term loan suits a fixed project, whereas a line of credit or invoice financing works better for seasonal or variable cash flow. Also, calculate how much you need.

2. Check Eligibility. Review the likely requirements. Lenders will look at your business and personal credit scores, annual revenue, time in business, and collateral. Banks/SBA typically want 680+ personal credit, 2+ years in business, and positive cash flow. Many online lenders are more flexible — some will accept personal scores in the 500s. Ensure your business is properly registered in the U.S., has clear finances (profit intent, etc.), and can demonstrate repayment ability. Tools like the SBA’s Lender Match or online marketplaces (e.g., Lendio) often list eligibility criteria up front.

3. Gather Documentation. Lenders will ask for financial documents. Common requirements include:

• Tax returns (personal and business, usually last 2 years).

• Bank statements (business and sometimes personal, 6–12 months).

• Financial statements (profit & loss, balance sheet).

• Business plan or loan proposal (especially for SBA loans or large financing).

• Collateral info (if you’re pledging assets like real estate or equipment).

• Legal documents (business licenses, articles of incorporation).

Having these ready not only speeds approval but signals you’re organized — which helps negotiation.

4. Research Lenders. Shop multiple sources. Start with your current bank or local credit union (they often reward loyal customers with lower rates). Explore online lenders and brokers, too. The SBA’s Lender Match and networks like SCORE can connect you with SBA-approved lenders and small-business advisors. Also, check specialized lenders: for example, equipment financiers or factoring firms, if you have heavy machinery or big receivables. Services like Lendio or Fundera let you apply once and see quotes from dozens of lenders at once. Read reviews and compare how fast and customer-friendly each lender is.

5. Compare Offers. Once you have loan quotes or pre-approvals, compare APRs (not just nominal rates), fees, term lengths, and any penalties. For instance, one lender might offer a 5-year loan at 8% APR while another offers 10% APR; also, check for origination fees, prepayment penalties, or collateral needs. A spreadsheet can help estimate the total cost. Remember that a lower APR, even by 1-2 points, can save thousands over the loan. If possible, ask lenders for estimated loan amortization tables (monthly payment vs. principal) before choosing.

6. Submit Applications. Apply to 2–3 lenders that best match your needs. Online lenders often have quick digital applications. Banks/SBA loans require more paperwork and possibly an interview. If you pursue an SBA loan, you apply through the lender (the SBA itself doesn’t process applications directly). Submit all documents promptly and accurately. Be transparent about any challenges (late payments, etc.), as lenders prefer honesty up front to avoid delays. Check the step-by-step application process.

7. Review and Accept. Within days or a few weeks (depending on loan size/type), you’ll get loan offers or term sheets. Examine each offer carefully: check the APR, term length, monthly payment, fees, and collateral/guaranty requirements. If it’s an SBA loan, read the full approval terms. When you find the best low-cost loan that fits your needs, sign the agreement. Funds are typically disbursed by bank deposit.

Throughout the process, keep communication open. Ask lenders to clarify any fine print and confirm the expected timeline. A helpful approach is to prepare questions (e.g., “Is this rate fixed or variable?”, “Do you charge a prepayment penalty?”, “How long until funding?”) and get answers in writing.

Key Considerations When Choosing a Loan

When weighing loan options, focus on these factors:

• Interest Rate / APR: A lower APR saves money. SBA and bank loans usually offer the best rates. Always compare APR (which includes interest and fees) rather than just headline rates.

• Repayment Terms: Longer terms mean smaller payments but more interest paid overall. SBA 504 and real estate loans can stretch up to 25 years, while online loans might be 6–18 months. Match the term to your project’s timeline.

• Collateral & Guarantees: Determine if you must pledge assets (equipment, real estate) or sign a personal guarantee. Secured loans give you lower rates, but unsecured loans (like MCA, invoice financing) cost more. Note that SBA 7(a) loans require a guarantee, though some small SBA loans may have relaxed collateral rules.

• Funding Speed: How fast do you need cash? Online lenders and factors can fund in 1–3 days. For example, some factoring companies respond in 24–48 hours. In contrast, SBA loans or traditional bank loans often take weeks to months due to underwriting and approval. If urgency is critical, a quicker (even if more expensive) option may be necessary.

• Qualification Criteria: Match your business profile to the lender’s expectations. SBA loans and banks typically need solid finances and credit. Online lenders often accept businesses with as little as one year in operation and lower credit scores. Invoice factoring and similar lenders focus more on the creditworthiness of your customers than on your credit. If your credit is modest, seek out lenders advertising approval for your score range (some equipment lenders, for instance, accept scores around 510).

• Use Restrictions: Some loans must be used for specific purposes. SBA loans are broad (working capital, equipment, real estate, refinancing). Equipment financing must buy equipment. Factoring only works for B2B receivables. Make sure the loan aligns with your intended use to avoid compliance issues.

Consider all these factors together. For example, an SBA 7(a) loan might give you a low APR and long term for a large project, but it requires more paperwork and time. An online term loan might be quick with moderate credit, but the APR could be double a bank loan. Always shop around and compare a few scenarios before deciding.

Frequently Asked Questions

Q: How fast can I get funding?
A: Online lenders and invoice factors can fund in 24–72 hours after approval. Bank and SBA loans typically take weeks to months due to underwriting.

Q: What credit score do I need?
A: Banks and SBA loans usually prefer 680+. Many online lenders consider scores in the 600s; some specialty lenders accept scores in the 500s. Invoice financing focuses more on your customers’ credit than your own.

Q: Which loan has the lowest interest?
A: Secured, long-term loans (SBA 504 for real estate or equipment, or bank loans with collateral) generally offer the lowest APRs. Unsecured short-term options are the most expensive.

Q: Is factoring the same as invoice financing?
A: No. Factoring sells your invoices to a factor at a discount; invoice financing borrows against invoices, and you retain collection control. Both speed cash, but factoring often costs more.

Q: Are SBA loans worth the wait?
A: If you need lower APRs and long terms, yes—SBA loans are often the cheapest. But they require more paperwork and take longer, so they’re best when you can wait.

Resources & Related Guides

• Best Small Business Loans for Startups: Funding Options

• SBA Loans vs. Merchant Cash Advance

• Business Loan Rates by Region and State – see how average rates vary by region and state laws.

• California Small Business Startup Loans: Top Programs & Rates

• Business Debt Consolidation Loans – explore options to refinance and consolidate existing debts.

• Best Startup Loans in Texas, Where to get funding, Who qualifies, How to apply

These internal guides provide additional details on loan types and strategies mentioned above.

Sources: Federal Reserve and industry data on small-business loan rates; SBA publications; NerdWallet, Fundbox, Bluevine, and industry reports. All figures are subject to change based on lender and market conditions.

Disclaimer: Rate ranges are illustrative and were current as of the “Last updated” date above. Actual APRs and fees vary by lender, credit profile, collateral, and market conditions. Always request a full loan disclosure (APR + all fees) before signing.