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Loan terms are the conditions set by the lender that you must agree to in order to receive the loan. They usually cover the amount of time you have to pay back the loan - the cost of the loan or interest - eligibility requirements - conditions of late payments or defaulting.
Key Points:
- Borrowing money can be expensive, as loans involve interest and fees.
- Don’t be afraid to borrow – though loans cost money, they can speed business growth.
Typical loan terms overview
| Loan type | Repayment term | Best for |
| Term loans | Up to 10 years | Investing in and expanding your company |
| Microloans | Up to 6 years | Beginning a startup and smaller investments |
| SBA loans | Up to 25 years | Established businesses with good credit and collateral |
| Business lines of credit | Up to 5 years | Short-term financing with the option to draw funds when you need to |
| Invoice financing | A few months | Improving cash flow by getting paid for invoices more quickly |
| Equipment financing | Up to 10 years | Purchasing capital assets and machinery to increase production |
Business loan repayment terms
Before you get any loan, you should understand how repayment works and how quickly you’re expected to pay the money back.
Term loans: Up to 10 years
Term loans are the most basic type of loan. You receive a lump sum of cash and are expected to pay it back in equal monthly payments over the course of a few years. Depending on the amount you borrow, the repayment period can vary.
Long term loans can last for up to 10 years. Smaller amounts usually mean shorter terms, often as short as 5 years or less. For more information repayment periods and loan amounts check out short term vs long term loan.
Microloans: Up to 6 years
Microloans, as their name implies, are loans for relatively small amounts. Unlike other loans which can involve hundreds of thousands of dollars, these are usually for a few thousand or tens of thousands at most.
Microloans are usually targeted at startups and companies with smaller financial needs. Due to their small size, repayment terms are shorter, typically less than 6 years.
SBA loans: Up to 10 years for working capital and fixed assets; up to 25 years for real estate
SBA loans are special loans that are funded by the Small Business Administration. This means that they are subject to additional rules and regulations set down by the federal government.
Though the additional regulation can make applying for an SBA loan a bit of a hassle, the program offers larger loans that you might otherwise be able to qualify for. Repayment terms can vary depending on the purpose of the loan. Most SBA loans have repayment terms of 10 years, though loans used to buy real estate can last for 25.
Business lines of credit: Up to 5 years
A business line of credit gives your company flexible access to cash when it needs it. You can think of it as a pool of money you can draw from whenever you need it. You can even draw from the line of credit multiple times over its life. You only have to make payments, and pay interest, when you have an outstanding balance.
Lines of credit are great for companies with unpredictable or irregular financing needs. They usually have repayment terms of up to 5 years.
Invoice financing: A few months
When you send an invoice to a customer, they don’t usually pay you right away. You have to wait weeks or months to receive your money.
Invoice financing lets you get money for invoices that you send right away. You then pay back the lender when your customer eventually sends payment to you. That makes these loans very short term, usually just a few months.
Equipment financing: Up to 10 years
Equipment financing loans are typically low-interest, secured debts with the purchased equipment serving as collateral. Because equipment, including vehicles, machinery, and other tools can be expensive, these loans can often be for large amounts. Repayment terms last for up to 10 years.
Typical Business Loan Terms by Type
There are many different types of business loans. It’s essential to understand the differences between them.
Traditional bank loans
● Repayment terms: 3 to 10 years
● Loan amounts: Up to $100,000 or more
● Interest rates: 5% - 20%+
● Time to fund: Days to weeks
● Requirements/eligibility: Good credit and business revenue
Traditional bank loans come from business banks that offer financing services. These are typically term loans with repayment terms and rates varying based on the amount borrowed and the borrower’s credit.
Small business loans (SBA)
● Repayment terms: Up to 10 or 25 years
● Loan amounts: $500 - $5.5 million
● Interest rates: 5% - 10%
● Time to fund: Weeks to months
● Requirements/eligibility: The business must operate for profit, in the US or its territories, have a reasonable owner’s equity, and have used other financial resources before applying.
SBA loans are loans guaranteed by the Small Business Administration. They can be a good way for business owners to borrow large amounts, but the bureaucracy can make them very slow to get.
Term loans
● Repayment terms: Up to 10 years
● Loan amounts: Up to $500,000 or more
● Interest rates: 5% - 20%+
● Time to fund: Days to weeks
● Requirements/eligibility: Good credit and business revenue. Collateral may be required
Term loans are loans with a set monthly payment and repayment date. They can be secured or unsecured and have amounts and repayment lengths that can vary widely. Examples of term loans include short term business loans. If you're interested in taking out such a loan, you might like to visit our list of the best short term loan offers first.
Business lines of credit
● Repayment terms: Up to 5 years
● Loan amounts: Up to $250,000 or more
● Interest rates: 7% - 20%+
● Time to fund: Weeks for initial application
● Requirements/eligibility: Based on credit score and business revenue/cash flow
Business lines of credit give companies access to flexible financing. You can draw funds whenever you need them, up to a set limit.
Merchant cash advance
● Repayment terms: Up to 12 months
● Loan amounts: Based on revenue
● Interest rates: N/A. Fees up to 10% of sales
● Time to fund: N/A
● Requirements/eligibility: Based on business revenue through debit and credit sales
Merchant cash advances let you get cash today and automatically repay the debt by giving up a portion of your future debit and credit card receipts until the advance is repaid.
Invoice financing
● Repayment terms: A few months
● Loan amounts: Based on revenue
● Interest rates: N/A. Fees of up to 5%
● Time to fund: N/A
● Requirements/eligibility: Based on business revenue.
Invoice financing lets you get paid for invoices immediately. You’ll receive slightly less than the full amount invoiced and send the payment you receive to the lender, who pockets the difference as a fee after you get paid.
Equipment financing
● Repayment terms: Up to 10 years
● Loan amounts: Up to $500,000 or more
● Interest rates: 4% - 15%+
● Time to fund: Days to weeks
● Requirements/eligibility: Based on business credit and financials
Equipment financing is useful for buying expensive equipment and machines. The debt is secured, keeping its costs lower than other loans.
Frequently Asked Questions (FAQs)
Before you apply for a loan, it’s important to understand typical small business loan terms.
