Business Loan Calculator: SBA Loans, Equipment Financing & Working Capital 2026

Small business owners pay $20-40 billion annually in business loan interest, with rates ranging from 5% (SBA-backed loans) to 35%+ (short-term cash advances)—yet 60% don't compare options, often accepting the first approval regardless of terms. A $100,000 equipment loan at 8% costs $1,213/month with $45,540 in interest over 10 years, while the same loan at 12% costs $1,435/month with $72,180 in interest—costing $26,640 more despite seeming like "just 4% higher."

This comprehensive guide covers SBA loan options, equipment financing, working capital loans, business lines of credit, alternative financing options, qualification requirements, and strategies to secure the best business loan terms.

Table of Contents

1. Types of Business Loans
2. SBA Loans (7a, 504, Microloans)
3. Equipment Financing
4. Working Capital Loans
5. Business Lines of Credit
6. Alternative Business Financing
7. Loan Qualification Requirements
8. How to Get the Best Terms
9. Real Business Loan Scenarios

Types of Business Loans

Term Loans

Traditional installment loan:

• Lump sum upfront
• Fixed repayment schedule
• 1-25 year terms
• Fixed or variable rate

Uses:

• Expansion
• Equipment purchases
• Renovations
• Acquisitions
• Working capital

Example: $150,000 term loan

• Rate: 7%
• Term: 7 years
• Payment: $2,270/month
• Total interest: $40,680

SBA-Guaranteed Loans

Government-backed, low rates:

• 7(a) loans: Up to $5 million
• 504 loans: Up to $5-5.5 million
• Microloans: Up to $50,000

Rates: 5.5-8% (best available)

But: Extensive paperwork, 30-90 day approval

Equipment Financing

Loan secured by equipment purchased:

• Equipment as collateral
• 80-100% financing
• 3-10 year terms
• Easier qualification

Rates: 5-15% depending on credit, equipment type

Business Line of Credit

Revolving credit like credit card:

• Borrow up to limit
• Repay and reborrow
• Only pay interest on outstanding balance
• 1-5 year draw period

Rates: 7-25% (variable)

Invoice Financing/Factoring

Borrow against unpaid invoices:

• Get 70-90% of invoice value immediately
• Pay back when customer pays
• Fast funding (24-48 hours)

Cost: 1-5% per month (12-60% APR equivalent!)

Merchant Cash Advance

Advance against future credit card sales:

• Receive lump sum
• Repay via percentage of daily sales
• No fixed payment (varies with revenue)

Cost: Factor rate 1.2-1.5 (equivalent to 30-80% APR!)

Most expensive option—avoid unless desperate

SBA Loans (7a, 504, Microloans)

SBA 7(a) Loan

Most popular SBA program:

• Loan amount: Up to $5 million
• Use: Working capital, equipment, real estate, refinancing
• Term: Up to 10 years (equipment), 25 years (real estate)
• Down payment: 10-20% typically

Interest rates 2026:

• Base rate: Prime + 2.25-2.75%
• Prime = 7.5% currently
• Total rate: 9.75-10.25%

For loans under $50K:

• Prime + up to 4.75%
• Rate: up to 12.25%

Example: $250,000 SBA 7(a) loan

• Rate: 10%
• Term: 10 years
• Payment: $3,301/month
• Total interest: $146,120

Compared to conventional loan at 12%:

• Payment: $3,582/month
• Interest: $179,840
• SBA saves: $33,720

SBA 7(a) Qualification Requirements

Business qualifications:

• For-profit business
• Operate in U.S.
• Small per SBA size standards
• Demonstrated need for loan

Owner qualifications:

• Personal credit score: 680+ (ideally 700+)
• Time in business: 2+ years (preferably 5+)
• Down payment: 10-20% available
• Personal guarantee required

Financial requirements:

• Cash flow to service debt
• Collateral (personal often required)
• Use of funds plan
• Financial projections (startups)

Documentation needed:

• 3 years business tax returns
• 3 years personal tax returns
• Interim financials
• Business plan
• Personal financial statement
• Ownership/affiliations disclosure

Approval timeline: 30-90 days (extensive review)

SBA 504 Loan

For real estate and large equipment:

• Structure: 50% conventional lender, 40% CDC (SBA), 10% buyer
• Maximum: $5 million ($5.5M manufacturing)
• Use: Real estate, long-lived equipment

Interest rate:

• Below market (5.5-7.5% typical)
• Fixed rate for life of loan
• CDC portion: 20-year term

Example: $500,000 commercial property

50/40/10 structure:

• Conventional loan: $250,000 at 8% (10-year term)
• CDC/SBA loan: $200,000 at 6.5% (20-year term)
• Down payment: $50,000

Blended payment: $2,861/month (combined)

Compared to conventional 80% LTV:

• $400,000 loan at 9% (20-year)
• Payment: $3,599/month
• 504 saves: $738/month ($177,120 over 20 years!)

SBA Microloan

Up to $50,000 for small needs:

• Average loan: $15,000
• Term: Up to 6 years
• Use: Working capital, inventory, supplies, equipment

Interest rates: 8-13%

Qualification easier:

• Newer businesses welcome
• Lower credit scores accepted (600+)
• Smaller documentation requirement

Example: $20,000 microloan

• Rate: 10%
• Term: 5 years
• Payment: $425/month
• Total interest: $5,500

Equipment Financing

How Equipment Loans Work

Loan specifically for equipment purchase:

• Equipment serves as collateral
• Loan amount: 80-100% of cost
• Term: Matches useful life (3-10 years)
• If default: Lender repossesses equipment

Lower risk = Better rates (than unsecured loans)

Equipment Loan Rates 2026

Rates by credit tier:

| Credit Score | New Equipment | Used Equipment | |--------------|---------------|----------------| | 740+ (Excellent) | 5-8% | 7-10% | | 680-739 (Good) | 8-12% | 10-14% | | 640-679 (Fair) | 12-18% | 15-20% | | Under 640 (Poor) | 18-25% | 20-30% |

Used equipment: 2-5% higher rates (higher lender risk)

Equipment Loan Example

Purchase: $75,000 CNC machine

Option 1: New equipment, excellent credit

• Financed: $75,000 (100%)
• Rate: 7%
• Term: 7 years
• Payment: $1,201/month
• Total interest: $25,494

Option 2: Used equipment, fair credit

• Financed: $60,000 (80% of $75K)
• Rate: 15%
• Term: 5 years
• Payment: $1,426/month
• Total interest: $25,560 (on $15K less principal!)

Lesson: Credit score matters enormously

Equipment Lease vs Loan

Leasing alternative:

Operating lease:

• No ownership (return at end)
• Lower payments
• Off balance sheet
• Upgrade flexibility
• No tax depreciation

Capital lease/Finance lease:

• Own at end ($1 buyout)
• On balance sheet
• Tax depreciation
• Higher total cost

Example: $80,000 equipment

Purchase with loan (7%, 7 years):

• Payment: $1,281/month
• Total paid: $107,988
• Own equipment (residual value: $15K+)
• Depreciation deduction

Operating lease:

• Payment: $1,100/month
• Total 7 years: $92,400
• Return equipment (no residual)
• Deduct lease payment

Lease if:

• Equipment outdates quickly (computers, software)
• Want lower payments
• Upgrade frequency important

Buy if:

• Equipment long-lived (machinery, vehicles)
• Want to build equity
• Maximize tax benefits

Equipment Financing Terms

Typical terms by equipment type:

| Equipment Type | Typical Term | Typical Rate | |----------------|--------------|--------------| | Heavy equipment | 5-10 years | 6-10% | | Vehicles/trucks | 3-7 years | 5-9% | | Office equipment | 3-5 years | 8-12% | | Computers/tech | 2-4 years | 10-15% | | Restaurant equipment | 5-7 years | 7-12% | | Medical equipment | 5-10 years | 6-10% |

Shorter-lived equipment = Shorter terms, higher rates

Working Capital Loans

What is a Working Capital Loan?

Short-term funding for operations:

• Cover cash flow gaps
• Pay payroll during slow season
• Buy inventory for busy season
• Bridge invoice payment delays

Terms: 3-18 months (short-term)

Not for:

• Buying equipment (use equipment loan)
• Expansion (use term loan)
• Real estate (use mortgage)

Working Capital Loan Costs

Rates vary widely:

Bank working capital loan:

• Rate: 7-12%
• Term: 12-18 months
• Qualification: Excellent credit, strong financials

Alternative lender:

• Rate: 15-35%
• Term: 3-12 months
• Qualification: Easier, faster

Example: $50,000 working capital

Bank loan at 10%, 12 months:

• Payment: $4,401/month
• Total interest: $2,812

Alternative at 25%, 6 months:

• Payment: $8,844/month
• Total interest: $3,064
• 22% more expensive despite shorter term!

When to Use Working Capital Loans

Good reasons:

• Seasonal business (retail: stock up for holidays)
• Invoice payment delays (30-90 day terms)
• Unexpected opportunity (bulk discount supplier offer)
• Short-term expense (equipment repair, tax payment)

Bad reasons:

• Cover operating losses (fix business model, don't borrow)
• Pay off other debt (consolidation loan better)
• Long-term needs (use term loan)

Red flag: Need working capital loan repeatedly = Cash flow problem (address root cause)

Working Capital Calculation

How much do you need?

Formula:

Working Capital Need = Current Assets - Current Liabilities

Example business:

• Accounts receivable: $80,000

• Inventory: $50,000

• Cash: $20,000

• Current assets: $150,000

• Accounts payable: $45,000

• Short-term debt: $30,000

• Accrued expenses: $25,000

• Current liabilities: $100,000

Working capital: $150K - $100K = $50,000

Positive working capital = Good (can cover short-term obligations)

If negative: Business may struggle to pay bills (need working capital loan or equity injection)

Business Lines of Credit

How Business LOC Works

Revolving credit facility:

• Approved for credit limit ($25K-$500K+)
• Borrow when needed
• Repay and borrow again
• Pay interest only on outstanding balance

Like credit card for business

Example: $100,000 LOC

• Month 1: Borrow $30,000 (pay interest on $30K)
• Month 2: Repay $10,000, balance $20,000 (pay interest on $20K)
• Month 3: Borrow $40,000, balance $60,000 (pay interest on $60K)

Only pay for what you use

Business LOC Rates

Variable rates (prime + margin):

| Credit Profile | Rate | $100K Limit Fee | |----------------|------|-----------------| | Excellent (720+) | Prime + 2-4% (9.5-11.5%) | $500-1,500/year | | Good (680-719) | Prime + 4-6% (11.5-13.5%) | $1,000-2,000/year | | Fair (640-679) | Prime + 6-10% (13.5-17.5%) | $1,500-3,000/year |

Plus:

• Annual fee: $500-3,000
• Draw fee: 1-2% per draw (sometimes)
• Unused line fee: 0.5-1% of unused portion (sometimes)

LOC vs Term Loan

$50,000 business expense:

Term loan:

• Borrow: $50,000
• Rate: 9%
• Term: 5 years
• Payment: $1,038/month (fixed)
• Total interest: $12,280

Line of credit:

• Limit: $100,000
• Borrow: $50,000
• Rate: 11%
• Pay back over 5 years
• Interest: ~$15,000 (if paid like term loan)
• But: Flexibility to pay faster or reborrow

LOC benefits:

• Only borrow what you need
• Pay down faster (lower interest)
• Borrow again without reapplying
• Emergency cushion

LOC drawbacks:

• Higher rate than term loan
• Variable rate (can increase)
• Annual fees
• Discipline required (don't over-borrow)

Secured vs Unsecured LOC

Unsecured:

• No collateral
• Higher rate (11-18%)
• Lower limits ($25K-100K)
• Harder qualification

Secured:

• Collateral required (real estate, equipment, inventory, A/R)
• Lower rate (7-12%)
• Higher limits ($100K-1M+)
• Easier qualification

Example: $200,000 LOC

Unsecured (if qualify):

• Rate: 14%
• Annual fee: $2,500
• Interest if use 50%: $14,000

Secured by real estate:

• Rate: 9%
• Annual fee: $1,000
• Interest if use 50%: $9,000
• Saves: $5,500/year

Alternative Business Financing

Invoice Financing

Borrow against unpaid invoices:

How it works:

1. Complete work, send invoice (net 30-60 days)
2. Finance company advances 70-90% immediately
3. Customer pays finance company directly
4. Receive remaining 10-30%, minus fees

Cost: 1-5% of invoice value per month

Example: $100,000 invoice, net 45 days

• Advance: $85,000 (85%)
• Fee: 2.5% per month × 1.5 months = 3.75% ($3,750)
• Customer pays: $100,000
• You receive: $100K - $85K - $3,750 = $11,250

Effective APR: ~30% (expensive!)

When to use:

• Cash flow crisis
• Big opportunity requires cash now
• Can't get traditional financing

Better alternatives: Bank LOC, factor in net 30 discount to clients

Merchant Cash Advance

Advance against future credit card sales:

How it works:

1. Receive lump sum (e.g., $50,000)
2. Repay via daily credit card sales (e.g., 15%)
3. If sales are $2,000/day → $300/day goes to MCA
4. Variable repayment (high sales = pay faster, low sales = pay slower)

Cost: Factor rate 1.15-1.50

Example: $50,000 MCA at 1.3 factor

• Receive: $50,000
• Repay: $50,000 × 1.3 = $65,000
• Cost: $15,000
• Percentage: 30%!

If repaid in 6 months: 60% APR! If repaid in 12 months: 30% APR

Most expensive mainstream option

Only use if:

• Denied for everything else
• True emergency
• High-margin business (can absorb cost)

Crowdfunding

Raise capital from many small investors:

Rewards-based (Kickstarter, Indiegogo):

• Pre-sell product
• Offer perks/rewards
• No equity given up
• Good for: Product launches

Equity crowdfunding (StartEngine, Republic):

• Sell equity to public
• Regulations apply
• Good for: Startups with compelling story

Debt crowdfunding (Kiva for business):

• Peer-to-peer lending
• 0% interest (Kiva)
• Good for: Small amounts, underserved businesses

Revenue-Based Financing

Repay based on percentage of revenue:

How it works:

• Receive lump sum (e.g., $100,000)
• Repay via monthly revenue % (e.g., 5%)
• If revenue $80K/month → Pay $4,000/month
• If revenue $120K/month → Pay $6,000/month

Terms:

• Cap: 1.3-1.6x borrowed amount
• Example: Borrow $100K, repay $130K (1.3x cap)

Cost: Similar to 15-30% APR

Better than MCA (lower cost), worse than bank loan (higher cost)

Good for:

• SaaS businesses (recurring revenue)
• Ecommerce (consistent sales)
• Don't want to give up equity

Loan Qualification Requirements

Personal Credit Score Requirements

Credit score impact on approval:

| Score Range | Bank Loan | SBA Loan | Alt Lender | MCA/Invoice | |-------------|-----------|----------|------------|-------------| | 750+ | Easy | Easy | Easy | Easy | | 700-749 | Likely | Likely | Easy | Easy | | 680-699 | Possible | Likely | Easy | Easy | | 640-679 | Difficult | Possible | Likely | Easy | | Under 640 | Rare | Difficult | Possible | Likely |

For best rates: 700+ For SBA loans: 680+ minimum (really need 700+) For bank term loans: 680+ minimum For alternative: 600+ often okay (but expensive)

Time in Business

Minimum operating history:

• Bank term loan: 2-5 years
• SBA 7(a): 2+ years (startups possible with strong plan)
• Equipment financing: 1-2 years
• Alternative lenders: 6-12 months
• MCA: 3-6 months

Exception: Startups

• SBA loans: Possible with strong experience, good plan
• Owner financing: If buying existing business
• Equipment: If secured by equipment

Revenue Requirements

Annual revenue minimums:

Bank term loan:

• $250,000+ annual revenue typical minimum
• 1.25x debt service coverage ratio

SBA loan:

• No specific minimum
• But must show ability to repay

Alternative lenders:

• $100,000+ annual revenue common minimum

MCA/Invoice:

• $50,000+ monthly in credit card sales (MCA)
• Invoices from creditworthy customers (factoring)

Debt Service Coverage Ratio (DSCR)

Formula:

DSCR = Net Operating Income / Total Debt Service

Lenders want DSCR of 1.25+ = $1.25 income for every $1 of debt payment

Example business:

• Net operating income: $150,000/year
• Existing debt payments: $30,000/year
• New loan payment: $50,000/year
• Total debt: $80,000/year

DSCR: $150,000 / $80,000 = 1.88 ✓ Good!

If DSCR under 1.25: Loan likely denied (insufficient cash flow)

Collateral Requirements

Most business loans require collateral:

Typical collateral:

• Real estate (commercial or personal)
• Equipment
• Inventory
• Accounts receivable
• Personal guarantee (always!)

Loan-to-value limits:

• Commercial real estate: 80% LTV
• Equipment: 80-100% (new), 70-80% (used)
• Inventory: 50%
• Accounts receivable: 70-80%

Personal guarantee:

• Owners with 20%+ stake must personally guarantee
• If business defaults, lender can pursue personal assets
• Very serious—can lose home!

How to Get the Best Terms

Strategy 1: Improve Credit First

6-12 months before applying:

Personal credit:

• Pay all bills on time
• Pay down credit card balances under 30% utilization
• Fix any errors on credit report
• Don't apply for new credit

Business credit:

• Establish business credit (D&B D-U-N-S number)
• Pay vendors on time
• Use business credit cards responsibly

100-point credit score improvement:

• 640 → 740
• Rate drops from 15% → 8%
• On $100K loan: Saves $7,000-12,000 in interest!

Strategy 2: Shop Multiple Lenders

Compare at least 3-5 offers:

• Traditional bank
• SBA lender
• Credit union
• Online lender
• Alternative lender

Example: $150,000 loan, same terms

| Lender | Rate | Origination | Monthly Payment | |--------|------|-------------|-----------------| | Bank A | 8.5% | $2,500 | $2,341 | | Bank B | 9.0% | $1,000 | $2,375 | | Credit Union | 7.5% | $0 | $2,268 | | Online | 11% | $3,000 | $2,515 | | Alternative | 18% | $5,000 | $3,092 |

Credit union wins: Lowest rate, no fees, saves $800-3,100/year!

Don't accept first approval without shopping

Strategy 3: Negotiate Terms

Everything is negotiable:

• Interest rate
• Fees
• Prepayment penalty
• Personal guarantee amount
• Collateral requirements

Leverage:

• Competing offers
• Strong financial position
• Existing relationship
• Pledge more collateral (lower rate)

Example negotiation: "Bank A offered 8%, but you're at 9%. Can you match 8%? I'd prefer to work with you given our existing relationship."

Often works! Lenders want your business

Strategy 4: Put More Down

Larger down payment = Better terms:

Equipment loan: $100,000 equipment

10% down ($10,000):

• Loan: $90,000
• Rate: 10%
• Payment: $1,586/month

25% down ($25,000):

• Loan: $75,000
• Rate: 8% (lower risk)
• Payment: $1,213/month
• Saves: $373/month ($26,856 over 7 years)

Down payment pays off through lower rate

Strategy 5: Choose Shorter Term (If Affordable)

Shorter term = Lower rate, less interest:

$100,000 loan comparison:

| Term | Rate | Payment | Total Interest | |------|------|---------|----------------| | 10 years | 9% | $1,267 | $52,040 | | 7 years | 8% | $1,557 | $30,788 | | 5 years | 7% | $1,980 | $18,800 |

7-year vs 10-year:

• Payment: $290 more/month
• But saves: $21,252 in interest!

If can afford higher payment: Shorter term massive savings

Strategy 6: Join Credit Union

Credit unions offer better rates:

• Non-profit structure (return profits via lower rates)
• Member-owned (not shareholder-driven)
• Community focus

Typical savings: 1-2% lower rate than banks

On $100K loan:

• 9% bank vs 7% credit union
• Saves: $14,000-20,000 over life

Requirements:

• Membership (usually easy—live/work in area, or join association)
• Small deposit ($25-100 to open account)

Real Business Loan Scenarios

Scenario 1: Restaurant Equipment Purchase

Profile:

• Restaurant open 3 years
• Owner credit: 720
• Need: $85,000 (kitchen equipment)
• Annual revenue: $850,000
• Net income: $95,000

Option A: Equipment loan

• Amount: $85,000
• Rate: 7.5%
• Term: 7 years
• Payment: $1,363/month
• Total interest: $29,492

Option B: Business term loan

• Rate: 9.5% (unsecured, higher risk)
• Term: 7 years
• Payment: $1,459/month
• Total interest: $37,756
• Costs $8,264 more!

Decision: Equipment loan (secured by collateral, lower rate)

Scenario 2: Seasonal Working Capital

Profile:

• Landscaping company (seasonal)
• Winter months: No revenue
• Spring prep: Need $40,000 (equipment, materials, payroll to start season)
• Will repay from spring/summer revenue

Option A: Bank LOC

• Limit: $75,000
• Rate: 10%
• Draw: $40,000 for 4 months
• Interest: $1,333
• Annual fee: $750
• Total cost: $2,083

Option B: Short-term loan

• Borrow: $40,000
• Rate: 18%
• Term: 6 months
• Interest: $3,800

Decision: LOC (half the cost, can reuse next year)

Scenario 3: SBA 7(a) for Expansion

Profile:

• Manufacturing business, 8 years
• Need: $350,000 (new machinery, hiring, buildout)
• Owner credit: 710
• Annual revenue: $2.5M
• Net income: $280,000

Option A: Conventional bank

• Rate: 11%
• Term: 10 years
• Down payment: 20% ($70,000)
• Loan: $280,000
• Payment: $3,840/month

Option B: SBA 7(a)

• Rate: 10%
• Term: 10 years
• Down payment: 10% ($35,000)
• Loan: $315,000
• Payment: $4,163/month
• But: Financed $35K more!

Analysis:

• SBA lower rate (10% vs 11%)
• SBA less down ($35K vs $70K)
• Cash preserved: $35,000 (critical for expansion)

Decision: SBA loan (lower rate, lower down, preserves cash)

Scenario 4: Equipment Lease vs Buy

Profile:

• Tech startup
• Need: $60,000 in servers/computers
• Cash tight
• Technology outdates quickly (3-4 years)

Option A: Equipment loan

• Financed: $60,000
• Rate: 9%
• Term: 5 years
• Payment: $1,245/month
• Total paid: $74,700
• Residual value: $10,000 (3-5 year old tech)

Option B: Operating lease

• Payment: $1,000/month
• Term: 3 years
• Total paid: $36,000
• Upgrade to new equipment at end

Analysis:

• Loan: Own equipment, but outdated in 3-4 years
• Lease: Lower payment, upgrade flexibility
• For tech: Lease wins

Decision: Lease (tech outdates fast, lower payment)

Scenario 5: Invoice Factoring vs LOC

Profile:

• B2B service company
• Invoices: Net 60 days (slow-paying clients)
• Need: $75,000 now to make payroll
• Outstanding invoices: $200,000

Option A: Factor invoices

• Factor $100,000 in invoices
• Advance: 85% = $85,000
• Fee: 3% = $3,000
• Cost: $3,000 (for ~60 days)
• APR equivalent: ~18%

Option B: Bank LOC (if have one)

• Borrow: $75,000
• Rate: 12%
• 60 days interest: $1,500
• Half the cost!

But: Company doesn't have LOC approved yet (takes weeks)

Option C: Emergency LOC application + short-term MCA

• MCA: $30,000 for 30 days (cover immediate need)
• Apply for bank LOC (approved in 3-4 weeks)
• Transition to LOC for future needs

Decision: Option C (MCA emergency + LOC long-term solution)

Scenario 6: Debt Consolidation Gone Wrong

Profile:

• Retail business, 5 years
• Multiple high-interest debts:
  • Credit card: $35,000 at 22%
  • Equipment loan: $40,000 at 14%
  • Working capital: $25,000 at 18%
• Total: $100,000, $2,800/month payments

Consolidation loan:

• $100,000 at 11%, 7 years
• Payment: $1,600/month
• Saves: $1,200/month! (relief!)

6 months later:

• Business slow season, used credit cards again
• Credit card: $15,000 new debt!
• Still have consolidation loan
• Total payments: $2,000/month (worse than before)

Problem: Didn't fix underlying cash flow issue

Real solution needed:

• Consolidate debt (done)
• Cut credit cards (not done!)
• Improve cash management
• Build 3-month cash reserve
• Address seasonal revenue gap

Key Takeaways

✓ SBA loans offer best rates: 5.5-10% vs 10-18% conventional for small business loans—save $20K-50K over life of $250K loan

✓ Equipment financing easier to qualify: Equipment is collateral, reducing lender risk—rates 5-12% vs 10-18% unsecured

✓ Lines of credit beat short-term loans: Only pay interest on amount used, can reborrow—$40K for 4 months costs $1,333 vs $3,800 for 6-month term loan

✓ Alternative financing is expensive: Merchant cash advances, invoice factoring cost 20-60% APR equivalent—10x higher than bank loans

✓ Credit score massively affects rate: 740 vs 640 credit score = 7% vs 15% rate on $100K loan = $7K-12K difference

✓ Down payment lowers rate: 25% down vs 10% down drops rate 1-2%, saving $15K-30K on $100K equipment loan over term

✓ Shop multiple lenders: Rates vary 2-5% between lenders for same borrower—$100K loan at 8% vs 11% = $20,000 savings

✓ Merchant cash advances are last resort: Factor rates 1.2-1.5× loan amount =30-80% APR—only use in true emergency

Conclusion

Small business loan costs vary dramatically from 5% (SBA-guaranteed loans) to 30-80% APR equivalent (merchant cash advances), with the median conventional business term loan at 9-12% for qualified borrowers. A $100,000 equipment purchase financed at 7% costs $1,213/month with $30,788 total interest over 7 years, while the same loan at 12% costs $1,435/month with $48,150 interest—a $17,362 difference driven purely by rate.

SBA 7(a) loans represent the gold standard for small business financing: rates of 9.75-10.25% (vs 11-15% conventional), lower down payments (10% vs 20%), and terms up to 25 years for real estate. A $250,000 SBA loan at 10% over 10 years costs $3,301/month vs $3,582/month at 12% conventional, saving $33,720 in interest—but requires extensive documentation, 2+ years operating history, 680+ credit score, and 30-90 day approval timeline.

Equipment financing offers easier qualification and competitive rates (6-12%) because equipment serves as collateral, reducing lender risk. Used equipment financing costs 2-5% more than new equipment loans due to higher depreciation risk. For technology that outdates quickly, operating leases provide lower payments and upgrade flexibility despite higher total cost.

Business lines of credit beat term loans for irregular funding needs: borrowing $40,000 for 4 months costs $1,333 interest at 10% LOC vs $3,800 for a 6-month term loan. But LOCs require discipline—revolving credit tempts over-borrowing, and variable rates can spike if prime rate increases.

Alternative financing (invoice factoring, merchant cash advances) costs 20-80% APR equivalent—5-10× higher than bank loans—and should be emergency-only options. Invoice factoring at 2-3% monthly seems reasonable until annualized to 24-36% APR. Merchant cash advance factor rates of 1.3-1.5× represent 30-80% APR depending on repayment speed.

Credit score differences of 100 points (640 vs 740) change loan rates by 5-10%, costing $10,000-20,000 extra on a $100,000 loan over its term. Improving credit for 6-12 months before applying—paying bills on time, reducing credit utilization below 30%, fixing errors—can save more than any other strategy.

Use our business loan calculator to input loan amount, term, interest rate, and down payment to calculate monthly payments, total interest costs, and compare equipment loans, term loans, SBA options, and lines of credit for your specific business financing needs.

---

Related Articles:

• Business Loan Calculator
• SBA Loan Calculator
• Equipment Financing Calculator
• Business Line of Credit Calculator