Business loan

Small Business Loans: Compare the Real Cost, Not the Pitch

SBA-backed loans are slow and paperwork-heavy but capped in price. Fast online money can cost several times more, often quoted in a way that hides it. Here is how to compare them on equal terms.

By Lendmira Editorial Team Updated October 13, 2026 9 min read

Typical APR: 8%–13.5% for SBA loans
SBA 7(a) maximum: $5 million
SBA microloan maximum: $50,000
Owner guarantee: Usually at 20%+ stake

The short version

The SBA doesn't lend to you directly: it backs loans made by banks, certified development companies and nonprofit lenders. 7(a) loans go up to $5 million, with variable rates capped at the base rate plus 3 to 6.5 points, about 10% to 13.5% with prime at 7.00% in October 2026; microloans go up to $50,000 at roughly 8% to 13%. Online advances quoted with a factor rate such as 1.35 can work out to an APR above 100%. Expect to sign a personal guarantee whichever route you take.

Where small businesses borrow

Banks and credit unions

Term loans and credit lines at the lowest rates, for businesses with a few years of history, steady revenue and good owner credit. Slow, with a lot of documentation.

SBA-backed loans

Made by approved lenders with part of the loan backed by the SBA, which lets them say yes to borrowers a bank might turn down. Rates are capped; approval still takes weeks.

Online lenders

Decisions in days, lighter paperwork, and higher prices. Terms are often short, with weekly or even daily payments.

Merchant cash advances

An advance repaid from a share of your future sales, priced with a factor rate rather than an interest rate. Often the most expensive option on this list.

Whichever you pick, you'll be asked for your personal credit as well as the business's numbers, especially in the first years. Funditia explains what's in your credit report if you want to check yours first.

SBA 7(a), 504 and microloans compared

The three main SBA loan programs, October 2026
Program	Maximum	Typical uses	Price and term
7(a)	$5 million; 7(a) Small up to $350,000; SBA Express up to $500,000	Working capital, equipment, real estate, buying a business	Variable rate capped at base rate + 3 to 6.5 points; up to 10 years, 25 for real estate
504	About $5 million to $5.5 million from the SBA side	Buildings, land, machinery with 10+ years of life	Fixed rate tied to the 10-year Treasury; 10, 20 or 25 years; fees about 3%
Microloan	$50,000 (average about $13,000)	Startups, inventory, supplies, small equipment	About 8% to 13%; up to 7 years

The 7(a) rate cap shrinks as the loan grows: base rate plus 6.5 points for $50,000 or less, 6 points up to $250,000, 4.5 points up to $350,000 and 3 points above that. With prime at 7.00%, that means about 10% on large loans and 13.5% on small ones. A 504 loan comes through a certified development company alongside a bank loan and your down payment, and can't be used for working capital or inventory. Microloans come from nonprofit intermediaries, which set their own terms and can't be used to pay off existing debt or buy real estate.

New in 2026: an SBA rule effective in July lets a qualified borrower hold up to $5 million in 7(a) loans and, separately, up to $5 million in 504 financing, instead of one combined $5 million limit.
Collateral: for 7(a) Small and SBA Express loans, none is required up to $50,000, and a loan can't be declined only for lack of collateral.
Prepayment: on 7(a) loans of 15 years or more, paying off 25% or more in the first three years costs 5%, 3% or 1% of the prepayment, by year.

Factor rates are not APRs

Merchant cash advances and some short-term online loans quote a factor rate: a multiplier on the amount you get. Take $20,000 at a factor of 1.35 and you repay $27,000. It sounds like 35%, but that 35% is charged over months, not a year, and you start repaying the next day, so the annual cost is far higher.

Converting factor rates to APR on a $20,000 advance (our calculations)
Offer	Total repaid	Payments	Approximate APR
Factor 1.35, about 6 months	$27,000	126 business-day debits of $214	About 126%
Factor 1.35, 6 months, weekly	$27,000	26 weekly debits of $1,038	About 123%
Factor 1.20, 12 months, weekly	$24,000	52 weekly debits of $462	About 37%

For comparison, the same $20,000 as an SBA 7(a) loan at the 13.5% cap would cost a small fraction of that. Our APR vs. interest rate guide and APR calculator show how to convert any offer. Also ask whether paying early cuts the total; with many advances it doesn't.

State disclosure laws: the APR you can ask for

Federal truth-in-lending rules cover consumer loans, not business financing. A growing number of states fill part of the gap with commercial financing disclosure laws, which mostly apply to non-bank providers.

California

Providers offering commercial financing of $500,000 or less must disclose the total cost, payments and an annualized rate, expressed as an APR (an estimated APR for sales-based financing and factoring). A 2023 law made the rate disclosure permanent. See our California page.

New York

Covers offers up to $2.5 million and requires an estimated APR on sales-based financing, inclusive of fees. Banks, real-estate-secured deals and providers making five or fewer deals a year are exempt. See our New York page.

Other states

Utah, Virginia, Georgia, Florida, Kansas, Missouri, Connecticut and Texas also have disclosure rules; what they cover, and whether an APR is required, varies. Ask for one in writing anyway.

Personal guarantees and liens

Under SBA rules, anyone who owns 20% or more of the business generally must personally guarantee the loan, and the lender can ask others to guarantee it too. Most banks and online lenders ask the same. A personal guarantee means that if the business can't pay, the lender can come after your own savings, wages and property. Forming an LLC or corporation doesn't change that.

Blanket lien: many lenders file a lien on all business assets, which can make it hard to borrow from anyone else.
Your home: some loans are secured by the owner's house when business assets don't cover the amount.
Co-owners and spouses: read what you're asking them to sign; our guide to co-signers explains the stakes.

Who qualifies, and when not to borrow

SBA loans require a for-profit business operating in the US that meets the SBA's size standards and shows a reasonable ability to repay; 504 loans also require tangible net worth under $20 million and average net income under $6.5 million after taxes. Lenders add their own tests, typically time in business, revenue, cash flow and the owners' credit.

Borrowing makes sense when it pays for something that earns more than it costs: equipment that adds capacity, inventory you already have orders for. It rarely makes sense to cover recurring losses. If a daily-debit advance is the only offer you can get, treat that as information about the business, not only about lenders.

Before you sign

Get at least one bank or SBA quote before you consider fast online money, so you have a benchmark.
Convert every offer to APR and total repayment, using the same amount and term.
Check the payment schedule: daily or weekly debits can squeeze cash flow far more than a monthly payment.
Read the guarantee, collateral and default clauses, including what triggers a default and whether early payoff reduces the cost.
Compare like with like: our guide to comparing loan offers walks through it.

Common questions

What is the maximum SBA loan amount?

7(a) loans go up to $5 million, and since a 2026 rule you can also hold up to $5 million in 504 financing separately. SBA Express loans top out at $500,000 and microloans at $50,000.

What interest rate do SBA loans charge?

Lenders set the rate, but the SBA caps variable 7(a) rates at the base rate plus 3 to 6.5 points, depending on loan size: about 10% to 13.5% with prime at 7.00% in October 2026. Microloans typically run about 8% to 13%.

How do I convert a factor rate to an APR?

Multiply the amount by the factor to get the total repaid, then find the annual rate that matches that payment schedule. A 1.35 factor repaid over about six months works out to an APR above 100%; the APR calculator does the math.

Do I have to personally guarantee a business loan?

For SBA loans, owners of 20% or more generally must. Most other lenders ask for a guarantee from the main owners too, especially for young businesses.

Sources

Facts on this page were checked against these sources on October 13, 2026. Factor-rate APRs are our own calculations from the stated payment schedules; an actual offer's APR depends on its exact terms.

What a small business loan could cost you

The numbers below are a typical starting point. Change them to match the offer in front of you, then see what lenders would actually quote.

Loan amount

APR

Typical APR for credit that is

Term

Monthly payment — for —

Total interest —

Total of payments —

Last payment —

For every $1 you borrow, you repay —. An example, not an offer: your APR depends on your credit, income and state.

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