Business loans fund equipment, working capital, expansion, or operations. Understanding the true cost — monthly payment, total interest, and effective APR — is critical before committing to any loan.
Types of business loans
- Term loan: lump sum repaid in fixed monthly installments
- SBA loan: government-backed; lower rates, longer terms, more documentation
- Line of credit: draw as needed; pay interest only on amount drawn
- Equipment financing: the equipment itself serves as collateral
- Invoice factoring: sell unpaid invoices for immediate cash (higher effective cost)
What lenders look at
- Time in business: most lenders require 1–2 years
- Annual revenue: typically minimum $100,000–$250,000
- Credit score: personal score above 650–680 for most lenders
- DSCR: Debt Service Coverage Ratio (net operating income ÷ annual debt service) should be at least 1.25