When researching business loan options, you want to be mindful of the loan amounts, interest rates and eligibility requirements. But there’s another factor to consider that’s just as important – the loan term. It determines how much you’ll pay in interest over the loan term and if you’ll get affordable monthly payments.
What Factors Can Affect the Length of a Business Loan?
The repayment period for a business loan is determined by various factors, including the financial institutions – whether it’s a traditional bank, credit union or online lender – and its business lending guidelines. Your loan term can also be impacted by the type of financing you select, how you plan to use the loan proceeds, your personal and business credit profile, and your company’s financial health.
Average Length of the Most Common Types of Business Loans
Traditional Bank Loans
Traditional bank loans are offered through commercial banks, regional banks, community banks and credit unions.
- Typical repayment period: 5 to 7 years
- Time to funding: two weeks to two months
- Repayment schedule: payable in monthly installments
- Standard eligibility criteria: two to three years of business experience and a good or excellent credit rating
SBA Loan
These loan products are backed by the U.S. Small Business Administration (SBA) and issued by participating lenders.
- Typical repayment period: 25 years (SBA 7(a) loan for real estate), 10 years (SBA 7(a) loan for machinery purchases, Up to 7 years (SBA 7(a) loan for working capital), 10 years (SBA CDC/504 loans for equipment purchases), 20 years (SBA 7(a) loan for building and land projects, Up to 6 years (SBA Microloan)
- Time to funding: 30 to 45 days following approval
- Repayment schedule: payable in monthly installments
- Standard eligibility criteria: the business is a for-profit entity operating in the U.S. or its territories, the owner has exhausted all other financing options, and the owner has a sizable amount of equity in the company
Small Business Term Loan
Small business term loans are also available through banks and credit unions. However, you could have more luck getting approved for funding through an alternative lending provider.
- Typical repayment period: three months to 24 months
- Time to funding: the next business day following approval
- Repayment schedule: payable in daily or weekly installments
- Standard eligibility criteria: 9 months in business with a profitable operation earning at least $120,000 in the past 12 months
Working Capital Loan
Working capital loans is another type of funding option for small business owners.
- Typical repayment period: three months to 24 months
- Time to funding: the next business day following approval
- Repayment schedule: affordable daily or weekly payments
- Standard eligibility criteria: $120,000 or more in revenue over the past 12 months
Business Line of Credit
A business line of credit lets you access funds on an as-needed basis, and you’ll only pay interest on the amount you withdraw.
- Typical repayment period: six months to five years
- Time to funding: a few days to two weeks
- Repayment schedule: monthly or bimonthly payments
- Standard eligibility criteria: at least two years in business and a good or excellent credit rating
Private Microloans
Private microloans are short-term loans for smaller amounts that cater to borrowers who are unable to get approved by traditional lenders.
- Typical repayment period: varies by lender
- Time to funding: as soon as 24 hours to several days or weeks
- Repayment schedule: payable in monthly installments
- Standard eligibility criteria: determined by time in business, credit rating and collateral (if you’re considering a secured loan product)
Invoice Financing
With invoice financing, you can sell your outstanding invoices to a lender for cash.
- Typical repayment period: 30 to 90 days
- Time to funding: As soon as 24 hours to five or more days
- Repayment schedule: daily or weekly
- Standard eligibility criteria: quality of the invoices and creditworthiness are evaluated
Equipment Financing
This type of business loan allows you to purchase equipment without emptying your cash reserves, and the equipment serves as collateral.
- Typical repayment period: two to ten or more years (depending on the useful life of the equipment)
- Time to funding: one business day to two weeks
- Repayment schedule: payable in monthly installments
- Standard eligibility criteria: laxer since these loans are secured, but your company’s annual revenues, history and credit rating may be considered
Inventory Financing
Inventory financing is designed for businesses needing capital to maintain healthy levels of inventory without negatively impacting cash flow.
- Typical repayment period: Up to one year; sometimes longer for a revolving inventory line of credit
- Time to funding: one business day to a few months
- Repayment schedule: payable in monthly installments
- Standard eligibility criteria: six months to a year of business experience
Merchant Cash Advance
A merchant cash advance is an arrangement that lets you swap out a percentage of your future sales for cash, and you’ll pay a factor fee to use this form of financing.
- Typical repayment period: three to 18 months
- Time to funding: as soon as 24 hours to 48 hours
- Repayment schedule: daily
- Standard eligibility criteria: a consistent stream of monthly sales
