Two people start the same kind of business in the same spring. Each has a used pickup, a trailer, and a handful of lawn-care contracts in the same town.
The first one borrows as much as a lender will offer and buys every new machine on the list. The second borrows less, keeps the old mower running for another season, and leaves three months of expenses sitting in the bank.
For most of a year, nothing separates them. Then comes a wet autumn, and the biggest client starts paying sixty days late.
Small business loans come in more shapes than most owners expect. There are SBA loans, online term loans, lines of credit, equipment financing, invoice financing, merchant cash advances, and plain personal loans that owners take out in their own name. Which one fits depends on how long you’ve been in business, what the business earns, your credit, and how fast you need the money. This guide puts the options side by side, shows what each one really costs, and explains where startups and owners with bad credit fit in.
What a small business loan actually is
A small business loan is money borrowed to start, run or grow a business, repaid over time with interest or fees. That part is simple. What’s less obvious is whose promise stands behind it.
A lender judging a large company looks at the company: years of financial statements, steady revenue, assets it can claim. A young small business usually has little of that to show. It may have a few months of history, uneven revenue and no business credit file at all. So the lender looks past the business to the person who owns it.
Business credit vs. your personal credit
For most small businesses, the owner’s personal credit score, income and assets carry much of the weight in the decision. The usual way this shows up is a personal guarantee: a signed promise that if the business can’t repay, you will, from your own savings or property.
It isn’t limited to risky lenders. On SBA 7(a) loans, anyone who owns 20% or more of the business generally has to guarantee the loan personally (13 CFR 120.160). Many online lenders ask for the same thing. Forming an LLC or corporation separates you from the business for many purposes, but a guarantee you signed reaches past that separation.
For most small businesses, a business loan is still a personal promise. The owner’s credit and assets usually stand behind it.
Small business loan types side by side
These are the options most owners end up choosing between. The names sound similar. The costs and payment schedules are not.
| Option | How it works | What lenders usually want | Typical cost | Speed | Main risk |
|---|---|---|---|---|---|
| SBA 7(a) loan | Bank loan partly guaranteed by the SBA, up to $5 million | An established, profitable business, good credit, a personal guarantee from 20%+ owners | Among the lowest; SBA rules cap what lenders can charge | Weeks to a few months | Long process, heavy paperwork |
| SBA microloan | Loans up to $50,000 through nonprofit lenders | A realistic plan; usually collateral and a personal guarantee. Startups can qualify | Typically 8% to 13% (per SBA) | Weeks | Small amounts; can’t be used to pay off debt or buy real estate |
| Online term loan | A lump sum repaid in fixed payments | Usually some time in business and steady revenue, plus the owner’s credit | Wide range, from single digits to well above 30% APR* | Days | Frequent (even weekly) payments; fees |
| Business line of credit | Draw what you need, pay interest on what you use | Revenue history and credit; best for businesses past the first year | Often variable; interest only on the balance drawn* | Days to weeks | Rate changes; the line can be reduced or closed |
| Equipment financing | A loan secured by the equipment it buys | The equipment’s value, plus the owner’s credit | Often lower than unsecured loans, because the equipment is collateral* | Days | Losing the equipment if you default |
| Invoice financing | An advance against unpaid customer invoices | Business customers with a good record of paying | A fee per invoice, often charged weekly or monthly; can add up to a high APR* | Days | Costs grow the longer customers take to pay |
| Merchant cash advance | Cash now in exchange for a share of future sales | Steady card or bank deposits; credit matters less | A factor rate such as 1.2 to 1.5; as an APR, often far above 50%* | A day or two | Daily withdrawals that squeeze cash flow; stacking |
| Personal loan used for business | A loan in the owner’s name, spent on the business | The owner’s credit and income; business history doesn’t matter | Single digits to the mid-30s APR, depending on personal credit* | Often 1 to 2 business days after approval | Your personal credit and finances carry all of it |
*Illustrative ranges. Actual rates and terms depend on the lender, your credit profile and your business. SBA figures are from SBA.gov (see sources at the end of this page).
One pattern runs down that table. The faster and easier the money, the more it usually costs, and the more of the risk lands on the owner. An SBA loan asks for a great deal and charges little. A merchant cash advance asks for almost nothing and charges a lot.
Using a personal loan for your business
Many owners never apply for a business loan at all. They borrow in their own name and put the money into the business. That’s legal and common, and for a new or very small business it’s often the only door that opens.
A business lender wants to see a track record: months or years of revenue, bank statements, sometimes tax returns for the business. A personal loan lender looks at you instead: your credit, your income, your existing debts. If the business is new but your personal finances are in good shape, a personal loan can be easier to get, and cheaper, than anything with “business” in its name.
When a personal loan makes sense
- The business is new, or has little revenue a lender could check.
- You need a modest amount. Personal loans commonly go up to around $50,000, depending on the lender and your credit.
- You want a fixed monthly payment you can plan around, not daily or weekly withdrawals.
- Your personal credit is stronger than your business’s history.
The trade-off: your personal finances are on the line
There is no business standing between you and the debt. The loan shows up on your personal credit report, the payment counts in your personal debt-to-income ratio (which matters the next time you apply for a mortgage or car loan), and if the business struggles, the payment is still yours.
Two practical checks before you apply. First, confirm that the lender allows business use, since some personal loan lenders restrict it. Second, keep the money traceable: deposit it into a business account and keep records, so you can show where it went at tax time.
A personal loan is often the most realistic way to fund a new business, but the business can’t share the risk. You carry all of it.
Funding a new or small business on your own credit? Compare personal loan offers from lenders in our network. Checking your rate usually starts with a soft credit check, so it won’t affect your credit score. Compare offers
How to get a small business loan, step by step
- Pin down the amount and the use. “Working capital” is too vague. “$18,000 for a used trailer and two mowers, $6,000 to cover payroll through the slow season” is a plan a lender can judge, and so can you.
- Check both credit files. Get your personal reports free at AnnualCreditReport.com. If the business has been around a while, it may have a business credit file too. Knowing where you stand tells you which options are realistic.
- Gather the documents. Expect some mix of personal and business tax returns, recent business bank statements, a profit and loss statement, your business registration and, for a startup, a simple business plan with a cash-flow projection.
- Match the loan to the need. Equipment financing for equipment. A line of credit for uneven cash flow. A term loan or SBA loan for a one-time investment. Short-term money for long-term needs is how businesses get squeezed.
- Compare the total cost, not the payment. Ask every lender for the APR or the total amount you’ll repay. A small daily payment can hide a very large total.
- Read the contract before you sign. Look for the personal guarantee, prepayment penalties, a lien on business assets (often filed as a UCC lien), and any clause that lets the lender take a court judgment against you without a hearing.
- Plan repayment from real cash flow. Work out the payment against your worst recent month, not your best. If it only works in a good month, borrow less.
If an SBA loan fits, the SBA’s free Lender Match tool connects you with SBA-approved lenders in your area.
What business loans cost, and what moves your rate
Nobody can tell you your rate before a lender has seen your application. What you can predict is what moves it. For most business financing, the offer depends on:
- time in business, since every month of survival makes the next month more believable to a lender
- revenue and cash flow, meaning how much comes in and how much is left after the bills
- your personal credit, which for small businesses often counts as much as the business’s own numbers
- collateral, because equipment, property or receivables the lender can claim usually lowers the price
- your industry, as some lenders see restaurants, construction or trucking as riskier than others
- the amount and term, where short, small deals often carry higher effective costs
APR vs. factor rate: why a cash advance can look cheap
The federal Truth in Lending Act, which makes consumer lenders show you an APR, covers consumer credit, not business financing. So business funders don’t have to quote an APR under federal law, and many don’t.
Merchant cash advances usually quote a factor rate instead. A factor rate of 1.35 on $30,000 means you repay $40,500. That can sound like “35%,” which doesn’t sound terrible. But the 35% is charged once, over however many months it takes to pay back, and cash advances are often repaid in well under a year. Repay $10,500 in fees over eight months and the cost, expressed as an APR, is closer to 95%.
Several states have stepped in. Around ten states, including California, New York, Texas and Virginia, require commercial financing disclosures, and California requires providers to state an APR. Wherever you are, you can ask for the APR or the total repayment in writing, and treat an offer that won’t give it to you with caution.
A factor rate tells you how much you’ll repay. Only an APR tells you how expensive that is, because it accounts for how fast you repay it.
A worked example: $30,000 borrowed three ways
Go back to the two landscapers. Say one of them needs $30,000 for equipment and working capital, and has three realistic options.
Say the owner is approved for a personal loan at around 14% APR over five years. An SBA microloan through a nonprofit lender comes in at 10.5% over six years, inside the 8% to 13% range the SBA says is typical. And a merchant cash advance offers $30,000 at a 1.35 factor rate, repaid from daily deposits over roughly eight months.
| Option | Payment | Paid off in | Total repaid | Cost of borrowing |
|---|---|---|---|---|
| Personal loan, 14% APR | $698.05 a month | 5 years | $41,882.85 | $11,882.85 |
| SBA microloan, 10.5% APR | $563.37 a month | 6 years | $40,562.58 | $10,562.58 |
| Merchant cash advance, 1.35 factor rate | About $241 every business day (about $5,060 a month) | About 8 months | $40,500 | $10,500 (roughly 95% APR) |
On total cost, the three options land within about $1,400 of each other. The cash advance is even slightly cheaper in dollars than the personal loan.
What separates them is speed. The cash advance pulls roughly $5,000 a month out of a business that borrowed because it was short on cash. In a good month, that’s tight. In a wet autumn with a client paying late, it can be the thing that ends the business.
Compare business financing on two numbers: the total you’ll repay, and how fast it leaves your account. The second one is what closes businesses.
Illustrative example. Loan figures assume equal monthly payments and no fees. The cash advance assumes fixed daily payments over about 168 business days; many advances instead take a percentage of daily card sales, so the timeline varies. These are not quotes or offers; your actual rate and terms depend on your credit profile, your business and the lender.
SBA loans: the lowest-cost route, if you can wait
The U.S. Small Business Administration doesn’t usually lend money itself. It guarantees part of loans made by banks and other approved lenders, which lets them lend to small businesses on better terms than they otherwise would.
- 7(a) loans are the main program: up to $5 million per loan for working capital, equipment, real estate, refinancing debt or buying a business. Since July 4, 2026, a business can combine 7(a) and 504 loans for up to $10 million in total SBA-backed financing.
- Microloans go up to $50,000 (the average is about $13,000), with terms of up to seven years and rates typically between 8% and 13%. They’re made through nonprofit intermediary lenders, which often also offer training and are more open to startups.
The catch is effort and time. For a 7(a) loan, the SBA expects a business that can show it’s able to repay and, in most cases, can’t get comparable credit on reasonable terms elsewhere. Expect detailed paperwork and a personal guarantee, and plan in weeks or months rather than days. If you need money this week, an SBA loan probably isn’t it. If you can plan ahead, it’s usually the cheapest money a small business can get.
SBA loans usually cost the least of any business financing, and they’re the slowest to get.
Startup business loans: what’s realistic in year one
Most business lenders want to see a business survive before they fund it. Online lenders commonly ask for at least several months to a couple of years in business and a minimum level of monthly revenue. A business that opened last month has neither. That doesn’t mean a startup can’t borrow. It means the money usually comes from somewhere other than a standard business loan.
Startup business loans with no revenue
With no revenue to show, a lender has nothing to measure the business by, so it measures you. The realistic options are:
- A personal loan based on your own credit and income, often from a job you keep while the business gets going.
- An SBA microloan, since nonprofit intermediaries are set up to lend to new businesses. Expect to show a business plan and, usually, offer collateral.
- Equipment financing, where the equipment itself secures the loan and can make up for a thin history.
- Community development lenders (CDFIs), which focus on borrowers banks often pass over.
- Family or friends, with a written agreement that sets the amount, repayment schedule and what happens if the business fails.
How to get a startup business loan with no money of your own
This rarely works well. Lenders usually expect an owner to put in some of their own money, because an owner with nothing at stake looks like a bigger risk. Owners in this spot tend to take one of three paths: start smaller and let early revenue fund the next step, borrow on personal credit (and accept that the risk is personal), or bring in a partner who contributes cash.
For a startup, the first loan usually rests on the owner’s credit, not the business plan.
Small business loans for bad credit
Bad credit narrows the list, but it doesn’t always end it. Some online business lenders care more about the business’s bank deposits than the owner’s score, and secured options like equipment financing lean on collateral. In practice, owners with poor credit usually end up weighing:
- Revenue-based lenders that approve based on sales and deposits, at higher rates
- Secured loans, such as equipment financing, where collateral does some of the work your score can’t
- SBA microloans and CDFIs, which look at the whole picture, not only the score
- A personal loan with a co-signer, if someone with good credit is willing to share the obligation
- Merchant cash advances, which are easy to get with bad credit and expensive for the same reason
Before taking expensive money, it’s often worth asking whether a few months of work on your credit would change your options. Paying down card balances and fixing report errors can move a score faster than people expect. Our guides to bad credit loans and improving your credit go through both.
With bad credit, the cheapest option is usually the one where collateral or revenue does the work your credit score can’t.
Is borrowing right for your business right now?
Borrowing tends to work when:
- the money buys something that earns more than it costs, like equipment that lets you take more jobs, or inventory you already have buyers for
- you can cover the payment from your worst recent month, not your average one
- the loan’s term matches what it pays for, so equipment that lasts five years isn’t paid off in five months
- you’ve compared at least a few offers by total cost and APR
It’s probably the wrong move when:
- the loan would cover ongoing losses, not a one-time gap or investment
- you’d need a new advance to pay off the current one
- the payment only works if every customer pays on time
- you haven’t yet tested whether customers will pay for what you sell
A lender can tell you whether the business qualifies. It can’t tell you whether the business can get through a bad season while carrying the loan. That judgment is yours.
A business loan is repaid from money the business hasn’t earned yet. Size it for the slow month, not the best one.
Red flags: business funding offers that are traps
Business owners get less legal protection than consumers, and some funders count on that. Walk away from any offer that:
- guarantees approval. “Startup business loans for bad credit, guaranteed” is a search phrase, not a real product. Legitimate lenders check before they promise.
- asks for a fee before you get the money, whether it’s called insurance, processing or a “good faith” deposit
- won’t put the APR or the total repayment in writing
- pushes you to sign today, or calls you repeatedly with a “limited-time” offer
- includes a confession of judgment, a clause that lets the funder get a court judgment against you without a hearing
- offers a second or third cash advance on top of one you already have. Stacking advances is one of the fastest ways a business ends up paying out more each day than it takes in.
Think you’ve found a scam? Report it to the FTC at ReportFraud.ftc.gov and to your state attorney general’s office.
A lender that hasn’t looked at your numbers has no basis for promising you anything.
How a business loan affects your credit
A personal loan used for business works like any personal loan. The application usually brings a hard inquiry that can take a few points off your score for a while. The account then appears on your personal credit report, where on-time payments help and missed payments hurt.
A business loan may be reported to business credit bureaus rather than your personal file, depending on the lender. But the application may still involve a check of your personal credit, and if you signed a personal guarantee, a default can reach your personal credit and your personal assets.
Over the long term, paying a business loan on time builds the business’s own credit history, which is what eventually lets a business borrow without leaning so heavily on its owner.
Alternatives to a business loan
Sometimes the best financing isn’t a loan.
- Free advice. SCORE mentors and Small Business Development Centers, both SBA resource partners, offer free or low-cost help with plans, cash flow and financing.
- Grants, with realistic expectations. The SBA says plainly that it doesn’t provide grants for starting or expanding a business. Its grants go to research and development (SBIR and STTR), some manufacturers and export programs. State and local programs are worth checking, but few businesses get started on grants.
- Customer deposits. Asking for part of the payment up front, which is common in contracting and custom work, funds the job with the customer’s money instead of a lender’s.
- Supplier terms. Paying suppliers in 30 or 60 days instead of on delivery is a form of financing that often costs nothing.
- Growing more slowly. It takes longer, and it costs nothing in interest.
Both landscapers made it to spring. The one who bought everything new spent the winter juggling a payment that assumed every client paid on time. The one with the older mower and the cash in the bank spent it fixing equipment and bidding on next year’s contracts. The better equipment never decided which business made it. The payment and the cushion did.
Ready to compare? Send one request and lenders in our network that can offer a personal loan for your business will contact you directly. Checking your rate usually starts with a soft credit check that won’t affect your score. Compare offers
Frequently asked questions
Can you use a personal loan for business?
Yes, in most cases. It’s legal, and it’s often the easiest way to fund a new business, because approval depends on your personal credit and income rather than the business’s history. Check that the lender allows business use, since some don’t, and remember the debt is entirely yours if the business struggles.
How hard is it to get a small business loan?
It depends mostly on how long you’ve been in business and how much revenue you can show. Established, profitable businesses with good credit have many options, including SBA loans. Businesses under a year old usually find standard business loans hard to get and turn to personal loans, microloans or equipment financing instead.
Can I get a startup business loan with no revenue?
Sometimes, but usually not a standard business loan. With no revenue to measure, lenders judge the owner, so the realistic options are a personal loan based on your own credit, an SBA microloan through a nonprofit lender, equipment financing, or a community development lender.
What credit score do I need for a small business loan?
There’s no single minimum; it varies by lender and loan type. Bank and SBA loans generally expect good personal credit, while some online and revenue-based lenders accept lower scores at a higher cost. For a personal loan used for business, borrowers with FICO scores of roughly 670 and up usually see the most offers.
Is a merchant cash advance a loan, and is it legal?
A merchant cash advance is legal, and it’s usually structured as a purchase of your future sales rather than a loan. Because of that structure, in many states it isn’t subject to the interest-rate limits that apply to loans, though around ten states now require cost disclosures. Ask for the total repayment and an APR estimate in writing before you sign.
What happens if you default on a merchant cash advance?
The funder will usually try to collect from the business and, if you signed a personal guarantee, from you personally. Depending on the contract, that can mean a lawsuit, a lien on business assets or a claim on your accounts. Many contracts include a reconciliation clause that lowers payments when sales drop, so ask about it early, and talk to an attorney who handles business debt before signing anything new.
Do I need collateral for a small business loan?
Not always. Unsecured business loans and personal loans don’t require specific collateral, though they often come with a personal guarantee and higher rates. Equipment financing and many SBA loans are secured, which usually means a lower rate in exchange for putting assets at risk.
Does Loans.net lend money directly?
No. Loans.net is a loan comparison marketplace, not a lender. When you submit a request, it goes to lenders in our network, and a lender that can make you an offer contacts you directly and sets the rate and terms. Requests from this page currently go to personal loan lenders.
About Loans.net: Loans.net is a loan comparison marketplace, not a lender. We don’t make credit decisions, set rates or fund loans; the lender does. Requests submitted from this page currently go to personal loan lenders in our network. We may receive compensation from lenders and partners in our network, which may affect which offers appear and in what order. Offers shown don’t include every lender or loan product available. Rates, fees and terms are set by each lender and depend on your credit profile. This page is general education, not financial, legal or tax advice.
Sources
- U.S. Small Business Administration, “7(a) loans” (sba.gov, page modified July 27, 2026)
- SBA, “SBA Doubles Cumulative 7(a) and 504 Loan Limit to $10 Million” (May 18, 2026; effective July 4, 2026)
- SBA, “Microloans” and “Grants” (sba.gov, accessed September 2026)
- 13 CFR 120.160 (personal guarantees on SBA loans)
- Truth in Lending Act, 15 U.S.C. 1603 (business credit exemption)
- Venable LLP, “State Commercial Financing Disclosure Laws: Recent Developments and Compliance Considerations” (March 2026)
- Federal Trade Commission, ReportFraud.ftc.gov
Related guides
- Personal loans: compare offers from lenders in our network
- Bad credit loans: what’s realistic with a lower score
- Installment loans: fixed payments over a set term
- Secured vs. unsecured loans: when collateral changes the deal
- No doc loans: what lenders check when you skip the paperwork
- Debt consolidation: combining debts into one payment
- Credit scores: what goes into yours
- Improve your credit: steps that move your score
- Loan calculator: estimate your payment and total interest
Last updated: September 2026. SBA program figures were checked against SBA.gov in September 2026. Rate ranges and worked examples are illustrative.