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What’s the real cost of your small business loan? It’s rarely just the interest rate. Loan terms determine how borrowed money will affect your cash flow, risk level, and financial flexibility for years to come. And the consequences of loan terms, interest rates, and repayment terms can vary widely across types of business loans.
Whether you’re borrowing from traditional banks, online lenders, or exploring alternative small business financing, make sure you read the fine print. Here are definitions and details for some of the most common small business loan terms.
What is a small business loan repayment term?
A loan repayment term is the length of time in which a loan must be repaid, beginning with disbursement and ending at the loan maturity date (the final date by which the loan must be fully repaid). The length of the loan term determines how far payments are spread out—usually monthly—and directly affects the size of these monthly payments and the total cost of borrowing.
Shorter terms typically require higher installment payments, but result in less interest paid overall. Longer terms have lower monthly obligations, but increase the total amount of interest over time. Depending on the loan type, the borrower’s creditworthiness, and whether the loan is secured by collateral, the repayment period can range from a few months to several years.
Loan terms for each type of small business loan
- Bank loan terms
- SBA 7(a) loan terms
- SBA 504 loan terms
- Business lines of credit terms
- Merchant cash advance terms
- Inventory financing terms
- Invoice financing terms
- Equipment financing terms
- SBA microloan terms
Different loan programs serve different purposes, such as working capital for daily operations, equipment purchases, or long-term business expansion. Each comes with its own typical business loan terms. Here are common financing options for small businesses, with details on how their repayment periods, pricing, and structures generally work:
Bank loan terms
Bank loans are a traditional form of business financing. They’re offered by traditional banks and credit unions, and typically require proven growth or profitability, collateral (assets to secure the loan), and an established operating history. Bank loans are best suited for stable small businesses with solid business credit and a history of predictable revenue.
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Loan term. Often up to five years for general-purposes financing; longer for real estate financing (15 to 30 years).
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Loan amount. From a few thousand to several million dollars, depending on creditworthiness, revenue, collateral, and required down payment.
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Interest rate. Typically 6% to 12% annual percentage rate (APR), depending on the loan type and the applicant’s creditworthiness, historical relationship with the bank, and collateral.
SBA 7(a) loan terms
Backed by the United States Small Business Administration (SBA), SBA loans under Section 7(a) of the Small Business Act support eligible businesses that may not qualify for conventional bank loans.
Eligibility is typically determined by confirming that the borrowing business operates for profit, is based in the US, falls within the SBA’s small business standards for its industry, and is not engaged in excluded activities (e.g., speculative real-estate investment, lending, gambling).
The SBA requires that any individual owning 20% or more of a small business must personally guarantee repayment, meaning the small business owner is personally liable for repaying a business debt if the business cannot. This requirement is known as the “20% rule.”
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Loan term. Up to 10 years for working capital, inventory, or equipment, but can extend up to 25 years for real estate purchases.
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Loan amount. Up to $5 million.
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Interest rate. Typically capped at the agreed-upon base rate plus 3% to 6.5%, depending on the loan amount.
SBA 504 loan terms
SBA 504 loans use a dual-financing structure in which a private lender funds about 50% of the loan, a Certified Development Company (CDC) provides about 40% through an SBA-backed loan, and the borrower contributes a 10% down payment. A CDC is a nonprofit, community-based lender authorized by the SBA to administer its portion of the loan.
These loans are typically used for large investments in fixed assets, like purchases of owner-occupied commercial real estate or heavy equipment. Qualified borrowers must operate as a for-profit company in the US, have a tangible net worth of less than $20 million, and have an average net income of less than $6.5 million after taxes for the two years preceding the application.
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Loan term. Between 10 and 25 years.
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Loan amount. Up to $5.5 million.
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Interest rate. Pegged to an increment above the current market rate for 10-year US Treasury issues (totaling approximately 3% of the debt).
Business lines of credit terms
A business line of credit provides flexible access to funds for short-term working capital needs.
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Loan term. Revolving payment period, often renewed annually.
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Loan amount. Credit limits commonly range from a few thousand to $1 million or more, depending on the lender and borrower profiles.
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Interest rate. As of late 2024, average rates reported for new business lines of credit were approximately 5.7% to 7.4% for fixed-rate lines, and 7.4% to 7.7% for variable-rate lines, with unsecured options (no collateral) carrying higher pricing.
Merchant cash advance terms
A merchant cash advance (MCA)—sometimes simply known as a cash advance—requires a lender to advance a lump sum in exchange for a fixed percentage of the business’s future sales. The MCA provider withholds a prearranged percentage of daily credit or debit card sales—known as the “holdback rate”—usually between 10% and 20% of daily sales. Eligibility is typically based on the business’s monthly credit and debit card transaction volume.
While traditional MCA services are offered by standalone providers, newer platform-based products embed the cash-advance model directly into existing ecommerce infrastructure.
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Loan term. Typically three to 18 months.
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Loan amount. This is usually referred to as the “advance rate” and can vary depending on the borrower’s needs and the lender’s assessment of the borrower’s sale history.
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Interest rate. MCAs typically use a factor rate rather than APR or interest rate. A factor rate is a decimal number, usually between 1.2 and 1.5. If an MCA has a factor rate of 1.2, the borrower must repay the entire principal plus an additional 20%.
Inventory financing terms
Inventory financing provides short-term business financing for retail, wholesale, or product-based businesses to purchase inventory in advance of expected sales cycles. The inventory itself typically serves as collateral, making this option attractive for small businesses with predictable turnover, seasonal demand, or large upfront stocking needs that can’t easily be covered through cash flow alone.
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Loan term. Repayment terms for short-term loans used to purchase inventory typically range from three to 24 months.
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Loan amount. Based on how much inventory a business needs to buy and how much the lender is willing to advance against it.
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Interest rate. Typically between 8% and 25%, depending on the business’s creditworthiness and inventory liquidity.
Invoice financing terms
Invoice financing allows you to borrow against outstanding unpaid invoices. This can accelerate your cash flow without having to wait for customer payment. To illustrate, let’s say you’ve sold products to a wholesaler for $20,000 and, while waiting for the wholesaler to issue you payment, you need $15,000 in liquid cash to address some important equipment repairs. Invoice financing allows you to receive that $15,000 from an invoice financing provider, which you’ll repay with interest once the wholesaler’s payment has landed in your account.
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Loan term. Usually very short, often up to a few weeks or months.
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Loan amount. Up to 80% to 90% of the invoice’s total value.
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Interest rate. Often ranges from the low double digits to well over 50% APR when annualized, depending on invoice terms and repayment speed.
Equipment financing terms
Equipment financing is a form of business financing used specifically for equipment purchases, where the equipment itself serves as collateral. Because the lender can repossess the equipment in the event of default, this option is often available to small business owners with a limited operating history or weaker business credit than required for traditional bank loans. Businesses often use equipment financing to buy vehicles, machinery, and other revenue-generating assets.
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Loan term. The average loan term is three to seven years.
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Loan amount. Anywhere from 80% to 100% of the equipment purchase price.
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Interest rate. Rates vary between 4% and 11% APR, depending on a business’s creditworthiness.
SBA microloan terms
SBA microloans support new small businesses or founders from underserved communities with modest capital injections via intermediary lenders (nonprofit community-based organizations). Each intermediary lender has its own lending and credit requirements but generally requires some type of collateral as well as personal guarantees.
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Loan term. Up to seven years.
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Loan amount. The average microloan is $13,000, but the loan program provides for loans up to $50,000.
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Interest rate. Generally between 8% and 13%, but the interest rate is ultimately set by the intermediary lender.
Small business loan terms FAQ
What is the average term for a small business loan?
What is the average term for a small business loan? Small business bank loans typically offer repayment terms of up to five years, but this can vary depending on the institution, borrower risk profile, and specific loan type.
What is the 20% rule for SBA?
The 20% rule generally refers to SBA requirements around ownership and personal guarantees, where individuals owning 20% or more of a small business must personally guarantee repayment.
How long do I have to pay back a small business loan?
How long do I have to pay back a small business loan? Repayment depends on the loan type, ranging from weeks for invoice financing or multiple years for a long-term loan from traditional lenders.
*All loans through Shopify Capital Loans are issued by WebBank. Offers are subject to change based on several factors including your store's performance and the review of your financial information. Shopify Capital Loans must be paid in full within 18 months, and two minimum payments apply within the first two six-month periods. Offers to apply do not guarantee funding. Repayments are made based on a percentage of daily sales.
