Equipment Financing
Equipment loans and leases: how to finance business equipment and compare lenders
Articles
Northeast Business Loans: Financing for Small Businesses in the Northeast
A guide to small business loans in the Northeast. State programs, SBA lending, and industry financing across NY, NJ, PA, MA, CT, RI, VT, NH, and ME.
North Carolina Business Loans: Financing Options for NC Businesses
A guide to business loans in North Carolina for 2026. Covers SBA lenders, state programs, key industries, and financing tips for NC small business owners.
Marketing and Advertising Loans: Financing Your Growth Strategy in 2026
A guide to marketing and advertising loans for small businesses. How to finance campaigns, calculate ROI, and choose the right marketing financing option.
Southern Business Loans: Financing for Small Businesses in the South
A guide to small business loans in the South. State programs, SBA lending, and industry financing across GA, NC, VA, TN, and more Southern states.
Arizona Business Loans: Financing Options for AZ Entrepreneurs
Explore business loan options for Arizona entrepreneurs in 2026. Covers SBA lending, state programs, key industries, and financing strategies for AZ businesses.
Wisconsin Business Loans: Financing Options for Badger State Entrepreneurs
A guide to business loans for Wisconsin entrepreneurs. Covers SBA lending, WEDC programs, financing options, and tips for Badger State business owners.
Plumbing Business Loans: Financing for Plumbers in 2026
A guide to plumbing business loans in 2026. Equipment financing, working capital, and fleet loans for plumbing companies and independent plumbers.
Electrical Contractor Business Loans: Financing for Electricians in 2026
A guide to electrical contractor business loans in 2026. Equipment financing, working capital, and vehicle fleet loans for electricians.
E-Commerce Inventory Financing: How to Fund Product Purchases for Your Online Store
How inventory financing works for e-commerce businesses. Covers qualifying criteria, lender evaluation, and strategies for funding online store inventory.
Desert Southwest Business Loans: Financing in Arizona, Nevada, and New Mexico
A regional guide to business loans across Arizona, Nevada, and New Mexico. Compare state programs, industries, tax structures, and financing strategies for 2026.
Bar and Restaurant Holiday Event Loans: Financing Your Busiest Season
Finance your bar or restaurant holiday season. Covers event preparation costs, staffing, inventory, marketing, and a month-by-month holiday event playbook.
Computer Repair Business Loans: Financing Your Tech Business in 2026
A complete guide to computer repair business loans in 2026. Explore equipment financing, working capital, and funding options for tech repair shops.
Florida Business Loans: Small Business Financing in the Sunshine State
A guide to small business loans in Florida. State programs, SBA loans, and industry-specific financing for Sunshine State businesses.
Pennsylvania Business Loans: Financing Options for PA Small Businesses in 2026
Business loan options for Pennsylvania small businesses in 2026. Covers SBA loans, PIDA, MELF, and state programs for PA business owners across the commonwealth.
Texas Business Loans: Small Business Financing in the Lone Star State
A guide to small business loans in Texas. State programs, SBA loans, and industry-specific financing for Lone Star State businesses.
California Business Loans: Small Business Financing in the Golden State
A guide to small business loans in California. Explore state-specific programs, federal SBA loans, and industry-specific financing for Golden State businesses.
Oregon Business Loans: Financing Options for OR Businesses in 2026
A comprehensive guide to business loans in Oregon for 2026. Explore SBA lending, state programs, CDFIs, and financing options for OR business owners.
New York Business Loans: Financing Options for New York Small Businesses in 2026
Business loan options for New York small businesses in 2026. Covers SBA loans, state programs, working capital, and industry-specific financing across the state.
Midwest Business Loans: Financing for Small Businesses in the Heartland
A guide to small business loans in the Midwest. State programs, SBA lending, and industry financing across IL, OH, MI, IN, WI, MN, and more.
Bar and Lounge Business Loans: Financing Your Venue in 2026
A guide to bar and lounge business loans in 2026. Explore renovation financing, equipment loans, and working capital for bar and nightlife venues.
Small Business Financing Comparison: Every Option Explained for 2026
A comprehensive comparison of every small business financing option in 2026. Compare SBA loans, equipment financing, lines of credit, MCAs, and more side by side.
Tattoo Shop Business Loans: Financing Your Studio in 2026
A guide to tattoo shop business loans in 2026. Compare equipment financing, renovation loans, and working capital options for tattoo studio owners.
Utah Business Loans: Financing Options for the Beehive State
Explore business loan options for Utah entrepreneurs in 2026. Covers SBA lending, Silicon Slopes resources, state programs, and financing for key UT industries.
Carolinas Business Loans: Financing for NC and SC Businesses
A regional guide to business loans in the Carolinas covering NC and SC. Explore SBA lenders, state programs, and financing strategies for the two-state region.
Hospitality Business Loans: Financing Hotels, Inns, and Venues in 2026
A comprehensive guide to hospitality business loans in 2026. Explore SBA loans, renovation financing, and working capital for hotels, inns, and event venues.
Back-to-School Business Loans: Seasonal Financing for Retailers and Service Providers
How to finance your back-to-school season. Covers inventory financing, working capital loans, and seasonal strategies for retailers and service providers.
Tax Season Business Loans: How to Use Tax Refunds and Financing in 2026
Learn how to leverage tax season for smarter business financing in 2026. Covers Section 179 deductions, tax refund strategies, and the best time to apply for loans.
Minnesota Business Loans: Financing Options for North Star State Entrepreneurs
A guide to business loans for Minnesota entrepreneurs. Covers SBA lending, state programs, financing options, and tips for North Star State business owners.
Michigan Business Loans: Financing Options for Michigan Entrepreneurs
A comprehensive guide to Michigan business loans. Covers SBA lending, state programs, key industries, and financing options for entrepreneurs across the Great Lakes State.
Business Loan Alternatives in 2027: Beyond Traditional Bank Financing
Explore business loan alternatives for 2027 including revenue-based financing, crowdfunding, grants, invoice factoring, and microloans beyond traditional bank lending.
Mountain States Business Loans: Financing for Colorado, Utah, Wyoming, Montana, and Idaho
A regional guide to business loans in the Mountain States. Covers financing options, state programs, and economic highlights for CO, UT, WY, MT, and ID businesses.
Salon Business Loans: Financing Your Salon in 2026
A complete guide to salon business loans in 2026. Explore equipment financing, working capital, SBA loans, and tips for salon owners to secure the best funding.
Bank Loans vs Online Lenders: Choosing the Right Business Financing
Bank loans vs online lenders: an honest comparison covering rates, speed, requirements, and when each option is the right fit for your business financing needs.
Southwest Business Loans: Financing for Small Businesses in the Southwest
A guide to small business loans in the Southwest. State programs and financing across AZ, NM, NV, CO, and OK.
Startup Business Loans: Financing Options for New Businesses
Startup business loan options: SBA microloans, CDFI lenders, equipment financing, business credit cards, and equity alternatives like angel investors and crowdfunding.
Inventory Financing: How to Fund Your Stock Without Cash Flow Stress
Learn how inventory financing works, when to use it, and which options are best for retail, wholesale, and e-commerce businesses looking to stock up without straining cash flow.
Collateral-Free Business Loans: Unsecured Financing Options in 2026
Explore collateral-free business loans in 2026. Covers unsecured term loans, lines of credit, revenue-based financing, and how to qualify without pledging assets.
Washington Business Loans: Financing Options for WA Businesses in 2026
A comprehensive guide to business loans in Washington State for 2026. Explore SBA lending, state programs, and financing options for WA business owners.
Illinois Business Loans: Financing Options for Illinois Businesses
A complete guide to Illinois business loans covering SBA lending, state resources, Chicago market insights, and financing options for Illinois entrepreneurs.
Doctors Office Business Loans: Financing Your Medical Practice in 2026
A comprehensive guide to doctors office business loans in 2026. Explore equipment financing, working capital, and SBA loans designed for medical practices.
Dental Practice Loans: Financing for Dentists and Orthodontists
A comprehensive guide to dental practice financing in 2026 covering practice acquisition, equipment loans, buildout costs, and the choice between DSO and private ownership.
Holiday Equipment Financing: Gear Up for Peak Season Revenue
Finance holiday equipment before peak season hits. Covers restaurant, retail, and bakery equipment needs, Section 179 tax benefits, and how to time your purchase.
Great Lakes Region Business Loans: Financing Across Five States
A regional guide to business loans across Michigan, Ohio, Illinois, Indiana, and Wisconsin. Covers SBA resources, state programs, and key industries in the Great Lakes.
Trucking Company Financing: Loans for Truckers and Fleet Owners
Explore financing options for trucking companies in 2026, including truck loans, fleet expansion funding, and working capital solutions for owner-operators and fleet owners.
Georgia Business Loans: Financing Options for Georgia Businesses
A guide to business loans in Georgia for 2026. Covers SBA lenders, state programs, top industries, and financing strategies for Peach State businesses.
Franchise Financing: How to Fund Your Franchise in 2026
Learn how to finance a franchise in 2026 with SBA loans, conventional lending, and franchisor programs — plus costs, qualifications, and step-by-step guidance.
Pacific Northwest Business Loans: Financing Across WA, OR, ID, and Beyond
A regional guide to business loans in the Pacific Northwest covering Washington, Oregon, Idaho, Alaska, Montana, and Wyoming. SBA loans, state programs, and more.
E-Commerce Business Loans: The Complete Guide to Online Business Financing in 2026
The complete guide to e-commerce business loans in 2026. Covers inventory financing, working capital, revenue-based financing, and tips for online sellers.
Shopify Business Loans: Financing Options for Shopify Store Owners in 2026
Financing options for Shopify store owners in 2026. Covers Shopify Capital, working capital loans, inventory financing, and growth strategies for DTC brands.
Last-Chance Holiday Business Financing: Prepare Your Business for Q4
October is the last realistic window to secure holiday business financing. Learn how to size your loan, compare options, and get funded before the Q4 rush.
Healthcare Equipment Financing: A Complete Guide for Medical Providers in 2026
A complete guide to healthcare equipment financing in 2026. Learn how medical practices fund diagnostic, treatment, and technology equipment through specialized loans.
Healthcare Practice Financing: Loans for Doctors, Dentists, and Medical Professionals
A guide to healthcare practice financing for doctors, dentists, and medical professionals. Covers acquisition loans, equipment financing, and working capital.
Mid-Atlantic Business Loans: Financing Across VA, MD, DC, and Delaware
A regional guide to business loans in the Mid-Atlantic covering Virginia, Maryland, DC, and Delaware with state programs, SBA resources, and financing strategies.
Construction Business Loans: Financing for Contractors and Builders
A guide to construction business financing: equipment loans, working capital, SBA options, and strategies for managing retainage and seasonal cash flow.
New Jersey Business Loans: Financing Options for NJ Small Businesses in 2026
Business loan options for New Jersey small businesses in 2026. Covers SBA loans, NJEDA programs, working capital, and industry-specific financing across the state.
Business Loans in Maryland: Financing Options for MD Entrepreneurs
A guide to business loans in Maryland covering SBA lending, state programs like MSBDFA and TEDCO, and financing options for MD small business owners.
Nevada Business Loans: Financing Guide for NV Business Owners
A comprehensive guide to Nevada business loans in 2026. Covers SBA programs, state incentives, hospitality financing, and strategies for NV business owners.
Equipment Financing: How It Works and When It Makes Sense
Equipment financing guide: how loans vs leases differ, typical rates and terms, Section 179 tax deduction, and when financing beats paying cash for business equipment.
Equipment Financing for Small Business: A Complete Guide
A complete guide to equipment financing for small businesses, covering financing vs. leasing, types of equipment, qualification requirements, rates, and tips for getting the best deal.
Business Line of Credit vs Term Loan: Which Financing Is Right for You?
Business line of credit vs term loan: learn the key differences in cost, flexibility, repayment, and qualification — plus a decision framework for your specific situation.
Common Questions
What credit score do I need for a business loan?
Most traditional bank loans require a personal credit score of 680 or higher. SBA loans typically need 650+, while online lenders may approve scores as low as 500-550 with higher interest rates. Your business credit score, revenue history, and time in business also factor heavily into approval decisions.
What is the difference between an SBA loan and a traditional bank loan?
SBA loans are partially guaranteed by the Small Business Administration, which reduces risk for lenders and often results in lower interest rates and longer repayment terms. Traditional bank loans have no government backing but may fund faster. SBA loans typically take 30-90 days to close versus 1-3 weeks for conventional bank loans.
How long does it take to get approved for a business loan?
Timeline varies by lender type: online lenders can approve in 24-48 hours, traditional banks take 2-4 weeks, and SBA loans typically require 30-90 days. Having your documents prepared — tax returns, bank statements, financial projections, and business plan — significantly speeds up the process.
Is a merchant cash advance worth it?
Merchant cash advances provide fast funding but at a steep cost — factor rates of 1.2 to 1.5 translate to APRs of 40-350%. They work best as a last resort for businesses with strong daily card sales that need emergency capital. For most situations, a business line of credit or short-term loan offers far better economics.
Do I need collateral for a business loan?
It depends on the loan type. SBA loans and traditional bank loans often require collateral such as equipment, real estate, or inventory. Unsecured business loans and lines of credit exist but typically charge higher rates and require stronger credit profiles. Many lenders also require a personal guarantee regardless of collateral.
Can I get a business loan for a startup with no revenue?
Yes, but options are limited. SBA microloans (up to $50K), business credit cards, and personal loans for business use are the most accessible. Some online lenders offer revenue-based financing after just 3-6 months of operations. Strong personal credit and a detailed business plan significantly improve your chances.
What is the difference between a business line of credit and a term loan?
A term loan gives you a lump sum repaid in fixed installments over a set period. A line of credit provides flexible access to funds up to a limit — you only pay interest on what you draw. Lines of credit work best for managing cash flow gaps, while term loans suit specific one-time investments like equipment purchases.
What are the best business loan options with bad credit?
Online lenders like Fundbox, BlueVine, and OnDeck work with credit scores in the 500-600 range. Microloans from nonprofit organizations like Kiva or Accion are another option. Expect higher APRs (15-40%) and shorter terms. Improving your score by even 30-50 points before applying can unlock significantly better rates.
How does equipment financing work?
The equipment itself serves as collateral, making approval easier than unsecured loans. You receive funds to purchase specific equipment and repay over 2-7 years. Interest rates typically range from 4-20% depending on credit. At the end of the term, you own the equipment outright. Some programs offer $0-down options for well-qualified borrowers.
How much can I borrow with a business loan?
Borrowing limits depend on your revenue, time in business, and credit profile. Online lenders typically offer $5K-$500K, traditional banks $25K-$5M, and SBA loans up to $5M (7a program) or $5.5M (504 program). A common rule of thumb: lenders approve 10-30% of your annual revenue for unsecured products.
How do business loans work?
A business loan provides a lump sum of capital that you repay over a set term with interest. The lender evaluates your business financials, credit, and collateral to determine approval, loan amount, and interest rate. Repayments are typically fixed monthly installments. The loan funds go directly to your business bank account and can be used for any approved business purpose.
What is the difference between secured and unsecured business loans?
A secured business loan requires collateral — business equipment, real estate, inventory, or accounts receivable that the lender can seize if you default. Unsecured loans require no collateral but carry higher interest rates because the lender assumes more risk. Most SBA loans are secured; many online lender products are unsecured. Secured loans typically offer better rates and higher limits.
What is a personal guarantee on a business loan?
A personal guarantee makes you personally liable for the debt if your business cannot repay it. Lenders can pursue your personal assets — bank accounts, car, home — to recover the balance. Most small business loans under $1 million require a personal guarantee from all owners with 20%+ stake. Signing a personal guarantee means business debt can directly impact your personal financial life.
How does business credit differ from personal credit?
Business credit is built in your company's name using your EIN, while personal credit is tied to your SSN. Business credit bureaus (Dun & Bradstreet, Experian Business, Equifax Business) track payment history with vendors and lenders. Strong business credit can qualify you for loans without a personal guarantee, higher limits, and better terms. Business credit takes 2-3 years to establish from scratch.
How does a business term loan work?
A term loan provides a fixed lump sum that you repay in equal installments over a set period (typically 1-10 years) at a fixed or variable interest rate. Short-term loans (under 2 years) fund working capital and immediate needs; long-term loans (5-10 years) fund major assets or expansions. Each payment covers interest plus principal, with early payments being mostly interest (amortization).
Should I choose a 5-year or 10-year business loan term?
A shorter term means higher monthly payments but less total interest paid. A longer term reduces monthly payments but costs significantly more in total interest. Choose the shorter term you can comfortably service. A 5-year term on $100,000 at 7% has payments of ~$1,980/month and total interest of ~$18,800; the same loan over 10 years has payments of ~$1,161/month but total interest of ~$39,300.
What is a balloon payment on a business loan?
A balloon payment is a large lump sum due at the end of a loan term, after smaller regular payments. For example, a 5-year loan with a balloon structure might have low monthly payments for 5 years, then a final payment of 50-80% of the principal. Balloon loans offer lower monthly cash flow burden but require refinancing or a large cash reserve at maturity — risky if rates rise or sales decline.
How does business loan amortization work?
Amortization spreads loan repayment across the loan term so each payment is equal but the portion going to principal vs interest shifts over time. Early payments are mostly interest; later payments are mostly principal. On a $200,000 10-year loan at 7%, your first payment is roughly $1,394 interest + $929 principal. By year 8, the same payment is roughly $410 interest + $1,913 principal.
What is an SBA 7(a) loan and how does it work?
The SBA 7(a) is the Small Business Administration's most common loan program. The SBA doesn't lend directly — it guarantees 75-85% of loans made by approved lenders, reducing lender risk and enabling better terms for borrowers. Loan amounts up to $5 million, terms up to 10 years for working capital (25 years for real estate), and rates typically WSJ Prime + 2.75-4.75%.
What is an SBA 504 loan?
The SBA 504 loan funds fixed assets: commercial real estate, heavy equipment, and major renovations. It works through a three-way split: the lender provides 50%, a Certified Development Company (CDC) provides 40% (SBA-guaranteed), and you put down 10%. Maximum 504 loan size is $5.5 million. The structure allows 10-25 year terms at below-market rates for business owners who want to build equity in property.
What is the SBA Microloan program?
The SBA Microloan program provides loans up to $50,000 (average $13,000) through nonprofit intermediary lenders. It's designed for startups, newer businesses, and businesses in underserved communities that don't qualify for traditional bank loans. Terms up to 6 years, rates typically 8-13%. Many intermediaries also provide business training and technical assistance alongside the capital.
How long does an SBA loan take to get approved?
SBA loan timelines vary significantly by program and lender. SBA 7(a) loans through traditional banks take 60-90 days from application to funding. SBA Preferred Lender Program (PLP) lenders can approve in 3-10 days. SBA Express loans (under $500,000) target a 36-hour turnaround from the SBA side. The full funding process still typically takes 30-45 days even with Express approval.
What are the requirements for an SBA loan?
SBA loan requirements include: operating as a for-profit US business, meeting SBA size standards, being unable to obtain financing on reasonable terms elsewhere, having a legitimate business purpose, and the owner having good personal credit (typically 650+). You'll need 2 years of business and personal tax returns, financial statements, a business plan, and a personal financial statement.
What are SBA lender types and which should I use?
SBA lenders range from large banks (Wells Fargo, JPMorgan, Live Oak Bank) to community banks and credit unions to online lenders (Fundera, SmartBiz). Preferred Lenders (PLP) have authority to approve SBA loans internally — faster and often more experienced. Live Oak Bank is the top SBA lender by volume and specializes in specific industries. Choose a lender experienced in your loan type and industry.
What is revenue-based financing?
Revenue-based financing (RBF) provides capital in exchange for a fixed percentage of future monthly revenue until you've repaid a predetermined total (e.g., $1.10-$1.50 for every $1.00 borrowed). Unlike loans, there's no fixed payment schedule — you pay more when revenue is strong and less when it's slow. This makes RBF attractive for seasonal or variable-revenue businesses.
How does a factor rate work on a business advance?
A factor rate is a simple multiplier (not an APR) used to calculate total repayment. A $100,000 advance with a 1.3 factor rate means you repay $130,000 total. Factor rates typically range from 1.1 to 1.5. To compare to an APR, you need to factor in repayment speed: a 1.3 factor rate repaid over 6 months equates to roughly 60-80% APR — far more expensive than it initially appears.
What is the difference between a merchant cash advance and revenue-based financing?
Both provide upfront capital repaid as a percentage of revenue, but MCAs are technically an advance against future credit card sales (purchased at a discount), while RBF is structured as a loan repaid from total revenue. MCAs are often more expensive (factor rates 1.2-1.5) and less regulated. True RBF products tend to be cleaner structurally, with better terms and more transparent total cost.
What is the true cost of a merchant cash advance?
MCA costs are often stated as factor rates (1.2-1.5) rather than APR, obscuring the true cost. A $50,000 MCA with a 1.4 factor rate means you repay $70,000. Repaid over 6 months through a 15% daily sales remittance, the effective APR can exceed 100-150%. MCAs should be a last resort — the cost of capital is extremely high compared to any other financing option.
How does equipment financing work?
Equipment financing uses the purchased equipment as collateral, enabling up to 100% financing with no additional security required. The lender holds a lien on the equipment until the loan is repaid. Terms typically match the equipment's useful life (3-7 years for most equipment, up to 20 years for real property improvements). Because the equipment secures the loan, approval requirements are more lenient than unsecured loans.
Equipment leasing vs buying: which is better?
Leasing preserves cash and lets you upgrade to newer equipment at lease end — ideal for technology that depreciates fast. Buying (with financing) builds equity and is typically cheaper long-term for equipment with long useful lives. The break-even depends on the lease rate, equipment lifespan, and your tax situation. Section 179 deduction can make buying more attractive by allowing immediate expensing of the full purchase.
How does Section 179 interact with equipment financing?
Section 179 allows businesses to immediately deduct the full cost of qualifying equipment in the year purchased, rather than depreciating it over several years. Importantly, you can take the Section 179 deduction even if you financed the purchase — you don't need to pay cash. For 2025, the deduction limit is $1,220,000. This can dramatically reduce your net tax cost of acquiring equipment.
What is invoice factoring?
Invoice factoring (also called accounts receivable factoring) involves selling your unpaid invoices to a factoring company at a discount (typically 70-90% of face value upfront). The factor then collects payment from your customers and pays you the remaining balance minus their fee (1-5% of invoice value). Factoring solves cash flow gaps when you have creditworthy customers but long payment terms.
What is the difference between factoring and invoice discounting?
With factoring, you sell invoices outright and the factor takes over collections — your customers know a third party is involved. With invoice discounting, you use invoices as collateral for a credit line but retain control of collections and customer relationships. Invoice discounting is more confidential and suits businesses with strong collections processes. Factoring is simpler and removes the burden of collections.
What is spot factoring?
Spot factoring (or single-invoice factoring) lets you factor individual invoices on demand without a long-term contract or minimum volume requirement. Traditional factoring usually requires factoring all invoices or a monthly minimum. Spot factoring is ideal for businesses that occasionally need to accelerate cash flow on a specific large invoice rather than maintaining a continuous factoring relationship.
Which industries benefit most from invoice financing?
Industries with long payment terms between invoice issuance and payment are ideal candidates: staffing agencies (invoicing clients but paying employees weekly), construction (30-90 day payment terms on contracts), manufacturing, wholesale distribution, trucking and freight, and B2B service businesses. Consumer-facing businesses typically don't use invoice financing since customers pay at point of sale.
What is working capital?
Working capital is current assets minus current liabilities — it measures the short-term financial health of your business. Positive working capital means you have more liquid assets than near-term obligations. Insufficient working capital is the leading cause of small business failure, even for profitable companies. Businesses in growth mode or seasonal businesses frequently need working capital financing.
Why are working capital loans typically short-term?
Working capital loans fund short-term operational needs — payroll, inventory, accounts payable — that generate revenue and cash flow within weeks or months. Matching short-term assets with short-term financing is sound financial practice. Using long-term debt to fund operating expenses creates a mismatch: you're still paying off a loan long after the inventory it funded has been sold.
How do seasonal businesses handle working capital?
Seasonal businesses (retailers, landscapers, tourism operators) typically secure a working capital line of credit before peak season, draw on it to build inventory and staff up, then repay as season revenue comes in. Some use revolving credit lines that can be drawn and repaid repeatedly. The key is having the facility in place before you need it — lenders are reluctant to approve credit under cash flow pressure.
What credit score do I need for a business loan?
Requirements vary by lender and loan type. Traditional bank loans and SBA loans typically require personal credit scores of 680-720+. Online lenders (Kabbage, OnDeck, Bluevine) work with scores of 600-640+. Equipment financing often approves 620+. Merchant cash advances may approve 500+. Below 600, your options narrow to high-cost alternatives. Building credit before applying significantly improves your terms.
How do lenders evaluate business creditworthiness?
Lenders assess five factors: credit score (personal and business), cash flow (can you service the debt?), collateral (what secures the loan?), capital (how much are you investing?), and conditions (why do you need the money and what is the economic environment?). Cash flow coverage is increasingly the primary factor — lenders want to see monthly cash flow 1.25x or greater than debt payments.
What is DSCR and why does it matter for business loans?
DSCR (Debt Service Coverage Ratio) measures how well your cash flow covers debt payments. DSCR = Net Operating Income / Annual Debt Service. A DSCR of 1.25 means you generate $1.25 of cash flow for every $1.00 of debt payments — the minimum most lenders require. Below 1.0 means your business doesn't generate enough cash to cover debt service, which is a firm decline for most lenders.
What are business credit scores?
Business credit scores include the D&B PAYDEX (0-100, measures payment promptness), Experian Business Intelliscore (0-100), and Equifax Business Credit Score. Unlike personal credit, business scores are publicly accessible by vendors and lenders. A PAYDEX of 80+ is considered good — it means you pay on or before due dates. Building business credit requires opening trade lines in your business name and paying promptly.
What is a PAYDEX score?
PAYDEX is Dun & Bradstreet's business credit score (0-100) that specifically measures payment promptness to vendors and suppliers. A score of 80 means you pay exactly on time; 100 means you pay 30+ days early. Most lenders want to see a PAYDEX of 75 or higher. To get a PAYDEX score, your business needs a DUNS number and at least three vendors reporting to D&B.
What documents do lenders need for a business loan application?
Standard documentation includes: 2-3 years of business and personal tax returns, 3-6 months of business bank statements, current profit and loss statement, balance sheet, accounts receivable/payable aging reports, business license, articles of incorporation, and a copy of any existing loan agreements. SBA loans add a business plan and personal financial statement. Have these organized before applying.
How do I prepare my financials for a business loan?
Ensure your financial statements are current (within 60-90 days), prepared by an accountant if possible (reviewed or audited statements carry more weight than owner-prepared), and accurately reflect cash flow. Clean up any unexplained deposits or withdrawals in bank statements. Reconcile any discrepancies between tax returns and financial statements. Lenders notice inconsistencies and it raises red flags.
What are the most common reasons business loan applications are rejected?
Top rejection reasons: insufficient cash flow to service the debt, poor personal or business credit, insufficient time in business (under 2 years), too much existing debt, inadequate collateral, incomplete documentation, and misuse of funds (applying for a long-term asset loan using short-term financing). Understanding the rejection reason is the first step to reapplying successfully.
How can I improve my chances of business loan approval?
Six months before applying: improve personal credit (pay down balances, dispute errors), build business credit (open vendor trade lines), prepare clean financial statements, reduce existing debt where possible, open a dedicated business bank account with consistent cash flow history, and develop a clear use-of-funds plan. Apply with lenders matched to your profile rather than starting with the most restrictive lenders.
What financing options exist for restaurants?
Restaurants commonly use SBA 7(a) loans for new locations and major renovations, equipment financing for kitchen equipment, MCAs and revenue-based financing for working capital (since they have predictable credit card revenue), and equipment leasing for items that need regular replacement. Restaurant-specific lenders like Credibly and Bluevine understand the industry's cash flow patterns and lower margins.
What are the best financing options for construction companies?
Construction companies use equipment financing for machinery, lines of credit for project working capital between milestone payments, contract financing against signed contracts, and invoice factoring for slow-paying general contractors. SBA loans work well for established contractors buying equipment or real estate. The key challenge is matching financing to construction's milestone-based cash flow cycle.
How do medical practice loans work?
Medical practice loans fund equipment (imaging, dental chairs), facility build-outs, practice acquisitions, and working capital. Healthcare-specialized lenders (Provide, Bankers Healthcare Group) understand medical billing cycles, high equipment costs, and practice valuation. SBA 7(a) and 504 loans are popular for acquisitions. Medical practices generally qualify for larger loan amounts than most industries due to predictable revenue.
What financing options work best for retail businesses?
Retail businesses commonly use lines of credit for inventory purchases, merchant cash advances or revenue-based financing for seasonal working capital (since they have predictable card sales), equipment financing for fixtures and POS systems, and SBA loans for location expansion. The inventory cycle makes revolving credit lines particularly useful — draw when buying inventory, repay as products sell.
What are the best loans for real estate investors?
Real estate investors use DSCR loans (qualified by property cash flow, not personal income), hard money loans (asset-based, fast close for fix-and-flip), commercial real estate loans, SBA 504 for owner-occupied commercial property, and bridge loans for acquisitions during property transitions. DSCR loans have become the dominant product for residential investment properties since they don't require income verification.
Can a startup get a business loan with no revenue?
Getting a traditional business loan with no revenue is very difficult but not impossible. Options include: SBA Microloans ($50K max, designed for startups), CDFI loans (Community Development Financial Institutions), equipment financing (the equipment secures the loan), personal loans used for business, and lines of credit secured by personal assets. Investors and business grants are often more realistic for pre-revenue startups.
What loans are available for businesses under 1 year old?
Businesses under 12 months old face limited traditional loan options. The most accessible: SBA Microloans ($50K limit, startup-friendly), equipment financing (equipment secures the loan), secured business credit cards (for establishing credit), CDFI and nonprofit lender programs, and business lines of credit secured by personal guarantees. Online lenders generally require 6 months in business minimum.
How do I get my first business loan?
Start by checking your personal credit score and correcting any errors. Open a business checking account and ensure all business income flows through it. Apply for a business credit card to start building business credit. After 6+ months of documented business revenue, apply with online lenders first (easiest approvals), then use that track record to qualify for bank or SBA financing within 12-24 months.
What pre-revenue financing options exist for startups?
Pre-revenue startups primarily access: personal savings and home equity, friends and family investment, angel investors, venture capital (for high-growth potential), government grants (SBIR/STTR for R&D companies), business incubator programs with attached funding, equipment leasing (no revenue required), and revenue advance programs once you have any sales history. Traditional debt financing is largely inaccessible without revenue.
What happens if I default on a business loan?
Defaulting on a business loan triggers a cascade: the lender sends default notices, may accelerate the full balance, and begins collection efforts. For secured loans, they seize and liquidate collateral. If you personally guaranteed the loan, they can pursue your personal assets. The default is reported to credit bureaus, damaging both business and personal credit. Early communication with lenders about financial hardship can prevent many of these consequences.
What is a loan workout agreement?
A workout agreement is a negotiated modification between you and your lender when you're struggling to repay — an alternative to default or bankruptcy. Common modifications include: reduced monthly payments, temporary interest-only payments, extended repayment term, partial principal forgiveness, or deferral of payments. Lenders prefer workouts over defaults because collections are expensive. Early, proactive communication significantly increases your chances of getting workout terms.
What is the difference between secured and unsecured loans in default?
For secured loans, the lender can directly seize and sell the collateral (equipment, real estate, inventory) to recover their loss — without necessarily suing you first. For unsecured loans, the lender must sue, obtain a judgment, and then attempt to collect from your business assets. If you personally guaranteed an unsecured loan, they can then come after your personal assets after obtaining a judgment.
What is a business line of credit?
A business line of credit is a revolving credit facility — like a credit card but with higher limits and lower rates. You're approved for a maximum amount (e.g., $100,000), draw what you need, repay it, and can draw again. You pay interest only on the outstanding balance. Lines are ideal for managing cash flow gaps, unexpected expenses, and seasonal inventory needs. They typically require annual renewal.
What is the difference between a business loan and a business line of credit?
A term loan provides a fixed lump sum with scheduled repayments — best for a specific, defined purpose (equipment, expansion). A line of credit is revolving and flexible — best for ongoing working capital and variable needs. Lines of credit often carry higher interest rates than term loans but provide flexibility that a fixed loan cannot. Most businesses benefit from having both: a term loan for capital projects and a line for operations.
What is a business credit card and how does it help with financing?
Business credit cards provide revolving credit with 0% intro APR offers (typically 9-15 months), rewards on business spending, expense categorization, and employee card controls. They're one of the easiest business credit products to get and help build business credit history. For short-term financing under $25,000, a 0% APR business card can be less expensive than most loan products during the intro period.
What is a USDA business loan?
The USDA Business & Industry (B&I) Loan Guarantee Program helps rural businesses access financing by guaranteeing up to 80% of loans made by approved lenders. It's similar to SBA 7(a) but restricted to rural areas (population under 50,000). Loan amounts up to $25 million, terms up to 30 years for real estate. USDA B&I loans are underused and can be excellent for rural businesses that struggle to access capital.
What is a business acquisition loan?
Business acquisition loans fund the purchase of an existing business. SBA 7(a) loans (up to $5M, 10-year terms) are the most common vehicle — they allow financing up to 90% of the purchase price if the business has strong cash flow. Lenders require a down payment of 10-30%, the target business's financial statements for 3 years, and evidence the acquisition cash flow can service the debt.
What is a bridge loan for businesses?
A business bridge loan is short-term financing (3-18 months) that "bridges" a gap — typically between needing cash now and expecting a larger financing event later (a real estate closing, SBA loan approval, or equity raise). Bridge loans carry higher rates (8-20%+) to compensate for the short term and elevated risk. They're a tactical tool, not a long-term financing solution.
What is the SBA Community Advantage program?
The SBA Community Advantage (CA) loan program provides SBA-backed loans of up to $350,000 through mission-based lenders (nonprofits, CDFIs) to businesses in underserved markets — startups, minority-owned businesses, and those in low-income areas. The underwriting is more flexible than standard SBA 7(a) loans. As of 2024, CA was merged into the broader SBA 7(a) Small Loan program.
What is the difference between a bank loan and an online lender?
Banks offer lower interest rates (6-12% for qualified borrowers), larger loan amounts, and SBA programs, but require 2+ years in business, strong credit, and thorough documentation with 2-4 week approval timelines. Online lenders (Bluevine, OnDeck, Fundbox) approve in 24-72 hours, accept weaker profiles, but charge significantly more (factor rates or 30-80% APR equivalents). Use banks for established businesses; online lenders for speed and lower qualification bars.
What is a commercial real estate loan?
Commercial real estate (CRE) loans finance the purchase or refinance of commercial property: office buildings, retail centers, warehouses, multifamily buildings (5+ units), and industrial. Terms typically run 5-25 years with a balloon at 5-10 years, amortized over 25-30 years. Lenders require 25-35% down, strong DSCR (1.25+), and assess the property's income-producing potential as primary security.
How does a business cash flow loan work?
Cash flow loans are underwritten primarily on your business's cash flow history rather than collateral. Lenders review 3-12 months of bank statements to assess average monthly revenue, volatility, and cash management. They typically advance 75-150% of your average monthly revenue. These loans are faster and more accessible than collateral-based loans but carry higher rates due to unsecured risk.
What is a 7(a) Small Loan and how is it different from standard 7(a)?
The SBA 7(a) Small Loan program handles loans under $500,000 with a streamlined application and faster processing than the standard 7(a). Documentation requirements are reduced, and lenders have more flexibility to approve based on creditworthiness rather than full financial analysis for loans under $150,000. Community Advantage lenders also participate in the small loan program targeting underserved businesses.
What are common fees on business loans?
Business loan fees include: origination fees (1-5% of loan amount charged at closing), SBA guarantee fees (0-3.5% depending on loan size, waived for loans under $1M through FY2025), prepayment penalties (common on fixed-rate loans under 5 years), documentation fees, annual line of credit fees ($150-$500), and late payment fees. Always calculate the total cost of the loan including all fees, not just the interest rate.
What is the SBA loan guarantee fee?
The SBA charges a guarantee fee to the lender (usually passed to the borrower) as a percentage of the guaranteed portion of the loan: 0% for loans under $150,000; 2% for loans $150,000-$700,000; 3% for loans $700,001-$5 million. For FY2025, the SBA waived guarantee fees on loans under $1 million for first-time borrowers. This waiver can save $7,000-$21,000 on a $700K-$1M loan.
What is a DUNS number and do I need one for business loans?
A DUNS (Data Universal Numbering System) number is a unique 9-digit identifier assigned by Dun & Bradstreet to track your business credit file. It's required to apply for SBA loans, government contracts, and to build a PAYDEX score. Getting a DUNS number is free at the D&B website and takes 30 days for standard registration or 24-48 hours for expedited. Apply before you need financing.
What is accounts receivable financing?
Accounts receivable (AR) financing uses your outstanding invoices as collateral for a credit line — you borrow against what your customers owe you. Unlike factoring, you retain ownership of the invoices and collection responsibility; the lender simply holds a lien. AR lines typically advance 70-85% of eligible receivables at rates of 1-3% per month. It's best for B2B businesses with creditworthy customers and consistent invoice volume.
What is the difference between a business loan broker and a direct lender?
A direct lender (bank, credit union, online lender) provides the funds themselves from their own capital. A business loan broker connects you with multiple lenders, helps package your application, and submits it to lenders most likely to approve — in exchange for a referral fee (typically 1-5% of the loan, paid by the lender). Brokers are useful when you don't know which lenders fit your profile, but always verify the broker's fee structure upfront.
Key Terms
SBA Loan
A business loan partially guaranteed by the Small Business Administration, reducing lender risk. Common programs: 7(a) (general purpose, up to $5M), 504 (real estate/equipment, up to $5.5M), and Microloans (up to $50K). Lower rates and longer terms than conventional loans but slower approval.
Term Loan
A lump-sum loan repaid in fixed installments over a set period (1-25 years). Interest can be fixed or variable. Best for specific, one-time investments: equipment, expansion, acquisition. Online term loans: 3-36 months; bank term loans: 1-10 years; SBA: up to 25 years.
Business Line of Credit
A flexible borrowing facility allowing draws up to a preset limit, with interest charged only on the outstanding balance. Ideal for managing cash flow gaps, seasonal inventory, and unexpected expenses. Revolving lines reset as you repay; non-revolving lines are one-time.
Merchant Cash Advance (MCA)
An advance against future credit card sales, repaid via a daily percentage of card revenue. Uses factor rates (1.2-1.5) instead of APR — making true costs hard to compare. Effective APR can reach 40-350%. Fast funding (24-48 hours) but the most expensive business financing option.
Factor Rate
A decimal multiplier (1.1-1.5) used to calculate total repayment on merchant cash advances. Unlike interest rates, factor rates are applied to the original advance amount regardless of how quickly you repay. A $100K advance at 1.3 factor = $130K total repayment. Always convert to APR for comparison.
Annual Percentage Rate (APR)
The annualized cost of borrowing including interest and fees. The only standardized way to compare loan costs across products. A $50K loan repaid over 12 months with $5K in total interest and fees = 18.3% APR. Always ask for APR — not just the interest rate, which excludes origination fees.
Origination Fee
A one-time fee charged by the lender for processing a loan, typically 1-6% of the loan amount. Deducted from proceeds or added to the balance. SBA loans: 0.5-3.5%. Online lenders: 1-6%. Banks: 0-2%. Always factor this into the total cost when comparing offers.
Personal Guarantee
A legal commitment making the business owner personally liable for repaying a business loan if the business cannot. Most small business loans require one. Puts personal assets (home, savings, vehicles) at risk. Limited guarantees cap personal exposure at a percentage of the loan.
Collateral
Assets pledged to secure a loan — the lender can seize them if you default. Common collateral: real estate, equipment, inventory, accounts receivable. Collateralized loans offer lower rates because they reduce lender risk. SBA loans require collateral for amounts over $25K when available.
UCC Filing (Uniform Commercial Code)
A public notice filed by a lender claiming a security interest in your business assets. A UCC-1 blanket lien covers all business assets; specific liens cover named assets only. Multiple UCC filings make subsequent borrowing harder because later lenders have subordinate claims.
Debt Service Coverage Ratio (DSCR)
Net operating income divided by total annual debt payments. A DSCR of 1.25 means the business earns $1.25 for every $1 of debt payments. Most lenders require 1.15-1.35 minimum. The primary metric lenders use to assess whether a business can afford additional debt.
Working Capital
Current assets minus current liabilities — the cash available for daily operations. Positive working capital means you can cover short-term obligations. Working capital loans and lines of credit address temporary shortfalls. Chronic negative working capital signals deeper financial problems.
Cash Flow
The net movement of money in and out of a business over a period. Positive cash flow means more money coming in than going out. Cash flow ≠ profit — a profitable business can fail if cash timing is wrong. Lenders scrutinize 12-24 months of bank statements to assess cash flow health.
Amortization
The process of spreading loan repayment over time through scheduled installments. Each payment covers interest plus principal. Early payments are interest-heavy; later payments are principal-heavy. An amortization schedule shows the exact breakdown for each payment over the loan term.
Equipment Financing
A loan or lease specifically for purchasing business equipment, which serves as its own collateral. Loan terms typically match the equipment's useful life (2-7 years). Rates: 4-20% depending on credit. Preserves working capital and may offer Section 179 tax deductions for the full purchase price.
Principal Balance
The outstanding amount of a loan that has not yet been repaid, excluding interest and fees. Loan payments are applied first to accrued interest and then to reduce the principal balance.
Interest Rate
The annual percentage charged by a lender on the principal loan amount, before accounting for compounding or fees. The note rate stated in a loan agreement differs from APR, which includes additional costs.
APR (Annual Percentage Rate)
The total yearly cost of borrowing expressed as a percentage, including interest rate plus fees such as origination costs and prepaid interest. APR enables meaningful comparison between loan offers with different fee structures.
APY (Annual Percentage Yield)
The effective annual return or cost accounting for compounding over a year. In business lending, APY is relevant for revolving credit facilities where interest compounds on the outstanding balance.
Prepayment Penalty
A fee charged by some lenders when a borrower repays a loan ahead of schedule. Prepayment penalties protect lenders from losing expected interest income and are more common in longer-term commercial loans.
Balloon Payment
A large lump-sum payment due at the end of a loan term that pays off the remaining principal balance. Balloon loans have lower monthly payments but require the borrower to refinance or have cash available at maturity.
Amortization Schedule
A complete table showing each periodic loan payment broken down into principal and interest components over the life of the loan. Early payments are mostly interest; later payments shift toward principal reduction.
Outstanding Balance
The total amount currently owed on a loan, including unpaid principal plus any accrued but unpaid interest and fees. Lenders use outstanding balance to calculate payoff quotes and assess credit exposure.
Loan Term
The agreed-upon duration of a loan from origination to final maturity, typically expressed in months or years. Longer terms lower monthly payments but increase total interest paid; shorter terms do the opposite.
Loan Covenant
A condition or restriction in a loan agreement that the borrower must comply with throughout the loan term, such as maintaining minimum revenue or limiting additional debt. Violating a covenant can trigger a default.
Default Cure Period
The grace period a lender provides after a default event during which the borrower may remedy the violation before the lender exercises remedies such as acceleration or collateral seizure. Typically 10–30 days.
Acceleration Clause
A loan provision that allows the lender to demand immediate repayment of the entire outstanding balance upon a specified trigger event, such as a missed payment, covenant violation, or material adverse change.
Collateral (Secured Loan)
An asset pledged by the borrower to secure a loan, giving the lender the right to seize and liquidate it if the borrower defaults. Common business collateral includes real estate, equipment, inventory, and receivables.
Blanket Lien
A security interest that encumbers all of a borrower's business assets — present and future — rather than specific items. Lenders use blanket liens to secure working capital loans and lines of credit.
Unlimited Personal Guarantee
A personal guarantee with no cap on the guarantor's liability, meaning the lender can pursue the full outstanding debt and collection costs from the guarantor's personal assets without limit.
Limited Personal Guarantee
A personal guarantee that caps the guarantor's liability at a specified dollar amount or percentage of the outstanding loan. Provides partial protection for guarantors while still giving lenders meaningful recourse.
First Lien Position
The priority status of a lender whose claim on collateral is paid before all other creditors in the event of default or liquidation. First-lien lenders accept lower rates in exchange for superior recovery position.
Second Lien
A security interest in collateral that is subordinate to a first-lien holder. Second-lien lenders face higher recovery risk and therefore charge higher interest rates to compensate for their junior position.
Subordination Agreement
A legal contract in which a creditor agrees to subordinate its claim to that of another creditor. Required when a business adds a new lender whose superior position must be acknowledged by existing lienholders.
Accounts Receivable as Collateral
The use of outstanding customer invoices as security for a loan. Lenders typically advance 70–85% of eligible receivables; as customers pay, the loan balance decreases or the availability refreshes in a revolving structure.
Equipment as Collateral
Machinery, vehicles, or other business equipment pledged to secure a loan. The lender may take a UCC filing or title lien on the equipment; advance rates are typically 80–90% of appraised or orderly liquidation value.
Real Estate as Collateral
Commercial or residential property pledged to secure a business loan, with the lender taking a mortgage lien. Real estate provides strong collateral security given its stable value and public record of ownership.
DSCR (Debt Service Coverage Ratio)
A key underwriting metric calculated as net operating income divided by total annual debt payments. A DSCR above 1.25x indicates the business generates sufficient cash flow to cover loan payments with a 25% cushion.
Business Credit Score
A numerical score representing a business's creditworthiness, derived from payment history, utilization, company age, and public records. Business credit scores range from 0–100 (Dun & Bradstreet) or 1–300 (FICO SBSS).
Paydex Score
Dun & Bradstreet's proprietary business credit score ranging from 1–100, measuring how promptly a business pays its vendors and suppliers relative to agreed terms. A score of 80+ indicates timely payment.
Dun & Bradstreet (D&B)
A leading business credit bureau that maintains the Data Universal Numbering System (DUNS) and compiles credit and financial data on millions of businesses globally. Lenders use D&B reports to assess business credit risk.
Equifax Business Credit
Business credit reporting and scoring services from Equifax that compile payment history, public records, and financial data on businesses. Equifax's Business Credit Risk Score ranges from 101–992.
Experian Business Credit
Business credit bureau services from Experian that provide Intelliscore Plus (1–100) and Financial Stability Risk scores. Lenders use Experian reports to evaluate SMB credit applications.
Commercial Credit Report
A detailed report on a business's credit history, payment behavior, public records (liens, judgments), and financial data compiled by business credit bureaus. Commercial credit reports are a primary underwriting tool for business lenders.
Personal Guarantee Trigger
A threshold — commonly 20% or greater ownership — at which lenders require owners to sign personal guarantees on business loans. SBA loans require all owners with 20%+ stakes to personally guarantee the obligation.
Credit Tightening
A period when lenders raise underwriting standards, reduce loan sizes, or increase rates due to economic uncertainty or rising defaults. During credit tightening, fewer businesses qualify for financing and on less favorable terms.
Credit Box
The set of underwriting criteria that define which borrowers a lender will approve, including minimum credit scores, revenue thresholds, time in business, and industry restrictions. Each lender has a unique credit box.
Short-Term Business Loan
A lump-sum loan with a repayment period of 3–18 months, typically used for immediate working capital needs. Short-term loans have faster approval but higher effective rates than longer-term bank financing.
Long-Term Business Loan
A lump-sum loan with a repayment period of 2–10+ years, used for major capital expenditures or business acquisitions. Long-term loans carry lower rates but require stronger financials and collateral.
Revolving Credit Facility
A credit line that refreshes as the borrower repays, allowing repeated draws up to the approved limit. Revolvers provide flexible working capital and businesses only pay interest on the outstanding drawn amount.
Evergreen Credit Line
A revolving credit facility with no fixed maturity date that renews automatically unless the lender elects not to renew. Evergreen lines provide long-term liquidity but require annual reviews to maintain.
Demand Loan
A loan with no fixed repayment schedule that the lender can call for full repayment at any time upon demand. Demand loans are common in banking relationships but carry refinancing risk for borrowers.
Bridge Loan
Short-term financing that bridges a funding gap until permanent financing or a liquidity event is secured. Bridge loans carry higher rates due to their temporary nature and are common in real estate and M&A transactions.
Mezzanine Financing
Hybrid debt-equity capital that sits between senior debt and equity in the capital stack, often including equity warrants. Mezzanine lenders accept higher risk and charge higher rates (15–20%+) in exchange for potential upside participation.
Subordinated Debt
Debt that ranks below senior creditors in priority for repayment in the event of default or liquidation. Subordinated lenders take more risk and typically charge higher interest rates to compensate.
Senior Debt
Debt that has first priority claim on a borrower's assets and cash flows in the event of default. Senior secured lenders face the lowest risk and therefore provide capital at the lowest cost in the capital structure.
Unsecured Business Loan
A loan not backed by specific collateral, relying instead on the borrower's creditworthiness and cash flow. Unsecured loans carry higher interest rates than secured alternatives due to the lender's greater recovery risk.
Secured Business Loan
A loan backed by collateral that the lender can seize if the borrower defaults. Secured loans offer lower interest rates and larger loan sizes because the collateral reduces the lender's exposure.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization — a proxy for operating cash flow widely used by lenders to assess debt service capacity. EBITDA multiples are commonly used to size acquisition and growth loans.
EBIT
Earnings Before Interest and Taxes, representing operating profit before financing costs and tax obligations. EBIT is used by lenders to evaluate core business profitability independent of capital structure.
Gross Profit Margin
Revenue minus cost of goods sold divided by revenue, expressed as a percentage. A strong gross margin (40%+ for services; 20%+ for products) indicates pricing power and cost efficiency that support debt repayment capacity.
Net Profit Margin
Net income divided by revenue, expressing the percentage of revenue that converts to profit after all expenses. Lenders use net profit margin to assess overall business financial health and the cushion available for debt service.
Working Capital Ratio
Current assets divided by current liabilities, also known as the current ratio. A ratio above 1.2 indicates sufficient short-term assets to meet obligations; lenders often require minimum working capital ratios as loan covenants.
Current Ratio
A liquidity metric calculated as current assets divided by current liabilities. A current ratio above 1.0 means the business has more short-term assets than short-term obligations, indicating adequate near-term liquidity.
Quick Ratio
A stringent liquidity measure calculated as (cash + receivables) divided by current liabilities, excluding inventory. The quick ratio tests whether a business can meet immediate obligations without liquidating inventory.
Burn Rate
The rate at which a business depletes its cash reserves each month when expenses exceed revenue. Lenders evaluate burn rate alongside cash runway to assess how long the business can sustain operations without additional funding.
Cash Runway
The number of months a business can continue operating at its current burn rate before exhausting available cash. Lenders consider cash runway when evaluating the urgency and risk of a loan request.
AR Days (Days Sales Outstanding)
The average number of days it takes a business to collect payment after a sale, calculated as (receivables / annual revenue) × 365. Lower AR days indicate efficient collections; high AR days may signal customer credit issues.
AP Days (Days Payable Outstanding)
The average number of days a business takes to pay its suppliers, calculated as (payables / COGS) × 365. Longer AP days indicate the business is effectively using supplier credit as working capital.
Inventory Turnover
The number of times a business sells and replaces its inventory within a period, calculated as COGS divided by average inventory. Higher turnover means efficient inventory management and faster cash conversion.
Debt-to-Equity Ratio
Total liabilities divided by shareholders' equity, measuring financial leverage. A ratio above 2:1 may indicate the business is heavily leveraged; lenders often impose maximum debt-to-equity covenants on term loans.
SBA 7(a) Loan
The SBA's most popular loan program, providing up to $5 million for working capital, equipment, real estate, and business acquisitions. Government-guaranteed up to 85%, enabling lenders to offer longer terms and lower rates to qualifying small businesses.
SBA 504 Loan
An SBA program providing long-term, fixed-rate financing up to $5.5 million for major fixed assets like real estate and heavy equipment. Structured with a bank first mortgage and a CDC second mortgage backed by SBA guarantee.
SBA Microloan
An SBA program providing loans up to $50,000 through nonprofit intermediary lenders to help small businesses and startups. Microloans target underserved entrepreneurs and often include technical assistance alongside capital.
SBA EIDL (Economic Injury Disaster Loan)
Low-interest loans of up to $2 million provided directly by the SBA to businesses suffering economic harm from declared disasters. EIDL loans were widely used during COVID-19 to support businesses facing revenue disruption.
SBA Express Loan
A streamlined SBA 7(a) program offering loans up to $500,000 with a 36-hour SBA response time. Express loans carry a lower guarantee percentage (50%) but provide faster access to smaller loan amounts.
SBA Preferred Lender
A lender authorized by the SBA to approve SBA-guaranteed loans without prior SBA review, significantly speeding up the process. Preferred Lender Program (PLP) status is granted to high-volume, low-default lenders.
SBA Certified Development Company (CDC)
A nonprofit corporation licensed by the SBA to provide 504 loan financing. CDCs work with banks and the SBA to deliver long-term fixed-rate financing for fixed-asset projects in their local communities.
USDA Business & Industry Loan
A USDA program that guarantees loans from commercial lenders to businesses in rural areas (populations under 50,000). B&I loan guarantees cover up to 80% of principal for projects that create or retain jobs in rural communities.
State Small Business Credit Initiative (SSBCI)
A federal program that allocates capital to state-administered lending and investment programs targeting small and very small businesses. SSBCI funds flow through loan guarantee programs, direct lending, and equity programs managed at the state level.
CDFI (Community Development Financial Institution)
A mission-driven financial institution certified by the US Treasury that provides affordable capital to underserved communities and small businesses. CDFIs often serve borrowers who cannot access traditional bank financing.