SBA loan rates are tied to a base rate that changes with the market. Lenders can charge borrowers a rate that falls somewhere between the base rate and the maximum set by the government.
Current SBA rate maximums range from 10.5% to 15.5%.
Explore the most popular SBA loan programs and their rate structures to find out which one is the best fit for your company.
How SBA loan interest rates work.
SBA loan rates are regulated by the U.S. Small Business Administration. Private lenders negotiate their own rates with each individual borrower. But the offered loan rate cannot exceed the maximum set by the SBA for each loan program.
The maximum is tied to a base rate, which can be one of the following:
Prime rate
Optional peg rate
The borrower is then charged a markup (a percentage over that base rate). That varies based on:
Loan amount
Type of SBA loan
Loan maturity date
Current SBA loan rates (April 2025).
Here is how each SBA interest rate breaks down, based on the loan program and other details.
SBA 7(a) loan rates
SBA 7(a) loans can be used for general working capital needs and have interest rates that can either be variable or fixed. Fixed rates have a higher premium but never change, even if the base rate increases over time.
SBA 7(a) rates range from 3% to 8% above the base rate. Use the following table to compare rates for different loan sizes and term lengths. The current (April 2025) Wall Street Journal Prime Rate is 7.50%.
Amount
Maximum Fixed Rate
$25,000 or less
Prime +8%
$25,000 - $50,000
Prime +7%
$50,000 - $250,000
Prime +6%
Greater than $250,000
Prime +5%
Amount
Maximum Variable Rate
Up to $50,000
Prime + 6.5%
$50,000 to $250,000
Prime + 6.0%
$250,000 to $350,000
Prime + 4.5%
Greater than $350,000
Prime + 3.0%
Historical Prime rates
SBA 504 loan rates
SBA 504 loans are designed to purchase assets that help with job creation or business growth, such as new facilities, machinery, or renovating an existing property. These loans are available through certified development companies (CDCs) and offer fixed interest rates.
You can apply for either a 10-year or a 20-year repayment period. The SBA 504 rates are incrementally pegged above the current rates for 5-year and 10-year U.S. Treasury issues. The rate typically totals 3% of the loan amount.
Historical U.S. Treasury rates
SBA Microloan loan rates
Microloans from the SBA help newer small businesses with startup or expansion costs. Borrowers can get approved for up to $50,000, although the average loan size is $13,000. The maximum repayment term is six years.
Microloan rates are based on the lender’s cost of funds.
Loans over $10,000: 7.75% over cost of funds
Loans of $10,000 or less: 8.5% over cost of funds
Expect SBA microloan rates to range from 8% to 13%.
SBA Express loan rates
SBA Express loans allow for a shorter approval time, so you can get faster access to capital. In fact, you'll get an initial response within 36 hours. The maximum loan amount is capped at $500,000 and rate maximums are the same as SBA 7(a) loans.
SBA Community Advantage loan rates
The SBA Community Advantage loan program was created to help businesses in underserved markets. These loans were capped at $350,000. Interest rates were negotiated by the lender but were subject to the SBA's maximums. This program was sunsetted in October 2023. Lenders under this program are now licensed as Community Advantage Small Business Lending Companies in the 7(a) loan program and will continue to provide access to financing to underserved communities.
Typical SBA loan fees.
In addition to paying interest on SBA loans, borrowers may also pay an upfront SBA Guaranty Fee.
Upfront fee on SBA 7(a) loans.
This fee is based on the approved loan amount, including both the guaranteed and the unguaranteed portions.
Loans with 12-month maturity or less
Loan Amount
Fee
$1 million or less
0%
$1 million+
0.25% of the guaranteed portion
Loans with more than 12-month maturity
Loan Amount
Fee
$1 million or less
0%
$1 million+
3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of the guaranteed portion over $1,000,000
To calculate monthly payments for your SBA loan, visit our SBA loan calculator. Need help finding the best interest rate for your SBA loan or other business term loan?
Small businesses are critical to our nation’s success. That’s why the federal government launched the Small Business Administration (SBA) to help foster small businesses in America.
Although the SBA offers many resources, one of the most well-known are SBA 7(a) loans. In this guide, we’ll go over what an SBA 7(a) loan is, eligibility requirements to get one, and how to apply.
What is an SBA 7(a) loan?
An SBA 7(a) loan is a form of financing that is partially guaranteed by the U.S. Small Business Administration. These loans are named after Article 7(a) of the Small Business Act of 1953, which launched the SBA and tasked the agency with supporting American small businesses through lending.
SBA 7(a) loans are popular for financing real estate purchases, working capital, and purchasing furniture and supplies. They’re also commonly sought for refinancing existing business debt.
Remember, the SBA is a federal agency, not a bank. Therefore, SBA 7(a) loans are serviced by a private lender and are partially backed by the SBA (that is, the government). Because the SBA backs the loan, this financing has certain requirements that all successful applicants must meet.
The SBA 7(a) loan program is the primary business loan program offered by the SBA, with 70,242 7(a) loans approved in fiscal year 2024. According to the SBA, the average SBA 7(a) loan size was $443,097 in FY 2024, and is $416,752 as of December 2024 for FY 2025.
Acquiring, refinancing, or making improvements to Real estate
New-building construction
Renovation or expansion
Starting a new business
Purchasing an existing business
Refinancing current business debt
Purchasing furniture, fixtures and supplies
Multiple purpose loans
Changes of ownership
Loan proceeds may not be used to:
Pay off an existing business loan
Buy out a partner
Pay delinquent state or federal withholding taxes
Anything else that wouldn’t be considered a sound business purpose as determined by the SBA
Types of SBA 7(a) loans
The SBA has a suite of different financing products under its 7(a) distinction, and each one is meant to fill a different need in the small business ecosystem.
When considering your options, think about how large of a loan your business needs, your intended use of the funds, and how quickly you need the money.
SBA loans require a fair amount of information and paperwork, so researching 7(a) loan types will save you time later.
Type
Maximum loan amount
Maximum guarantee
Terms
Collateral
Purpose
Standard 7(a)
$5 million
85% up to $150,000 75% for loans greater than $150,000
Up to 10 years (working capital) Up to 25 years (real estate)
Required
Working capital Equipment Real estate Business expansion
7(a) Small Loan
$500,000
85% up to $150,000 75% for loans greater than $150,000
Up to 10 years (working capital) Up to 25 years (real estate)
>$50,000: Lender follows its policy for similar loans
Working capital Equipment Real estate
SBA Express
$500,000
50%
Up to 10 years (working capital) Up to 25 years (real estate)
Up to 10 years (revolving line of credit)
>$50,000: Lender follows its policy for similar loans
Working capital Equipment Real estate
Export Express
$500,000
>$350,000: 75%
Up to 7 years (lines of credit) Up to 10 years (working capital, equipment, and inventory purchases) Up to 25 years (real estate)
>$50,000: Lender follows its policy for similar loans
Entering or expanding an export business
Export Working Capital
$5 million
90%
Up to 10 years (working capital) Up to 25 years (real estate) Up to 3 years (line of credit)
Required
Working capital to support export sales
International trade
$5 million
90%
Up to 10 years (working capital) Up to 25 years (real estate)
Required
Facilities and equipment used to produce goods or services involved in international trade
CAP Lines
$5 million
85% up to $150,000 75% for lines greater than $150,000
10 years 5 years (Builders CAPLine)
Required
Cyclical working capital needs
Standard 7(a) loan
As its name suggests, the standard 7(a) loan is the most common and most popular type of 7(a) loan backed by the SBA. The purpose of these loans is to allow small businesses to expand by funding working capital or the purchase of equipment, supplies, and real estate.
A standard 7(a) loan is available in amounts of $500,000 to $5 million. The maximum SBA guarantee is 85% for loans up to $150,000 and 75% for loans greater than $150,000. The SBA requires lenders to collateralize all standard 7(a) loans.
For standard 7(a) loans, the SBA makes all the approval decisions, although they will allow qualified financiers the authority to make eligibility decisions. Applicants can expect a decision within five to 10 business days.
7(a) small loan
The 7(a) small loan is similar in many ways to the standard 7(a) loans, but it’s meant for businesses that need smaller amounts of funding to get off the ground or expand.
The maximum loan amount is $350,000. Their turnaround time and eligibility decision process are the same as standard 7(a) loans. The SBA guarantees 85% of loans up to $150,000 and 75% of loans over that amount. Collateral is not required for loans under $50,000. The lender follows its collateral policy for loans greater than $50,000.
Applicants can usually expect a decision in two to 10 business days.
Express loan
The SBA express loan is built for speed—sometimes, entrepreneurs need funding ASAP.
The maximum amount for an express loan is $500,000, and an application will be responded to in 36 hours or less. These loans are 50% guaranteed by the SBA. The lender makes all eligibility, collateral, and credit decisions, which means the SBA does not review applications for this loan.
Export express loan
The export express loan was specifically created as a streamlined option for businesses in the export industry or those looking to develop an export operation.
The loans, with a maximum amount of $500,000, have a breakneck turnaround time of just 24 hours or less. Lenders make all eligibility and collateral decisions. The SBA guarantee is 90% for loans of $350,000 or less and 75% for larger loans. This funding can also take the form of a revolving line of credit that can last up to seven years.
Export working capital loan
Also tailored for exporters, the export working capital loan is meant to fund working capital for businesses that generate export sales.
These loans can range up to $5 million, and the SBA guarantee is 90%. Eligibility decisions are made by the SBA or qualified lenders. Unlike other 7(a) loans, there is no maximum interest limit imposed by the SBA for export working capital loans. The decision turnaround time is five to 10 business days.
Collateral is required, usually in the form of export inventory and personal guarantees from a business’ owners. This loan can also take the form of a revolving line of credit for three years or less.
International trade loan
International trade loans are SBA 7(a) loans aimed at businesses that want to grow their export side or need to modernize their operation to handle foreign competition.
The maximum loan amount is $5 million, and the eligibility decisions, turnaround time, and SBA guarantee are the same as for export working capital loans. For international trade loans, the loan maturity is set at 10 years for permanent working capital.
Equipment and machinery, loans mature up to 10 years or at the useful life of the equipment (not to surpass 15 years). Real estate loans mature at 25 years.
CAPLines of credit
CAPLines of credit are a form of a standard SBA 7(a) loan that works as a line of credit instead of a loan.
Remember, a business line of credit is a form of financing that allows businesses to access money as expenses arise, similar to a credit card. With a business loan, on the other hand, a full amount is disbursed upon approval, and repayments are made based on the approved amount.
The loan maximums, terms, and decision process of CAPLines of credit are the same as for standard 7(a) loans. The SBA offers four types of CAPLines:
Seasonal CAPLine - A line of credit meant for businesses that operate on a seasonal basis
Contract CAPLine - A line of credit aimed at financing businesses that work on a contract basis
Builders CAPLine - A line of credit for small general contractors or builders that construct or renovate residential or commercial buildings
Working CAPLine - A line of credit for businesses that are unable to meet credit standards for other long-term financing, typically businesses that provide credit to other businesses, and in which repayment is based on assets
Builders CAPLines of credit can last up to five years. All others can last up to 10 years. Owners of applicant businesses are required to guarantee the lines of credit.
7(a) Working Capital Pilot (WCP) Program
Launched on August 1, the WCP pilot program offers monitored lines of credit to businesses through the SBA 7(a) loan program.
Through the pilot program, eligible businesses can receive a line of credit up to $5 million. In order to qualify, businesses must operate in industries like manufacturing, wholesale, or professional services and have at least one year of operating history.
Businesses applying must be able to provide financial statements, accounts receivable, and accounts payable, as well as regular inventory reports.
The loan guarantee is the same as regular SBA (7a) loans.
SBA 7(a) loan terms
SBA loans are meant to support long-term small business growth.
Loan maturity terms, as a result, are based on the ability to repay, the purpose of the loan, and the life of assets financed by the loan. Loan maturity refers to how long it takes for a borrower to repay the loan. At the end of your loan maturity term, you’ll make the final repayment.
The maximum maturities for SBA loans are as follows.
The maximum maturity for real estate is 25 years.
The maximum maturity for equipment is 10 years.
The maximum maturity for working capital or inventory is 10 years.
SBA 7(a) loans used to buy fixed assets, like real estate or equipment, carry a maturity limited to the economic life of those assets, not to exceed 25 years. Fixed assets, which also include commercial property or furniture, are assets meant for long-term use that cannot be quickly converted to cash.
SBA 7(a) loan rates
With SBA 7(a) loans, the SBA loan interest rate is negotiated between the borrower and the lender. In most cases, the lender will determine a rate based on an applicant’s creditworthiness, and the applicant either accepts or rejects that rate.
You might be able to further negotiate a rate by talking with a lender. Importantly, the SBA sets maximum interest rates for all 7(a) loans, with the exception of export working capital loans.
This maximum interest rate is based on the prime interest rate or an optional peg rate and can be fixed or variable. The current Prime rate as of April 21, 2025, is 7.5%.
SBA 7(a) loan amount
Maximum fixed rate
$25,000 or less
Base rate + 8%
$25,000 to $50,000
Base rate + 7%
$50,000 to $250,000
Base rate + 6%
$250,000+
Base rate + 5%
SBA 7(a) amount
Maximum variable rate
Up to $50,000
Prime + 6.5%
$50,000-$250,000
Prime + 6.0%
$250,000-$350,000
Prime + 4.5%
Greater than $350,000
Prime + 3.0%
Fixed Rate vs. Variable Rate on SBA 7(a) Loans
SBA loan rates are negotiable, most lenders decide what type of rate they will offer. Most 7(a) loans are offered with variable rate, which leaves room for your payments to increase over time as market rates change.
Fixed rates don’t change with the market, which is why most lenders offer variable rates instead. They also usually incorporate higher initial costs.
SBA 7(a) fees
Along with interest rates, you should expect to pay a guarantee fee to the lender for SBA 7(a) loans. This fee will be based on the size of the loan and the type of 7(a) loan you apply for. Generally, guarantee fees range between 0% and 3.5%.
Here is how the SBA breaks down what fees lenders can charge borrowers:
Gross loan size
0% of the guaranteed portion
Maturity terms
Up to $1 million
0% of the guaranteed portion
Maturities of over 12 months
$1 million+
3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of the guaranteed portion over $1,000,000
Maturities of over 12 months
Up to $1 million
0% of the guaranteed portion
Maturity of 12 months or less
$1 million+
.25% of the guaranteed portion
Maturity of 12 months or less
SBA Express Loans to qualified Veterans & Spouses up to $350,000
$0
Maturities of over 12 months
EWCP loan up to $1 million
.25% of the guarantee portion
Any
EWCP loan greater than $1 million
.525% of the guaranteed portion
Maturities of 12 months or less
EWCP loan greater than $1 million
.525% of guaranteed portion
Maturities of 13-24 months
EWCP loan greater than $1 million
.8% of the guarantee portion.
Maturities of 25-36 months
Notably, the SBA expressly prohibits lenders from charging most other fees, including processing, origination, application, renewal, and brokerage fees.
Lenders are, however, allowed to charge a flat fee of $2,500 per loan.
Curious what you might pay on an SBA 7(a) loan? Use our SBA Loan Calculator to estimate your payments!
Eligibility requirements for SBA 7(a) loans
The SBA notes that almost all American businesses are eligible for SBA 7(a) loans, but there are exceptions, like if your organization is structured as a nonprofit or is a recreational facility or club that selectively denies membership to members of a particular minority group.
Also, if any of the principals of the business is currently incarcerated, on parole, or on probation, your application will not be accepted.
To be eligible for a SBA 7(a) loan, your business must:
Operate for profit
Operate—or propose to operate—in the United States
Have owner equity to invest
Be unable to secure financing through other non-government means
Demonstrate ability to repay the loan through a combination of credit score, earnings, and equity or collateral
Although the SBA doesn’t set any minimums for evaluating borrowers creditworthiness and ability to repay, most lenders will want to see a good personal credit score, annual revenue, and at least two years in business.
How to Apply for an SBA 7(a) Loan
While hundreds of different lenders offer 7(a) loans, the process is fairly standardized by the SBA.
Step 1: Research options and gather documents.
Consider your business needs and determine which type of 7(a) loan or line of credit works for your company. To estimate your monthly payment, visit our SBA loan calculator. Once you know what type of loan you want, you can compare lenders.
Below is a list of the documents you should prepare for your SBA loan application when applying through Lendio for an SBA 7(a) small loan.
Six months of business bank statements (connect account or manually upload images)
Copy of your driver’s license or state ID
Voided check from your business account
Month-to-date transactions
Two years of business and personal tax returns (for all business principals with 20% or more ownership)
Once you know what type of SBA 7(a) loan works for your business, compare qualified lenders. You can do this online using the lender match tool on the SBA website or with a financing platform like Lendio.
You can easily compare options and get specifics on what exactly you need for your application packet. Once you know the packet requirements and terms of the loan you want, submit your application to a lender.
Step 3: Close on loan and receive funds.
Depending on the type of 7(a) loan, the turnaround times for decisions can range widely. You might receive a decision on an application for an express 7(a) loan in just a few days, but you might have to wait several weeks to find out about approval for your standard 7(a) loan application. Patience is always a virtue when dealing with the federal government.
Alternatives to SBA 7(a) Loan
The requirements for SBA 7(a) Loans can be stringent. Maybe you feel it isn’t right for your business at this time! Here are some potential alternatives to SBA 7(a) loans to explore:
SBA Microloans- These loans are smaller, and geared to newer businesses, but come with less strict borrower requirements.
SBA Express Loan - These loans don’t require SBA review, which means you could work with a lender who can provide you funds you need quickly, with slightly less requirements than an SBA 7(a) loan.
Lendio - While you can apply for an SBA loan with Lendio’s quick application, we can also connect you with online lenders to offer other flexible financing options that work for your business.
Ready to apply?
Apply for an SBA loan with Lendio’s quick application. We’ll connect you with the right lender for your situation, and can, on average, get you funded with a 7(a) small loan in less than 30 days.
Every great business has to start somewhere. The founders of Apple and Amazon launched their business dreams in garages. Samsung began as a grocery store. Coca-Cola originally made its product in jugs and sold the now-famous soda for a nickel a glass at a local pharmacy.
Many businesses start from nothing before becoming something special. When the right moment arrives, securing the right funding for your startup can be pivotal in getting your business off the starting block and on the path to success.
The good news? Startup business loans exist, even if you have no revenue or a limited credit history.
While traditional lenders prefer established businesses, there are alternative financing options designed specifically for entrepreneurs starting from scratch.
Getting a startup loan with no money or revenue.
Getting funding as a brand-new startup with no money can be a challenge. The majority of small business loans have at least some minimum revenue requirements.
So, if you have the ability to wait until your business is earning some money, it could open the door to more financing options and more attractive borrowing terms.
In the meantime, there are at least two potential ways to get a loan for your startup before it begins earning revenue.
Equipment financing
Some equipment financing lenders (though not all) are willing to work with startups. These lenders may have no minimum monthly revenue requirements and no minimum time in business requirements for applicants to satisfy.
The collateral your business is purchasing secures the loan and reduces the risk for the lender. However, you may likely need decent personal credit to qualify for this financing option, depending on the lender.
SBA microloans
An SBA microloan provides financing of up to $50,000 for small businesses. The loans are intended to support underserved communities and are distributed by nonprofit or community microlenders.
The requirements to qualify for a microloan will vary by the lender. Some will review your credit score and personal finances to qualify you for a loan while others will want to see a longer financial history for your business. While some of these lenders may not require positive business cash flow, they may still require a personal guarantee and/or collateral to secure the loan.
How to get a startup business loan with no money or revenue.
Decide how much you need
A key step in finding the loan that matches your business needs is identifying how much money you’ll need to borrow. Every lender has a different range of financing they are comfortable offering. Therefore, you probably wouldn’t search for a $5-million loan in the same place you’d search for a $5,000 loan.
Determine your timeline
Likewise, you should figure out how quickly you need the money you borrow to arrive. Some loan proceeds may be available in days or hours. For other loans, the funding process could take weeks or months.
Determine your budget
Next, crunch the numbers and see which loan gives you the best bang for your buck. There are plenty of easy-to-use loan calculators available online. So don’t worry if math isn’t your strong suit. (Note: It’s wise to compare multiple loan options to make sure you’re getting the best deal available for your small business.)
Alternative forms of financing for your startup.
It’s not always easy to access business funding as a new startup. According to Gallup, 77% of small business owners use personal savings as a source of initial capital. Nonetheless, there are alternative ways to finance your business dreams that don’t involve potentially draining your personal bank account.
Here are a few alternative business funding options to consider.
Crowdfunding - Crowdfunding is a way to raise money online for your young business—either by seeking loans from multiple investors (debt crowdfunding), asking for donations (donor crowdfunding), selling off small portions of your business (equity crowdfunding), or offering incentives for contributions (reward-based crowdfunding).
Business Credit Cards -A business credit card could be a good financing option for startups with no revenue and no established business credit score. Depending on the type of business credit card you apply for, you may need good personal credit to qualify. But there are some options (including secured business credit cards) for small business owners with no credit or bad credit.
Family and Friends -Some small business owners are able to borrow money or raise investment funding from family members and friends. If you’re fortunate enough to have this option available to you, be sure to consider the risk up front. Should your business fail or if you’re unable to repay a loan from a loved one, these complications could damage important relationships.
Grants -For a startup, small business grants can be an appealing way to raise money since the business doesn't have to repay the money it receives. Yet with grants, you might also face a lot of competition. It can often be a challenge to stand out from other applicants where small business grants are concerned.
The information in this blog is for informational purposes. It should not be used as legal, business, tax, or financial advice. The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (July 26, 2022). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.
Business loan credit score requirements vary based on many factors. Different lenders (even non-traditional lenders) might look at the same business loan requirementsand weigh their importance differently.
Before you go into the bank, you’ll want to know where you stand with these four very important metrics:
Your credit score—both your personal and business score (yes, there is more than one)
Years in business—most banks want to see two or more
Your annual revenues—more is better than less
Your collateral—there are different types of collateral, depending upon the type of loan you’re looking for
Credit score is number one for a myriad of reasons. It’s the most important metric and is the cause of most rejections. Although there is hope for business owners with less-than-stellar credit, those options come with a cost. Minimum credit score requirements vary by loan type and lender, but you'll have the most options available to you with a minimum credit score of 650.
Minimum credit score by loan type.
Here are the minimum personal credit score requirements for each type of business financing to get an idea of the options available to you.
Type
Credit score requirement*
SBA loan
Minimums start at 615
Term loan
Minimums start at 600
Line of credit
Minimums start at 600
Invoice factoring
Typically have no credit score requirement
Equipment financing
Minimums start at 520
Business cash advance (Merchant cash advance)
Minimums start at 500
Commercial real estate
Minimums start at 650
Minimum credit score by lender type.
Here are the minimum personal credit score requirements for each type of business financing to get an idea of the options available to you.
Type
Credit score requirement*
Bank/Credit Union
Minimums start at 700
SBA Lender
Minimums start at 650
Online lenders
Minimums range from 500-650
CDFIs/Nonprofits
Varies widely. Some may have no credit score requirement.
Why does credit score matter?
Credit scores play an influential role in securing a business loan. This three-digit number quantifies your fiscal responsibility and reliability, providing lenders with a quick, objective assessment of your credit risk.
In essence, a good credit score signals to lenders that you've consistently fulfilled your financial obligations to other lenders on time and are likely to repay their loans promptly. Consequently, businesses with higher credit scores are often offered more favorable loan terms, including lower interest rates and longer repayment periods.
Conversely, a bad credit score could denote a higher risk proposition for the lender, potentially leading to a rejected application or a higher interest rate and stringent loan conditions.
About personal credit scores.
One of the most commonly used personal credit scores is the FICO Score, developed by the Fair Isaac Corporation. The FICO Score is calculated based on five main components, each weighted differently:
Payment history (35%) - This represents whether you've paid past credit accounts on time.
Amounts owed (30%) - This includes the total amount of credit and loans you're utilizing compared to your total credit limit, also known as your credit utilization ratio.
Length of credit history (15%) - This considers the age of your oldest credit account, the age of your newest credit account, and an average of all your accounts.
New credit (10%) - This comprises the number of new accounts you've opened or applied for recently, including credit inquiries.
Credit mix (10%) - This takes into account the diversity of your credit portfolio, including credit cards, retail accounts, installment loans, mortgage loans, and others.
FICO credit scores range from 300 to 850. Here's a general classification of FICO scores:
Bad credit: 300-579
Within a credit score of 300-579, you'll struggle to qualify for business financing. Once your score gets above 500, you may qualify for a cash advance, equipment financing, or invoice factoring depending on the lender and whether you meet other requirements.
Fair credit: 580-669
With a fair credit score of 580-669, you'll meet most minimum credit score requirements for a cash advance, invoice factoring, or equipment financing. If your score is 600 or above, you're more likely to qualify for a line of credit or term loan.
Good credit: 670-739
Within this credit range, you'll likely meet all lender's minimum credit requirements for term, SBA, commercial real estate, and bank loans.
Very good credit: 740-799
Exceptional credit: 800-850
About business credit scores.
A business credit score, much like a personal credit score, is a numerical representation of a business' creditworthiness. It provides a quick, objective snapshot of the financial health of a business and its ability to repay debts on time. The score is generated by credit bureaus such as Dun & Bradstreet, Equifax, and Experian, and ranges typically from 0 to 100.
The calculation of a business credit score considers several factors, including:
Payment history - As with personal credit, timely repayment of debts is crucial. Regular, on-time payments to creditors enhance your business credit score.
Credit utilization ratio - This measures how much of your available credit your business is currently using. A lower ratio (meaning you're using less of your available credit) can positively impact your score.
Length of credit history - Longer credit histories can benefit your business credit score, as they provide more data about your business' long-term financial behavior.
Public records - Bankruptcies, liens, and judgments can negatively affect your business credit score.
Company size and industry risk - Larger companies and those in industries considered less risky may have higher credit scores.
Lenders will typically review both your personal credit score and business credit score when qualifying you for a business loan.
How to increase your credit score.
If your credit score isn’t where you’d like it to be, there are several steps you can take to boost your score.
Monitor your credit reports.
Equifax, Experian, and TransUnion are where you’ll want to go to see your current credit reports. Make sure the information is correct and that your credit report reflects reality. Make sure that the report is accurate and that accounts that aren’t yours aren’t reported. Bankruptcies that are over 10 years old or the associated accounts shouldn’t be reflected on the report. Other negative information older than seven years should also not be included in the report.
Get a major credit card.
Getting a credit card and using it wisely is one way to boost your credit. Be sure to make your payments on time.
Arrange automatic payments on every card or loan.
It’s easy to forget to make a payment when it’s due or let travel or a busy schedule distract you. However, credit scores are very sensitive to whether or not you make payments on time, so do all you can to keep your payments regular and on time.
Don’t let disputes go to collections.
If you have a dispute with a vendor and you allow it to escalate to collections, it doesn’t look good on your report. Rather than taking this path, it’s better to pay under protest and go to small claims court. Don’t get sued, though, as lawsuits and judgments are also major dings to your credit.
Consolidate your debt if you can’t pay it off quickly.
The scoring criteria treat installment loan balances kinder than the same balances on a credit card. But be wise with your credit card balances and avoid running them up.
Take debt off your credit report entirely.
This is a tough one, but family, friends, or dipping into your retirement plan is sometimes a good way to get credit off your report entirely. Be careful about dipping into your 401k. If you borrow from a 401k and repay it there are no tax consequences, but if you withdraw money, there will be tax consequences.
Don’t close accounts or let them be closed.
It might not help your scores and could hurt them. If you’ve got a card you haven’t used for a while, take it out to dinner or buy a tank of gas, just make sure they’re included with your other automatic payments.
Don’t apply for credit you don’t need.
At about five points an application, if you have sketchy credit, it can add up.
Depending on how bad your score looks today, you might need to invest some time—but there is hope. Just remember, your credit score is the first thing any lender will look at before they offer you a small business loan.
*The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (Feb 5, 2024). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.
When your business needs a quick cash infusion to deal with unexpected expenses, seize growth opportunities, or meet urgent operational costs, fast business loans come to the rescue. These loans are designed for swift approval and funding—often within 24 hours—making them an ideal choice for situations where traditional loan processes may be too slow.
This guide will walk you through the various options for a quick business loan, helping you make an informed decision that suits your business needs.
Fastest types of business loans.
Here are five quick business loans and other financing structures that provide fast approval times, as well as quick funding. The terms and repayment structures vary for each type of loan or financing, so take a look to see which might be the best option for your company.
Financing type
How it works
Time to funds*(after approval)
Line of credit
Draw as much or as little money as you need up to a set credit limit.
As soon as same business day
Term loan
Receive a lump sum of cash repaid in monthly installments.
As soon as same business day
Equipment financing
Receive a lump sum used to purchase approved equipment.
As soon as same business day
Business cash advance
Receive an advance on expected future revenue repaid in daily or weekly installments.
As soon as same business day
Invoice factoring
Sell your invoices at a discounted rate to get access to expected income faster.
As soon as same business day
*Varies by lender
1. Business term loan
A term loan is a lump sum of cash that is repaid with interest over a set period, typically ranging from one to 10 years. These loans are available through traditional banks, as well as alternative lenders and online platforms. The application process can take anywhere from a few days to several weeks, but certain lenders offer expedited approval and funding for those in need of fast business loans.
A business line of credit is similar to a credit card. You have a credit limit you can draw upon at any time, and you pay interest only on the amount you draw. A line of credit can help cover short-term needs such as paying for inventory or seasonal changes in cash flow.
Features of a business line of credit are as follows:
A cash advance isn’t a loan but a cash advance based on future sales. This makes qualifying easier since the financing company considers revenue and sales more than your credit history. The repayment is an agreed-upon percentage of your income that comes directly from your bank account each day until your balance is repaid. This type of financing is ideal for companies with stable cash flow.
Features of a business cash advance are as follows:
Equipment financing is an excellent option for businesses that need to purchase or lease new equipment quickly. This type of loan covers a wide range of items like machinery, vehicles, office technology, and more. The equipment itself serves as collateral for the loan, which often results in more favorable terms, since the lender has a secure form of repayment. Depending on the lender, you might be able to finance up to 100% of the equipment cost.
Invoice factoring allows you to get paid faster for your outstanding invoices. With invoice factoring, the financier will purchase your invoice at a discounted rate, giving you a percentage of the money upfront. Then, after the customer pays the invoice in full to the financier, you receive the rest of the money, minus a fee. Funds from invoice factoring can be available as soon as the same day. Plus, the factoring company handles collecting payment from your customers, freeing up your time and resources for other areas of your business.
While speed to funds is one factor to consider when comparing business loan options, it’s important to compare multiple factors when selecting a business loan including the total cost of the loan and the maximum loan amount. In some cases, waiting a few more days or weeks will allow you to work with a lender who can offer more favorable terms.
Some common reasons to get a fast business loan include:
Immediate working capital needs
Unexpected business expenses
You don’t qualify for a traditional bank or SBA loan
Fast Small Business Administration (SBA) loan options.
In some scenarios, the Small Business Administration (SBA) provides expedited loan options that offer both speed and beneficial terms, making them a worthwhile consideration for businesses in need of swift funding.
SBA Express Loans
An SBA Express Loan is a variant of the popular SBA 7(a) loan with a faster approval time. This expedited process, often within 36 hours, offers loan amounts up to $350,000.
Applying for an SBA 7(a) Small Loan with Lendio.
Lendio offers a convenient SBA loan application process. While it might take 30 to 90 days with your local bank, potential borrowers can complete an application and get a pre-approval within 24 hours, and after providing the required documentation, can get funded with a 7(a) small loan in fewer than 30 days.
How to get a fast business loan.
Follow these steps to obtain fast business funding:
1. Determine your needs - Understand the exact amount you require and the purpose of the loan. Make sure a fast business loan is the right choice for your needs.
2. Check your credit score - Lenders will consider your personal and business credit scores when determining approval and rates. Ensure your credit is in good standing to increase your chances of approval.
3. Gather necessary documents - This usually includes business and personal tax returns, bank statements, balance sheets, and a detailed business plan. Having these documents ready can speed up the process significantly.
4. Compare lenders - Different lenders offer different terms, requirements, and rates. Research and compare multiple lenders to find the one that best fits your needs.
5. Submit your application - Complete your loan application with your chosen lender. Be thorough and accurate to avoid unnecessary delays.
Remember, while fast business loans provide quick access to capital, they may come with higher rates and shorter repayment terms. Consider all your options and understand the terms before making a decision.
Pros and cons of fast business loans.
Just like any financial product, fast business loans come with their own set of benefits and drawbacks. Understanding these pros and cons can help you make a more informed decision.
Pros of fast business loans:
1. Quick access to capital - The most significant advantage of fast business loans is their speed. When your business needs funds immediately, these loans can provide cash within one business day, making them an ideal solution for emergencies.
2.Simple application process - Fast business loans typically have a straightforward online application process that can be completed within minutes, without the need for extensive paperwork.
3.Potential for approval with bad credit - Many fast business loan providers are more flexible with credit score requirements, which can be beneficial for businesses with a less-than-stellar credit history.
Cons of fast business loans
1.Higher rates - The convenience and speed of fast business loans often come at a cost. The rates can be significantly higher than those of traditional business loans.
2.Short repayment terms - Fast business loans usually must be repaid relatively quickly, often within a few months to a few years. This could potentially strain your cash flow.
3.Risk of debt cycle - If used improperly or over-relied upon, businesses may find themselves in a cycle of debt, taking out another loan to pay off the previous one.
Before applying for a fast business loan, weigh these pros and cons carefully. Consider how the repayment terms and rates will impact your business's cash flow and growth, and consult with a financial advisor if needed.
How to compare fast business loans.
When you're considering a fast business loan, it's all about striking the right balance between speed, terms, and cost. Here's how to navigate the maze and compare multiple options effectively.
Understand your urgency
Your first step is assessing the urgency of your financial needs. Do you require the funds within 24 hours, or can you wait a week or two? The urgency will narrow down your options and help you focus on lenders who can meet your timeline.
Know your numbers
Financial literacy is non-negotiable in the world of business funding. Calculate exactly how much you need, and more importantly, how much you can afford to repay. Use loan calculators and projections to understand the long-term impact of the loan.
Read the fine print
The devil is in the details. While speed is your priority, don't skim over the terms and conditions. Look for prepayment penalties, additional fees, and any other clauses that could affect your small business negatively.
Review the repayment terms
Fast business loans often come with shorter repayment terms. Ensure you can meet the daily, weekly, or monthly repayments without straining your cash flow. If you can't find a loan with terms that suit your business's financial rhythm, it may not be the loan for you.
Evaluate the total cost
The Annual Percentage Rate (APR) is your benchmark for the total cost of the loan. The lower the APR, the cheaper the loan. But also consider the application fees, processing fees, and any other costs that could push the total cost up.
Shop around
Don't settle for the first offer or even the third. Approach multiple lenders and use the competitive landscape to your advantage. You might find that you're eligible for lower rates or better terms than you initially thought.
Secure or unsecured?
Fast loans can be secured against your assets or unsecured, with no collateral required. While secured loans often have lower rates, unsecured loans are quicker and don't put your personal or business assets at risk.
Understand credit score repercussions
Applying for multiple loans can impact your credit score, so be strategic. If your credit score allows, consider pre-qualification offers that give you a rough idea of what you qualify for without a hard credit check.
You might consider an SBA microloan if you’re trying to start or expand a small business.
But how exactly does getting a microloan through the SBA work? What do you need to meet the requirements? What do terms look like? How do you get started with an application?
We’ll answer all these questions in more in our guide to SBA microloans. We’ll explain how it all works, highlighting requirements, current interest rates, microloan lenders, alternatives, and how you can apply today.
What is an SBA microloan?
The SBA microloan program consists of small loans funded by the Small Business Administration. However, these loans don't come directly from the SBA to the borrower. Instead, the SBA provides the funds to a network of intermediary lenders, such as community based nonprofit lenders.
This network then provides microloans to eligible small businesses and certain childcare centers. Participants in the nonprofit lender network are selected not only for their experience in lending, but in management and technical assistance as well, so that these intermediaries can administer the microloan program effectively.
Microloans can be used for many purposes, affording small businesses flexibility when needing to rebuild, re-open, repair, or improve their business.
Seeking an SBA microloan might be a solution if you are looking to:
Access working capital
Purchase or replenish inventory or supplies
Replace or purchase furniture or fixtures in your business
Purchase new machinery, or secure equipment upgrades
However, you can not use an SBA microloan to pay existing debts, settlements of lawsuits, trade disputes, fines or penalties, or purchase real estate. You also can’t use the SBA microloan for personal, non-business use.
SBA microloan requirements
The SBA microloan loan program is geared for early-stage businesses and startups, but all for-profit small businesses and certain nonprofit childcare centers are eligible.
Because SBA microloans target early-stage businesses and underserved business segments, the requirements for qualification are less stringent than other types of traditional loans. Even if you have limited credit history or lower income, you may qualify.
Of course, each intermediary lender will have its own eligibility requirements, but most will ask for some or all of the following:
Collateral and/or a personal guarantee from the business owner
Minimum credit score - 620 or higher is good to have, but intermediary lenders may accept lower scores
Owner’s Personal finance history
Business finance history, with current cash flow or cash flow projections
A certain location within the lenders geographic service area
A minimum amount of time in business
SBA microloan rates, fees and repayment terms.
Although the SBA places certain restrictions on intermediary lenders, such as not exceeding $50,000 in loan amounts, interest rates and fees are up to your specific lender.
The interest rates will vary depending on your lender, but they typically range between 8% and 13%. And repayments terms are available for up to seven years.
SBA microloans also cannot be made as a line of credit - the microloan is structured as a term loan.
SBA microloan stats
Loan Type
Term Loan
Term Length
Up to 7 years
Loan Amount
Up to $50,000
Interest Rates
8-13%
Packaging Fees
Up to 3% of loan amount, plus closing costs determined by lender
Pros and cons of SBA microloans
Pros
Easier to qualify for: If you’re a startup or don’t have much business history, it can be hard to qualify for a business loan. Microloans, on the other hand, come with less stringent requirements, having been built to provide financing to businesses that traditionally struggle to find funding.
Faster funding: If you apply for a traditional SBA loan, the application and funding process can take months to complete. In comparison, you could receive funding through your microloan in just 30 days.
Low interest rates: Like all SBA loans, microloans come with low interest rates. The rates will vary depending on your lender, but the average rate is between 8% and 13%.
Flexible loan terms: SBA microloans come with repayment terms of up to 7 years, so your monthly payments are more affordable.
Cons
Small loan amounts: If you need to borrow more than $50,000, the microloan program might not be the best option for you.
Spending restrictions: SBA microloans do come with certain spending restrictions. For instance, you can’t use the funds to pay down existing debt or purchase real estate.
Lenders may charge fees: The SBA caps its fees, but individual lenders can charge their own fees. For instance, you may have to pay an application fee, loan processing fee, or closing costs.
Availability is limited: Since SBA microloans are offered by nonprofit intermediary lenders, these loans can be harder to find. These lenders don’t have the resources and staff that larger lenders have, so these loans might not be available in your area.
Finding SBA Microloan Lenders
The SBA has hundreds of lending partners located across the country, and provides a comprehensive list of microloan lenders to help you find a match.
Most lenders will require you to either speak to a lending specialist over the phone or apply in person.
The lender you work with will inform you about any necessary paperwork and documentation to apply. In addition, some lenders may require that you complete a workshop or training program as part of the application process.
As part of your paperwork, you’ll need to provide a range of information, including:
Proof of identity
Description of collateral
Balance sheet data (income and expenses)
Personal and business tax records
Business details (industry, licensing, assets, leases, etc.)
Once you’ve submitted all the required paperwork, your application is complete, and your lender will review and process the loan.
Alternatives to SBA microloans
If you’re not sure if an SBA microloan is the right fit for your business, here are some alternatives to consider:
SBA 7(a) loans: SBA 7(a) loans are a good choice for businesses that need larger loan amounts. These loans are available for up to $5 million, but the qualification criteria are more strict.
Business credit cards: A business credit card can be used for any business purchase, and the application process is relatively easy. If you go this route, look for a card with an introductory 0% APR.
Invoice factoring: If you have a lot of cash tied up in your unpaid invoices, invoice financing allows you to leverage your outstanding invoices to get access to capital.
The bottom line
SBA microloans can help startups and small businesses access the capital they need. These loans are a good option for traditionally underserved borrowers, like women and minorities, or low-income community businesses. If you’re interested in exploring your loan options, you can use Lendio to quickly compare loan offers from multiple lenders.
Your small business has limited or no financial history, and you find yourself needing a business loan. With no tax returns on-hand and limited paperwork, what are your options?
As you might imagine, this is a very common question for entrepreneurs and new small business owners. The good news is that there are options.
Here, we’ll walk you through no-doc business loans, as well as some other alternative options that don’t require tax returns, and what you do need to qualify for them.
First off, can I get a business loan without tax returns?
Yes, you can. Many lenders offer business loans without requiring tax returns, typically referred to as no-doc business loans or low-doc business loans (meaning no or low documentation).
Traditional banks often require extensive documentation and financial history. Online and alternative lenders are making it easier to secure funding with minimal paperwork.
If you’re looking for a no-doc business loan, you’re probably in one of the following categories:
Startup without tax history
Small business owner with no/fluctuating income
Entrepreneur prioritizing fast access to funds (regardless of tax history)
What are no-doc business loans?
A no-doc business loan is a type of financing that doesn’t require traditional financial statements like tax returns, profit and loss statements, or detailed revenue reports.
Instead, lenders evaluate eligibility with more day-to-day items, like bank statements, credit scores, merchant transactions, and invoices (both incoming and outgoing).
How do no-doc loans work?
Unlike traditional business loans, no-doc loans prioritize speed and accessibility. They’re typically offered by online or alternative lenders, and less so from traditional banks.
Instead of tax returns, lenders assess:
Business bank statements (typically 3–12 months)
Personal or business credit score
Merchant processing statements (for businesses with credit card sales)
As is the case for any alternative or fast loan options, no-doc business loans typically come with higher interest rates, lower funding amounts, and less favorable repayment terms.
Personal and business credit scores, the steadiness of your business (revenue and spending), and collateral will typically be the biggest determinants of the terms you qualify for.
No-doc business loan options
As discussed above, no-doc loan options don’t require the same level of paperwork as traditional loans.
Most no-doc lenders still require business bank statements, credit scores, outstanding invoices, and proof of ownership (business info like EIN, entity type) and a voided check.
Outside of specific no-doc loans, you still have a selection of options that won’t require a tax return. A business cash advance, for example, is an advance based on the future sales of your business.
How does it work?
A lender provides a lump sum upfront. For business cash advances, daily or weekly repayments are determined based on your cash flow. With MCAs, repayment is based on a percentage of your daily credit card transactions. Because repayment is based on sales, it’s a good option for business with strong, steady revenue.
Best For
Documentation Required
Businesses with high credit card sales (e.g. restaurants, retail)
Entrepreneurs who need fast access to cash
Companies with service-based or seasonal pay out gaps (e.g. construction companies with lags between jobs and payment)
Fleet/ equipment operators with high upfront costs
If you have tight profit margins. Repayments come daily/weekly, which can drain cash fast.
If you’re not as familiar with factor rates - these rates are expressed differently than typical interest rates and require some additional calculation to understand the total cost of your loan.
If you’re looking for long-term growth capital. Cash advances are for short-term growth, not strategic scaling.
2. Business lines of credit
A business line of credit works like a personal credit card, allowing small businesses to draw funds as needed up to a set limit. Unlike traditional loans, a line of credit is not delivered as a lump sum, but can be accessed as needed at any time (so long as the amount stays within the credit limit).
A business line of credit serves as a great safety net for different types of small businesses.
Best For
Documentation Required
Businesses with inconsistent revenue or payment schedules
Seasonal e-commerce and retail
Inventory-heavy businesses
Bank statements (last 3-12 months)
Business revenue records
Personal or business credit score
When you shouldn’t use a business line of credit:
If your startup is brand new. Lenders typically want 6–12+ months in business.
If you need a lump sum of cash upfront.
If you need money yesterday. LOC approvals can take a few days.
3. Invoice financing & factoring
Invoice factoring allows businesses to get an advance on unpaid invoices.
Lenders front a percentage of the invoice amount, giving small businesses access to immediate capital, instead of having to wait for customers to pay in-full. Repayment happens when the customer pays their invoice.
Best For
Documentation Required
Businesses with outstanding invoices
Businesses that need immediate cash flow
Businesses in industries with long payment cycles or slow paying clients
Outstanding invoices
Business bank statements
Proof of ownership and operation (EIN, licenses, etc.)
When you shouldn’t use invoice factoring:
If you don’t have invoices to factor (i.e. consumer retail, restaurants, etc.)
If you have low-margin invoices. Factoring fees can eat into profits.
If you don’t want clients to know you’re factoring (some lenders notify your customers during the process).
4. Short-term business loans
Short-term small business loans give you access to a lump sum upfront, with fixed repayment over a short period (usually 3 to 24 months, though sometimes up to 36).
Payments are daily, weekly, or monthly, depending on your terms. Like no-doc business loans, short-term loans require little documentation, but come with higher interest rates compared to traditional loans.
Best For
Documentation Required
Growing businesses with near-term ROI
Businesses with minor credit issues
Businesses needing fast cash for emergencies or growth
Business owners who have been previously denied by banks
Business bank statements (last 3-6 months)
Business credit score
Proof of revenue
When you shouldn’t look for a short-term business loan:
If you have tight cash flow. Daily or weekly repayments can get rough fast
If you’re looking for long-term, low-cost funding. You’ll get a better deal with SBA or term loans.
If you don’t have revenue. You likely won’t qualify.
Feature comparison of small business loans that don't require tax returns
Feature
No-Doc Loan
BCA/ MCA
Line of Credit
Invoice Factoring
Short-Term Loan
Speed
✅ Same day to 72 hours
✅ Same day to 48 hours
⚠️ 2-5 days
✅ 24-48 hours
✅ 1-3 days
Docs Required
✅ None or bank statements only
✅ Minimal (bank statements only)
⚠️ Moderate (Bank statements, ID, sometimes P&L statements)
⚠️ Moderate (Invoices, basic business information)
⚠️ Moderate (Bank statements, ID)
Cost
⚠️ Moderate to High
❌ Very High
✅ Low to Moderate
⚠️ Moderate (varies, typically between 1-5% per invoice)
⚠️ Moderate to high APR
Repayment Style
✅ Fixed daily/ weekly
❌ Daily percentage of revenue
✅ Flexible as needed
✅ No repayments
✅ Fixed daily/ weekly
Credit Requirements
✅ Credit often not required
✅ Low or no personal credit OK
⚠️ 600+ preferred
✅ Based on customer credit
⚠️ 580+
Best Use Case
Fast cash with little paperwork
Emergency cash flow
Managing cash flow, a buffer
Waiting on slow-paying invoices
Growth projects, inventory
Qualifying for a no-doc business loan
Even without tax returns, lenders still need to evaluate the financial health of your business. So, even if you’re looking for a no-doc or low-doc business loan option, you should still be prepared with:
A Strong Credit Score: No-doc lenders often rely heavily on personal or business credit scores.
Bank Statements: Demonstrating steady cash flow helps prove repayment ability.
Proof of Revenue: Alternative documentation, like merchant account statements or invoices, can replace tax returns.
Collateral (Optional): Some lenders offer secured no-doc loans if you can provide business assets as collateral, which will help you qualify for more favorable terms.
Explore your options
Not having tax returns shouldn’t stop you from securing the funding your business needs. By exploring alternative financing options like no-doc loans, BCAs, and short-term loans, you can find something that works for you, and works for you now.
If you’re ready to explore your options, Lendio can connect you with lenders offering business loans without tax returns. Get started today!
Disclaimer:The information provided is for general informational purposes only and should not be construed as financial, tax, or legal advice. Lendio is not a financial institution, lender, or tax advisory firm, and we do not provide tax preparation or professional financial guidance.Our products may help individuals and businesses access financing solutions that can assist with tax-related obligations; however, it is the responsibility of each individual or business to consult with a qualified tax professional or financial advisor to assess their specific tax liabilities and financial needs.Lendio makes no representations, warranties, or guarantees regarding eligibility for financing, tax benefits, or compliance with any tax laws. Loan approvals and terms are subject to lender qualifications, underwriting, and applicable laws. Always seek independent advice before making financial or tax-related decisions.California loans made pursuant to the California Financing Law, Division 9 (commencing with Section 22000) of the Finance Code. All such loans are made through Lendio Partners, LLC, a wholly-owned subsidiary of Lendio, Inc. and a licensed finance lender/broker, California Finance Lenders License No. 60DBO-44694.
Understanding how small business financing impacts tax strategy and preparation is essential for business owners and financial managers seeking to optimize their tax strategy and improve financial planning. Business loans play a critical role in supporting small businesses by providing the necessary capital, but the associated tax implications can be complex.
Some of that complexity comes from different loan product types that a small business may obtain, and whether interest or payments can be deducted from taxes. In this article, we'll cover common business loan types and their tax implications, the criteria for claiming interest tax deductions, business loan payment deductions, and common mistakes to avoid when filing your taxes.
Are business loans taxable?
Business loans are not considered taxable income, because they represent borrowed funds that the business is obligated to repay. When a business receives a loan, the principal of the loan does not count as income for tax purposes, since the amount received isn't earned -- it's borrowed.
However, while the principal is not taxable, the interest paid on the loan might be eligible for tax deductions. Small businesses often deduct interest paid on a loan as a business expense, as long as criteria are met, which we will cover in section 2. By deducting interest payments, businesses can reduce their taxable income, lowering the tax burden.
What types of business financing are considered taxable?
There are situations where business financing becomes taxable income. For example, if a lender forgives or cancels a loan, the amount forgiven could be considered taxable income for the business. A recent example is Paycheck Protection Program (PPP) loans issued during the COVID-19 pandemic.
Many businesses applied for and received loan forgiveness for their PPP loans, becoming eligible to exclude the amount forgiven from taxable income. However, the IRS found recurrent instances where PPP loans were improperly forgiven, because the applicant did not meet the criteria for forgiveness through misrepresentation or omission. Businesses that were found to have improperly forgiven PPP loans were instructed to include the amount forgiven in their income and pay any additional income tax assessed.
Another situation where financing might be considered taxable is if it is used for non-business purposes. In this case, any interest paid on the loan would not be tax deductible and could be subject to taxes. These situations underscore why it is important for businesses to carefully consider tax implications when seeking financing, and ensure they are using funds appropriately, and in line with requirements set by lenders or government programs.
When in doubt, a professional tax filing service can be a big help. Lendio is proud to partner with Taxfyle, a real-time tax filing app that helps small businesses file taxes with the help of a dedicated CPA or EA professional.
Common business loan types and their taxability
Small businesses can find a wealth of loan types to increase their working capital and invest in growing their business. That's why it's essential to understand how each can impact your taxes and overall financial strategy. Below are some common types of small business financing, and considerations for their tax implications.
Business term loans are a lump-sum financing payment for small businesses that usually come with a fixed interest rate and repayment schedule over an agreed term. The interest paid on these loans is usually deductible as a business expense, reducing taxable income.
Business lines of credit provide flexible access to capital. Small businesses can borrow as needed, up to a negotiated limit, and interest is paid only on what amount is used. The interest on the amount withdrawn is often deductible, provided it is used for legitimate business purposes.
Equipment financing is tied specifically to purchasing or leasing equipment, and the tax implications are two-fold. Both interest paid on the financing and depreciation of the asset may offer tax deductions to the business.
Revenue-based financing, or cash advance, is a more unique form of financing, in that repayment is linked to future sales. Because of this model, these are not technically loans, and the associated fees may not qualify for interest deductions on taxes.
Small Business Administration (SBA) loans provide favorable terms and low interest rates to borrowers, and these interest payments are generally deductible.
Deducting business loan interest: what's eligible?
An interest tax deduction is a valuable tool for small businesses looking to reduce taxable income. To claim these deductions, it is essential to first understand the criteria set by the IRS.
Conditions for interest payment deductibility
Small businesses can generally deduct some or all of the interest paid or accrued during a tax year on loans. However, you can only deduct the interest if you meet the following criteria:
You are legally liable for the debt
Both you and the lender intend the debt to be repaid
You and the lender have a true debtor-creditor relationship
If you have received business financing and are using it for business-related expenses or purposes, this is fairly straightforward. There are some exceptions where deductibility is concerned to be aware of.
Exceptions to interest deductibility
Gross Receipts over $29 million
The IRS provides a small business exemption for businesses with average annual gross receipts of $29 million or less over the past three years. If a business has more than $29 million in gross receipts, they may be limited on how many interest deductions they can claim. Form 8990 will help you determine if you must limit your business interest expense deductions and whether your business qualifies to elect out.
Part-Business, Part-Personal Loans
In some cases, a loan may be for both business and personal reasons. A common example is a car loan. If you use the car for business purposes and personal purposes, you can only deduct the interest on the percentage of business use for the car, not on the entire interest of the loan for the year.
Tracking and documenting business financing for taxes
Accurate tracking and documentation of business financing is important for small businesses to maintain, in order to optimize tax deductions and ensure compliance with the IRS. Record-keeping involves maintaining detailed accounts of all loan-related transactions, including:
Original loan agreement
Interest payment records
Correspondence with lenders
Repayment schedules
Use of borrowed funds
By keeping these records organized and frequently updated, small businesses work toward managing business taxes well, and substantiate any deduction claims when filing their taxes. It also allows financial planning to maximize the potential for interest and payment deductions, as well as mitigate risks.
Expert tips for optimizing tax efficiency
Tax efficiency should be a goal of small businesses, especially during seasons when margins can be tight. Here are some tips to help you navigate some common financing-related tax mistakes that can affect your financial statements, and make tax season a real headache.
Common Mistakes to Avoid
1. Misclassifying Expenses
A common mistake small businesses make when filing their taxes is mislabelling expenses, or categorizing them incorrectly. This can cause inaccurate financial records, and potentially disallow tax deductions that could reduce tax burden. The most common misclassification is classifying a personal expense as a business expense. Doing this can cause issues and potential penalties during an IRS audit.
Tip: Keep careful records with clear classification of expenses using accounting software or a dedicated financial professional. This will make reducing tax errors easier, and also give you more accurate insights into your operational costs and overall financial health.
2. Not reconciling loan interest correctly
As a practice, small businesses should keep careful records of each interest payment associated with a loan. When records aren’t properly updated or kept, discrepancies may appear on financial statements and in your tax filing, resulting in missing out on eligible deductions or even overpayment. Mismatched records may also be flagged during an IRS audit.
Tip: Regularly update and review your financial records, particularly where loan interest payments are concerned. This provides clear visibility both for your business, and the IRS.
3. Reporting loan forgiveness incorrectly
If your business receives loan forgiveness, it is important to assess whether it needs to be reported as taxable income. Failing to do this can lead to serious tax implications, including penalties and interest owed. The PPP loan example above is a cautionary tale. Most cases of debt forgiveness or cancellation require you to include the cancelled amount in income, with some exceptions like bankruptcy or insolvency. IRS Publication 4681 offers guidance on canceled debts and exceptions.
Tip: Maintain accurate financial records and any correspondence or documents provided by the lender forgiving or cancelling the debt. Consult with a tax professional to determine if your forgiven loan should be reported as taxable income, and ensure compliance with IRS regulations.
Should you work with a tax professional?
Navigating business loan tax implications can be daunting for even the most experienced business owner. A tax professional can be an invaluable resource in optimizing your financial strategies, while ensuring you remain in compliance with IRS regulations.
But keeping a dedicated finance professional on the payroll can be a tough order for small businesses. That’s why services like Taxfyle, Lendio’s trusted partner, can help small business owners immensely navigate tax filing, especially where business financing comes into play.
Taxfyle connects you to a licensed CPA or EA who will prepare and file your business tax return for you, looking for maximum eligible deductions, qualifying credits and filing with accuracy.
If you’re concerned about the state of your books, Taxfyle’s cleanup bookkeeping will organize your records, fix errors, and get your finances tax-ready before it’s time to file.
Want to learn more about Taxfyle? Visit www.taxfyle.com for more information. Lendio customers can get a discount on business tax filing services. Click here to get your code for 10% off!
Disclaimer:The information provided is for general informational purposes only and should not be construed as financial, tax, or legal advice. Lendio is not a financial institution, lender, or tax advisory firm, and we do not provide tax preparation or professional financial guidance.Our products may help individuals and businesses access financing solutions that can assist with tax-related obligations; however, it is the responsibility of each individual or business to consult with a qualified tax professional or financial advisor to assess their specific tax liabilities and financial needs.Lendio makes no representations, warranties, or guarantees regarding eligibility for financing, tax benefits, or compliance with any tax laws. Loan approvals and terms are subject to lender qualifications, underwriting, and applicable laws. Always seek independent advice before making financial or tax-related decisions.California loans made pursuant to the California Financing Law, Division 9 (commencing with Section 22000) of the Finance Code. All such loans are made through Lendio Partners, LLC, a wholly-owned subsidiary of Lendio, Inc. and a licensed finance lender/broker, California Finance Lenders License No. 60DBO-44694.
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