Small Business Loans 101 – SBA, Bank, and Alternative Lenders

Small business financing is essential for entrepreneurs who need capital to start, grow, or manage their operations. In the U.S., small business loans come from several sources: SBA-guaranteed loans, traditional bank loans, and alternative lenders (online/fintech providers). These options each have unique terms, costs, and qualifications.

This comprehensive guide explains SBA business loans, traditional bank loans, and alternative small business loan options, helping U.S. entrepreneurs compare eligibility, loan amounts, interest rates, and examples of lenders (e.g. Bank of America, Wells Fargo, Live Oak Bank, BlueVine, OnDeck, Accion) to make informed funding decisions.

SBA Business Loan Programs

The Small Business Administration (SBA) partners with private lenders to guarantee loans. This means the SBA backs a portion of the loan, reducing lender risk. As a result, SBA loans often have lower down payments and longer terms than conventional loans.

Most SBA loans are issued by banks or credit unions, not directly by the government. For example, major banks like Chase, Bank of America, and Wells Fargo are SBA 7(a) lenders. Popular SBA programs include:

SBA 7(a) Loans: The flagship SBA program. Standard 7(a) loans range from $350,000 up to $5,000,000 and carry up to 75–85% SBA guarantees. (There are subtypes: 7(a) Small loans up to $350K and SBA Express loans up to $500K.) Funds can be used for working capital, equipment, refinancing debt, and real estate (subject to rules).

Terms can be up to 10 years for equipment/working capital or 25 years for real estate, depending on use. Because many lenders participate, approval times vary. Preferred SBA lenders (PLP) like Citizens Bank can close 7(a) loans in ~45 days.
SBA 504 (CDC) Loans: Designed for major fixed assets (real estate, large equipment). These loans go up to $5.5 million, have fixed rates, and long terms (10–20 years). They are issued through Certified Development Companies (CDCs), nonprofit intermediaries.

A typical 504 loan finances 90% of a project (10% borrower equity). For example, Live Oak Bank and other CDCs help businesses expand offices or buy heavy machinery. Note: 504 proceeds cannot be used for working capital or inventory.
SBA Microloans: For very small or startup businesses, the SBA funds microloan intermediaries. You can borrow up to $50,000 (average ~$13K) through non-profit microlenders (e.g. Accion, Opportunity Fund, Kiva).

These loans help with working capital, supplies, machinery, etc. Typical terms are up to 7 years, and interest rates generally range 8–13%. Microloans cannot be used for real estate or to refinance existing debt.

Each SBA program has strict eligibility: businesses must be for-profit, meet SBA size standards, have solid credit and cash flow, and (for many loans) be unable to obtain financing elsewhere.

For example, applicants typically need a demonstrated ability to repay and may need collateral or a personal guarantee. Lenders and the SBA review applications closely. However, successful applicants benefit from long terms and relatively low rates.

(For example, as of 2025, large bank SBA 7(a) lenders like Huntington National Bank offer loans up to $5M with down payments as low as 10%.)

Key Points – SBA Loans: Government-backed loans (up to $5M+), long terms, lower down payments; ideal for established businesses that can wait ~2–3 months for approval. Examples of SBA lenders include Live Oak Bank, Celtic Bank, Citizens Bank, Wells Fargo, and small community banks.

Traditional Bank and Credit Union Loans

Traditional banks and credit unions remain the most common source of small business loans. These bank loans are funded with the institution’s own capital, without SBA guarantees. Common types include:

Bank Term Loans: Lump-sum loans repaid over a set period (often 1–7 years). These can be used for expansion, equipment purchases, or refinancing.

Large national banks like Wells Fargo, JPMorgan Chase, and Bank of America offer business term loans (for example, Wells Fargo’s Small Business Loans range $10,000–$100,000 with low rates around 7–8%). Community banks often provide similar loans, sometimes with more local flexibility.
Lines of Credit: Revolving credit accounts where businesses can draw funds as needed up to a credit limit, paying interest only on the amount used. This is ideal for managing cash flow or unexpected expenses.

Lines are often secured by collateral or a personal guarantee. For instance, Bluevine (a fintech partner with Celtic Bank) provides lines of credit up to $250K.
Equipment Financing: Loans specifically for buying machinery or vehicles. The equipment itself serves as collateral, often making approval easier. Many banks have dedicated equipment loan programs.
Business Credit Cards: While not loans per se, business credit cards can finance short-term needs. Cards are typically easier to get but have higher rates than term loans.

Advantages of Bank Loans: Banks generally offer lower interest rates and longer repayment terms than alternative lenders. As Bankrate notes, small businesses pay about 7–8% interest on bank loans on average, compared to 20–30% or more on many online loans.

Banks also lend larger amounts (hundreds of thousands to millions) because they require strong credit and extensive documentation. Many banks also now participate in SBA lending and have specialized small-business departments.

Drawbacks of Bank Loans: Credit unions and small banks usually approve a higher percentage of applications, but overall bank lending standards are strict. As one source notes, bank loans require “strict eligibility requirements” and extensive documentation.

The approval process can be slow: expect weeks or months rather than days. According to a Small Business Credit Survey, small banks approved 75% of applicants in 2023, while large banks approved 66%. In practice, only about half of loan applications to banks get fully approved.

Example Lenders: Major banks like Chase, Bank of America, Wells Fargo, and Citibank; community banks and credit unions (e.g., Nav federal, local state banks); and business finance divisions of institutions like TD Bank or PNC.

For example, Wells Fargo — often cited as a top traditional business lender — can provide competitive rates to qualifying businesses with good credit.

Pros and Cons of Bank Loans:

Pros: Low borrowing costs (often below 8%), long terms (up to 7–10 years), flexibility in loan types (term loans, lines, equipment financing), and the ability to borrow large sums.
Cons: Slow approvals (weeks to months), stringent credit and collateral requirements, and heavy paperwork.

Alternative Small Business Loan Options

Alternative lenders—often fintech firms—offer online small business loans that fill gaps left by banks. They usually have streamlined applications and faster funding, but at higher costs. NerdWallet defines alternative lending as any loan from a nonbank online lender.

These lenders have grown since 2008 to serve startups and businesses with weaker credit who can’t qualify at banks. Key alternative options include:

Online Term Loans/Lines: Companies like Bluevine, Fundbox, Credibly, and Kabbage (now American Express Business Loan) provide short-term loans or lines. For example, Bluevine offers lines up to $250,000 with funding in as little as one business day.

Fundbox provides short-term lines (up to $150K) with free cash-flow analysis tools. Lendio and Biz2Credit function as marketplaces, matching borrowers to banks and online lenders alike.

Lendio, for instance, connects applicants to over 75 lenders (including Bank of America, American Express, OnDeck, Funding Circle) via a single online application.
Merchant Cash Advances (MCAs): MCA providers (e.g. Square Capital, Rapid Finance, CAN Capital) give an upfront cash advance repaid via a fixed percentage of future credit card sales or daily ACH withdrawals.

NerdWallet warns that MCAs are “one of the most expensive forms of business financing” and best avoided if possible. Indeed, MCA “factor rates” translate to very high APRs.
Invoice Financing (Factoring/Discounting): Lenders like BlueVine and Fundbox also finance unpaid invoices. A business sells (or borrows against) outstanding invoices to a lender, which advances a portion of the invoice value (e.g., 80–90%).

When customers pay, the business repays the advance plus a fee. Invoice financing can improve cash flow but at a cost (often 1–3% per month on the advanced amount).
Online Business Lines: Similar to term loans, some fintechs (e.g. Kabbage/AmEx) offer lines of credit that businesses can draw on as needed. These usually require a minimum operating history (e.g. 6–12 months) and monthly revenues (e.g. $100K+), but can underwrite quickly using bank account data.

Fundbox, for example, requires only 3 months in business and a $100K annual revenue to qualify for a line.
Nonprofit Microloans: In addition to SBA microloans, there are nonprofit micro-lenders like Accion and Opportunity Fund.

Accion offers small loans up to $350,000 for businesses (sometimes at special rates for women or minority owners). These lenders often have more flexible credit requirements: Accion, for instance, accepts credit scores as low as 600.

Advantages of Alternative Lenders: Quick decisions and funding (sometimes within 24 hours), less paperwork, and more lenient credit requirements. They cater to borrowers who may not have the strong credit or track record banks demand.

For example, Bluevine’s line of credit accepts applicants with credit scores as low as 625 and only 12 months in business. Many fintechs also publish borrower requirements upfront, making qualification transparent.

Drawbacks of Alternative Lenders: The trade-off for speed and flexibility is cost. Interest rates and fees at fintech lenders are usually much higher than banks. On average, an online term loan can have an APR in the high teens or 20s, and short-term lines often carry factor fees equivalent to 20–40% APR.

As noted, alternative lenders “usually offer higher rates” than traditional sources. Merchant cash advances and invoice discounts in particular can cost 30% APR or more. Also, terms are short (often 3–18 months) and credit lines have frequent draw fees.

Examples of Alt Lenders: Bluevine, OnDeck, Funding Circle, Biz2Credit, CAN Capital, Kabbage (AmEx Business), Lendio, Fundbox.

Some online banks (like Bluevine) also offer checking accounts alongside loans. Even big tech has entrants: PayPal Working Capital and Square Loans (for merchants) provide easy small loans, though again with sizable fees.

Key Points – Alternative Loans: Fast, tech-driven loans for quick cash needs or imperfect credit. No branch visits – apply online and often receive funds in days.

Useful for new startups or financing small invoices, but expect interest rates often above 20% and short terms. Always compare the true cost (APR and fees) before borrowing.

How to Qualify and Apply

To secure any small business loan, preparation is key. Eligibility factors generally include: time in business, annual revenue, credit score, and collateral. SBA loans additionally require meeting SBA size standards and being a for-profit U.S. business.

Many lenders look for at least 2 years of tax returns and revenues in the six or seven figures. However, alternative lenders may accept just 3–12 months of operation and lower revenue as long as you submit bank statements or accounting data.

Credit Score: Most banks want personal credit scores above 680–700, whereas some fintech lenders accept 600+. For SBA 7(a) loans, a personal score of 650+ is common. Community lenders (CDFIs) may lend to credit scores in the 600s or even low 600s.
Documentation: Be ready with thorough documentation. Banks often demand business financial statements, tax returns, and a business plan.

Even alternative SBA application services stress that you’ll need the same documentation as a standard SBA loan (business plan, financials, etc.). OnDeck and Lendio require 3–6 months of bank statements and proof of revenue. Prepare a borrowing proposal explaining why you need funds and how you will repay.
Application Process: Many banks now allow prequalification or online application. Lendio, Fundera, and Biz2Credit let you complete a single form that submits to many lenders.

The SBA also offers Lender Match, a tool to connect borrowers with SBA-approved lenders. Credit unions and community banks may refer you to local SBA offices or microlenders (like Accion, Opportunity Fund).
Interest Rates and Fees: Because rates vary widely, get quotes from multiple sources. SBA loans have published maximum rates (e.g., currently prime + 2–3. 25% on 7(a) loans) but banks negotiate based on collateral and credit. Bank loans generally range from 4–12% APR for qualified borrowers.

Online lenders may quote APRs anywhere from 15% up to 50% (or provide factor pricing). Also ask about origination fees, closing costs, prepayment penalties, and any monthly/maintenance fees.

Comparing Loan Options

Below is a summary table comparing key features of common small business loan types:

Loan Type	Max Amount	Term (yrs)	Interest Rate (typical)	Funding Speed	Best Use	Examples of Lenders
SBA 7(a)	$5,000,000	Up to 10–25	Prime + ~2–3% (as negotiated)	Slow (weeks to months)	Long-term capital, large investments	Live Oak Bank, Celtic Bank, Wells Fargo
SBA 504 (CDC)	$5,500,000	Up to 20	Fixed, typically ~6–8%	Slow (months)	Fixed assets (real estate, eqpt)	Local CDCs (via SBA network)
SBA Microloan	$50,000	Up to 7	8–13% (approx.)	Moderate (weeks)	Start-ups, small equipment, working capital	Accion, Opportunity Fund (CDFIs)
Bank Term Loan	$$ (often $250K–$3M)**	1–10	~4–12%	Weeks to months	Growth, equipment, debt refinancing	Chase, Wells Fargo, BOA, Credit Unions
Bank Line of Credit	Up to $500K (or more)	1–10 (revolv.)	~8–20% (prime+ for lines)	Weeks	Working capital, cash flow	Any bank/credit union, e.g. CUs
Online Term Loan	$150K–$250K**	<1–3	10–50% (varies widely)	Very fast (days)	Short-term capital, start-ups	BlueVine, OnDeck, Credibly, Funding Circle
Online Line of Credit	$150K–$250K**	<1	18–30% APR (factor fees)	Very fast (hours–days)	Quick cash needs	BlueVine, Kabbage (AmEx), Fundbox
Merchant Cash Advance	Up to $500K**	<1	Equivalent APR often 50%+	Very fast (days)	Immediate cash, no credit needed	Square Capital, CAN Capital, PayPal Working Capital
Invoice Financing	% of invoice value (80–90%)	N/A (advance)	Fee 1–3% per advance (APR 12–36%+)	1–2 weeks	Bridge unpaid invoices	BlueVine Factoring, Fundbox Invoice (Pay Now)

Notes: “$$” indicates loans are typically based on borrower’s credit and collateral, often in hundreds of thousands. Alternate lenders often cap around $250K–$500K.

Funding speed and rates vary: SBA and banks are slowest but cheapest, while fintech is fastest but most expensive. (Rates and terms are examples; always check current offers.)

Choosing the Right Loan

When deciding, consider your funding needs and qualifications:

Amount and Purpose: Need a large, long-term loan? SBA 7(a) or a bank term loan may be best. Need a quick infusion under $100K? An online line or short-term loan could work. For real estate or heavy equipment, SBA 504 or a bank equipment loan is ideal.
Speed vs Cost: If you can wait and have good credit, a bank or SBA loan will save on interest. If you need cash fast (or lack strong credit), alternative lenders can disburse funds in days, albeit at higher APRs.
Qualifications: Review requirements. If you have poor credit or only a few months in business, an alternative lender or nonprofit microlender (like Accion) might be your starting point. If you have established financials and 2+ years in business, pursue banks or SBA first.
Collateral and Guarantees: SBA and bank loans often require collateral (equipment, real estate, or personal assets) and a personal guarantee. Many fintech loans are unsecured or tied to receivables/sales, but personal guarantees are still common for online term loans.
Costs and Repayment: Calculate the total cost (APR, fees, and term). A 24% APR over one year costs much more than a 12% 5-year loan for the same principal. Beware of lenders that advertise “no interest” but charge high flat fees or those with steep prepayment penalties.

It’s wise to shop around. Use comparison sites, talk to an accountant or SBA counselor, and get quotes from multiple lenders. Prepare complete financial statements and a clear business plan to streamline approval.

Also consider any ongoing banking relationship; sometimes loyalty or deposit balances can help secure better terms with your bank.

Frequently Asked Questions

Q: What is the difference between SBA loans and other small business loans?

A: SBA loans are partially backed by the government, allowing for lower down payments and longer terms. Regular bank loans have higher requirements and shorter terms, and alternative loans are fast but costly.

SBA loans typically offer the lowest rates, but take longer to approve. If you qualify, SBA or bank loans are usually the most affordable for small business financing.

Q: Who is eligible for an SBA business loan?

A: To qualify for an SBA 7(a) or 504 loan, a business must be for-profit, meet SBA size standards, operate in the U.S., and have a solid credit history with the ability to repay. SBA microloans also require collateral and personal guarantees.

Businesses must show they can’t get sufficient financing elsewhere. (Alternative lenders have looser criteria but higher rates.)

Q: Can I get a small business loan with bad credit?

A: It’s harder. Banks generally want a credit score around 680–700. Some alternative lenders or microloan funds will lend to scores as low as ~600. Crowdfunding or credit cards might be options for startups without strong credit.

Improving your credit before applying (e.g. paying down debt) can open up more loan choices and lower interest.

Q: How long does it take to get a small business loan?

A: It varies. SBA loans often take 60–90 days or more to process, because of detailed underwriting. Traditional bank loans can take several weeks. Online lenders can be very fast: some fund as soon as one business day after approval.

Plan ahead: if you need funds quickly, an alternative loan may be necessary, but if you can wait, take time to apply to banks or SBA for better rates.

Q: What about fees and interest rates?

A: Always compare APR (which includes fees) across loan types. Bank loans may have interest starting around 4–6% for prime-rate businesses, while SBA loans charge prime+ often 2–3%. Fintech loans can range 15%–50% APR.

Watch for origination fees (1–3% of the loan), closing costs, and prepayment penalties. As NerdWallet cautions, alternative lenders “usually charge higher rates” than banks. Read the fine print on any offer.

Conclusion

U.S. entrepreneurs have many choices for small business financing. SBA loans offer government-backed, long-term capital but require paperwork and time.

Bank loans provide competitive rates and high loan amounts for qualifying businesses, though approvals are strict. Alternative lenders and fintech platforms give quick access to cash with easier applications, but at a price.

Evaluate your business’s credit history, revenue, and funding needs against each option’s terms. Consider hybrid strategies: for example, using an SBA loan for major expansion while relying on a business line for short-term cash flow gaps.

By comparing interest rates, terms, and lender reputation, you can pick the Small Business Loan solution that best supports your company’s growth.