What a small business term loan is
A term loan advances a fixed amount that the business repays, with interest, over a set period. The three variables that define it are the principal, the term and the rate. Short-term loans run 3 to 18 months and are usually repaid weekly; medium-term loans run 1 to 5 years and are repaid monthly; long-term loans, mostly SBA-backed or bank loans, run 5 to 25 years. Most online term loans for small businesses sit in the 1 to 5 year band.
Unlike a line of credit, a term loan is drawn once, so it suits a one-time need with a known cost. Unlike a merchant cash advance, it charges interest on a declining balance, so paying early reduces the cost, subject to any prepayment penalty. Most small-business term loans are unsecured up to $150,000 to $250,000, meaning no specific collateral, although a personal guarantee and a UCC lien are standard.
Term loans come from three kinds of providers: banks and credit unions, which are cheapest and slowest; online lenders, which are faster and price for the risk; and SBA lenders, which combine bank pricing with a government guarantee and a longer process. AIDBIZ works with online and SBA funding partners and compares them on one application.
Rates, terms and amounts in 2026
Published market guidelines for small business term loans in September 2026 cluster as follows. Bank term loans for strong borrowers price from about 8 to 14 percent APR. Online term loans for typical small businesses price from about 14 to 30 percent, with weaker files or shorter terms reaching 35 to 45 percent. Origination fees of 1 to 5 percent are common and are deducted from the disbursement.
| Product | Typical amount | Time to fund | Cost (market range) | Minimums |
|---|---|---|---|---|
| Business term loan | $10,000 – $500,000 | 1 – 3 business days (online lenders) | APR roughly 8% – 45% depending on credit, revenue and term | 1 – 2 years in business; 600+ typical; 640+ for better pricing |
| Business line of credit | $10,000 – $250,000 | 1 – 3 business days to open; draws often same day | APR roughly 10% – 60%; some lenders price as a weekly fee on the drawn balance | 6 – 12 months in business; 600+ typical |
| SBA loan | $50,000 – $5,000,000 (7(a)); up to $50,000 for microloans | 30 – 90 days | Variable APR capped by SBA rules: prime plus 2.25% – 4.75% in most cases | 2+ years in business (some programs accept startups with strong plans); 650+ typical; 680+ preferred |
| Working capital loan | $5,000 – $250,000 | 1 – 2 business days | APR roughly 15% – 60%; short-term products may quote a factor rate instead | 6 months in business; 550+ typical |
The estimator below shows the monthly payment and total payback at the low, middle and high end of the term-loan range for any amount you enter.
What the payment looks like at common amounts
The table shows the monthly payment on a 36-month term loan at three points in the published rate range. Total payback is the payment multiplied by 36. A shorter term raises the payment and lowers the total; a longer term does the opposite.
| Amount | At 10% APR | At 20% APR | At 35% APR | Total payback at 20% |
|---|---|---|---|---|
| $25,000 | $807 | $929 | $1,130 | $33,400 |
| $50,000 | $1,613 | $1,858 | $2,260 | $66,900 |
| $100,000 | $3,227 | $3,716 | $4,520 | $133,800 |
| $250,000 | $8,067 | $9,291 | $11,300 | $334,500 |
A useful rule: the monthly payment should be covered at least 1.25 times by the business’s monthly cash flow after existing debt. That is the test most term lenders apply, and it is the quickest way to know whether an amount is realistic.
How to qualify for a small business term loan
Online term lenders generally require one to two years in business, at least $15,000 to $25,000 in monthly revenue, personal credit around 600 or above, and six to twelve months of business bank statements without a pattern of overdrafts. Many also ask for the most recent business tax return and a current profit-and-loss statement at amounts above $100,000. Banks and SBA lenders add two years of returns, a balance sheet and often collateral.
What moves the rate more than anything is the credit score and the time in business. A file at 680 and three years in business can price at half the rate of a file at 600 and fourteen months, for the same revenue. If your score is close to a threshold, the guide on bank statements on this site explains what to clean up before applying; the guide on how much you can borrow explains how lenders size the amount.
Term loans are harder to get than advances and easier than SBA loans. A business that does not yet qualify can often take a shorter working capital loan now and refinance into a term loan after six more months of clean statements, which is a common and sensible path.
Have this ready
Term-loan application file
- 6 to 12 months of business bank statements (bank-generated PDFs)
- Most recent business tax return
- Year-to-date profit-and-loss statement
- Business formation documents and EIN
- Driver’s licence for each owner with 20% or more
- Schedule of existing loans, leases and advances
- A one-paragraph use of funds with the amount and expected return
Best uses, and when a different product fits better
Term loans fit a project with a known cost and a payoff that lasts longer than the loan: a kitchen renovation, a second location, a fleet vehicle when equipment financing is not available, hiring ahead of a signed contract, or consolidating two or three expensive advances into one predictable payment. The last use is often the highest-value one, because it can cut the daily cash drain by more than half.
A term loan fits poorly when the need is recurring or unpredictable, where a line of credit is cheaper because you pay only on what you draw; when the purchase is equipment, where equipment financing is secured by the asset and prices lower; when the business needs money this week, where an advance funds faster; and when the project is long-lived, such as real estate, where an SBA loan’s ten-to-twenty-five-year term makes the payment far smaller.
How to compare term loan offers
Ask every lender for the same four numbers: the amount deposited after fees, the total you will repay, the payment amount and its frequency. Two offers at "18 percent" can differ by thousands if one carries a 4 percent origination fee, a shorter term, or a prepayment penalty. Divide total payback by the amount deposited for a cost multiple, and check the payment against your monthly free cash flow.
Read the prepayment clause. Simple-interest term loans let you save interest by paying early; some online lenders charge a fixed total regardless, which makes the product closer to an advance. Read the guarantee and the UCC lien scope, and confirm whether the lender prohibits additional financing while the loan is open. The guide on reading a funding offer on this site walks through each clause.