The short answer
- $250,000 at 9.5% over 10 years costs $3,234.94 a month and $138,193 in interest.
- An SBA 7(a) loan of $500,000 carries an $11,250 guaranty fee and a variable-rate cap of 9.75% with prime at 6.75%.
- A $50,000 cash advance at a 1.3 factor repaid over 6 months is about 109% APR.
- Most lenders want yearly cash flow of at least 1.25 times your yearly debt payments.
The main kinds of business financing
| Type | How it works | Typical use |
|---|---|---|
| Bank term loan | Lump sum, fixed monthly payments over 1 to 10 years or more | Expansion, equipment, buying a business |
| SBA 7(a) loan | Bank loan with a partial SBA guarantee and capped rates | Working capital, equipment, real estate, refinancing |
| SBA 504 loan | Bank plus a Certified Development Company, long fixed rate | Buildings, land and major equipment |
| Online term loan | Faster approval, higher rates, often weekly or daily payments | Short-term needs |
| Line of credit | Draw and repay as needed; interest only on what you use | Seasonal cash flow |
| Merchant cash advance | Lump sum repaid from sales at a factor rate | Quick cash when loans are not available |
How a term loan payment works
A term loan is repaid in equal installments. Each month the lender charges interest on the balance at one-twelfth of the yearly rate; the rest of the payment reduces the balance. The payment is P × r ÷ (1 − (1 + r)−n), where P is the loan, r the monthly rate and n the number of payments. The same maths drives personal loans and mortgages; our loan calculator shows a monthly schedule for any fixed loan.
A term loan example
- Monthly payment120 payments$3,234.94
- Total interest$138,193
- Origination fee2%, taken from the loan$5,000
- Cash you receive$245,000
Origination fees and APR
Many lenders charge an origination or packaging fee. If it comes out of the loan, you pay interest on money you never receive, so the true cost is higher than the rate. The calculator turns the fee into an APR using the same method lenders must use for consumer loans. Our APR calculator explains the method and handles points and quoted payments.
SBA 7(a) loans in brief
The Small Business Administration does not usually lend directly. Under the 7(a) program, a bank or other approved lender makes the loan and the SBA guarantees part of it: 85% of loans of $150,000 or less and 75% of larger ones (50% for SBA Express). If the business defaults, the SBA repays the lender the guaranteed share. That lets lenders offer longer terms and lend to businesses they would otherwise turn down. The most a standard 7(a) loan can be is $5 million; SBA Express loans go up to $500,000.
SBA 7(a) maximum rates
Rates are agreed with the lender but cannot exceed the SBA’s maximums, which are a base rate (usually prime) plus a spread that depends on the loan size. Since March 1, 2026 lenders can also peg variable rates to SOFR or Treasury rates, but the cap is still worked out from prime.
| Loan size | Variable cap | Fixed cap |
|---|---|---|
| $25,000 or less | 13.25% (prime + 6.5) | 14.75% (prime + 8) |
| $25,001 to $50,000 | 13.25% (prime + 6.5) | 13.75% (prime + 7) |
| $50,001 to $250,000 | 12.75% (prime + 6) | 12.75% (prime + 6) |
| $250,001 to $350,000 | 11.25% (prime + 4.5) | 11.75% (prime + 5) |
| Over $350,000 | 9.75% (prime + 3) | 11.75% (prime + 5) |
With a variable rate, the payment changes when prime does. The calculator holds the rate you enter for the whole term; try a higher rate to see what a rise in prime would do.
SBA guaranty fees for 2026–27
The SBA charges the lender an upfront guaranty fee, which the lender usually passes on to you. For loans approved from October 1, 2026 to September 30, 2027, with a term over 12 months, the fee is a share of the guaranteed part of the loan:
| Loan | Guaranteed part | Fee rate | Fee |
|---|---|---|---|
| $100,000 | $85,000 | 2% | $1,700 |
| $150,000 | $127,500 | 2% | $2,550 |
| $250,000 | $187,500 | 3% | $5,625 |
| $500,000 | $375,000 | 3% | $11,250 |
| $1,000,000 | $750,000 | 3.5% | $26,250 |
| $2,000,000 | $1,500,000 | 3.5% / 3.75% | $53,750 |
| $5,000,000 | $3,750,000 | 3.5% / 3.75% | $138,125 |
Loans of 12 months or less pay 0.25% of the guaranteed part. Loans of $700,000 or less to manufacturers, food supply chain businesses and businesses in rural areas pay no upfront fee, and SBA Express loans to veteran-owned businesses pay none. The lender also pays the SBA a yearly service fee of 0.55% of the guaranteed balance, which it may not charge to you. These tiers are the same as for fiscal year 2026.
An SBA 7(a) example
- SBA guarantee75% of $500,000$375,000
- Guaranty fee3% of the guaranteed part$11,250
- Loan with the fee added$511,250
- Monthly payment120 payments at 9.75%$6,685.63
- Total interest$291,025
A $1,000,000 real estate loan at 9.75% over 25 years has a $26,250 fee, a payment of $9,145.30 with the fee added, and an APR of about 10.08%: the longer term spreads the fee more thinly.
SBA terms, collateral and guarantees
- Term: generally up to 10 years for working capital, inventory and equipment, and up to 25 years for real estate.
- Collateral: lenders take available business assets, and may take personal real estate, but a loan is not declined only for lack of collateral.
- Personal guarantee: every owner of 20% or more must guarantee the loan in full.
- Prepayment: loans of 15 years or more carry a fee if you prepay a large part in the first three years (5%, 3%, then 1% of the prepaid amount).
- Equity injection: lenders usually want you to put in money of your own, often about 10% for a business purchase or startup.
SBA 504 loans
The 504 program finances buildings, land and long-lived equipment at long fixed rates. A typical project is split three ways:
- Share
- about 50%
- Security
- first lien
- Share
- about 40%
- Rate
- fixed, 10, 20 or 25 years
- Share
- about 10%
- More for
- startups and special-use buildings
The Certified Development Company’s part is funded by SBA-guaranteed debentures sold to investors, up to $5 million per business ($5.5 million for manufacturers and certain energy projects). 504 loans cannot be used for working capital, inventory or rental real estate. For those, a 7(a) loan is the SBA option.
Merchant cash advances
A merchant cash advance is not a loan in law: the provider buys a share of your future sales at a discount. You receive a lump sum and repay it, plus a fixed fee, from your card sales or bank account, usually each business day or each week. The fee is set by a factor rate, often between about 1.1 and 1.5. Because the cost is fixed, paying back sooner does not save you anything, and the faster you repay, the higher the effective yearly rate.
Factor rate to APR
To compare an advance with a loan, the calculator finds the rate per payment at which the payments repay the cash you received, then multiplies by the number of payments in a year (252 business days, or 52 weeks), the same method used for APRs.
| Factor | Repay | Over 6 months | Over 12 months |
|---|---|---|---|
| 1.15 | $57,500 | 56.86% | 28.53% |
| 1.20 | $60,000 | 74.77% | 37.51% |
| 1.30 | $65,000 | 109.26% | 54.81% |
| 1.40 | $70,000 | 142.21% | 71.32% |
| 1.50 | $75,000 | 173.83% | 87.17% |
Paid off in 3 months instead, the 1.3 advance is about 217% APR, at $1,031.75 each business day. A $1,000 fee taken from the advance raises the 6-month figure from 109% to about 118%.
A cash advance against a loan
The cost of $50,000 for six months. Advances are fast and easy to get, but they cost many times more than a loan. Using one advance to pay off another (stacking) can trap a business in a cycle of daily payments.
Read the contract
Check for a confession of judgment clause, personal guarantees, reconciliation rights if sales fall, and default fees. If you can, talk to a bank, a credit union, a Community Development Financial Institution or an SBA lender first.
Debt service coverage
The debt service coverage ratio (DSCR) is the cash your business generates for paying debt, divided by the debt payments due in a year. Lenders usually measure cash flow as net operating income, or EBITDA adjusted for owner pay. A DSCR of 1.0 means every dollar goes on debt; most lenders want at least 1.25.
- Yearly payments$6,685.63 × 12$80,228
- Yearly cash flow$90,000
- Cash flow needed for 1.25×$100,284
At 1.12 the loan would be hard to approve. A longer term, a smaller loan or more cash flow would lift the ratio. Enter your figures under More options to check your own.
Actual/360 interest
Many business loans charge interest on an actual/360 basis: each day costs 1/360 of the yearly rate, so a full year costs 365/360 of it. On $250,000 at 9.5%, a full year of interest is $24,079.86 on actual/360, against $23,750 on actual/365. Our simple interest calculator shows the effect for any sum and dates.
Disclosures and your rights
The federal Truth in Lending Act does not cover business credit, so lenders need not show an APR. Some states have stepped in: California and New York require many commercial financing providers, including cash advance companies, to give an estimated APR and the total cost before you sign, and several other states have similar laws. Whatever the law, ask every provider for the total amount you will repay and how long it will take, then put each offer through this calculator.
Taxes on business borrowing
Interest on money borrowed for the business is generally a deductible business expense, and loan fees are usually deducted over the life of the loan. Repaying principal is not deductible. Larger businesses face a limit on business interest under section 163(j); most small businesses with average gross receipts under the inflation-adjusted threshold are exempt. If you are a sole proprietor, the deduction lowers your self-employment tax as well as income tax; see our self-employment tax calculator.
Getting ready to apply
- Two or three years of business tax returns and year-to-date profit and loss statement and balance sheet.
- Personal tax returns and a personal financial statement for each owner of 20% or more.
- A clear use of funds and, for new or growing businesses, a business plan with projections.
- Details of existing business debt, so the lender can work out your DSCR.
- Your business and personal credit reports, checked for errors in advance.
Using the calculator
Choose the type of financing. For a term loan, enter the amount, the rate, the term and any origination fee. For an SBA 7(a) loan, the guaranty fee and the rate cap are worked out for you; under More options you can switch to a fixed rate, change the prime rate, apply the manufacturer and rural fee waiver, or pay the fee at closing. For a cash advance, enter the factor rate and the expected payoff time. Add your yearly cash flow to see the debt service coverage ratio.
Key numbers
| Item | Figure |
|---|---|
| WSJ prime rate (since December 11, 2025) | 6.75% |
| SBA 7(a) maximum loan / SBA Express | $5 million / $500,000 |
| SBA guarantee | 85% up to $150,000, 75% above, 50% Express |
| Guaranty fee (term over 12 months, FY 2027) | 2% / 3% / 3.5% and 3.75% |
| Fee waiver (manufacturers, food supply chain, rural) | $700,000 or less |
| Lender's yearly service fee (not passed on) | 0.55% |
| SBA 504 debenture limit | $5 million ($5.5 million manufacturers, energy) |
| Typical minimum DSCR | 1.25 |