When you’re looking at business loans for the first time, you might be overwhelmed by all of the information you need to understand to feel confident in your decision. One of the most important components of any type of financing is the loan term. This is the length of time and frequency you’re required to repay the loan. Small business loan terms vary significantly depending on the type of financing and structure.
Loan term length by loan type.
Most types of business loans have their own set of typical business loan terms. Here are some of the most common types of financing you might be considering and how the repayment process works.
| Loan type | Average repayment term | Repayment structure |
| SBA loans | 10-30 years | Fixed payments |
| Line of credit | 6-18 months | Payments vary based on withdrawals |
| Invoice financing | Up to 1 year | Monthly payments |
| Equipment financing | 1 to 10 years | Fixed monthly payments |
| Cash advance | 3 to 36 months | Daily or weekly |
SBA loans
The business loan term of an SBA loan varies depending on which specific type of SBA financing you apply for. In general, you can expect the repayment period to last between 10 and 30 years, but you can dig a little deeper to find out which program you’re most likely to apply for and how long the loan terms last.
SBA 7(a) loans: SBA 7(a) loans used for equipment, working capital, or working inventory last 10 years. SBA 7(a) real estate loans have a 25-year repayment term.
SBA microloans: You can also apply for an SBA microloan, which allows you to borrow up to $50,000 for your business. Repayment terms average 40 months (a little over three years), but can go as long as 72 months (six years).
SBA 504 loans: This loan program is designed to finance major fixed assets for your business that scale growth and create jobs. The typical business loan term is either 10 years or 20 years.
Line of credit
A business line of credit gives you access to a credit line rather than depositing a lump sum of funds into your business account. So instead of making fixed payments on a predetermined schedule, your repayment term is structured a little differently. Here’s how it works.
Your business line of credit will come with both a draw period and a repayment period. As you draw funds, interest will be charged if you don’t pay off the balance by the end of the statement period (just like your personal credit card). The draw period typically lasts a year or two. During that time, you’ll also have a period payment schedule, which may be charged either weekly or monthly to facilitate paying down your balance. Understand what those payments look like before you apply, to make sure your company’s cash flow can support that extra expense.
When the draw period for your line of credit expires, you may have the opportunity to renew your account so you can continue to access those funds when you need them.
Invoice financing
Invoice financing does not act like a traditional term loan or a line of credit. Instead, it’s a type of loan that gives you advance payment for your business’s outstanding invoices. The idea is to smooth out cash flow issues while you wait for your customers to pay for your goods or services.
With invoice financing, you use those outstanding invoices as collateral to get a cash advance for part of the invoices’ value; for instance, you may receive anywhere from 50% to 80% of the total invoice value in a lump sum. Then you’ll make monthly payments (with an interest fee tacked on) until the customer pays and you can pay off the remaining balance in full.
Equipment financing
Equipment financing acts like a business term loan, except that the funds are used to purchase specific assets like machinery, vehicles, medical equipment, office furniture, technology software, and more. You can sometimes include soft costs in the amount financed as well, like delivery fees for a large piece of equipment.
The loan term varies by lender, but usually lasts between 3 and 10 years. Once you’ve repaid the loan in full, you’ll own the equipment outright.
Business cash advance
A business cash advance is an advance on future expected revenue that you pay back with portions of your daily income until the balance is repaid.
Instead of charging interest, the lender will charge a factor rate: a percentage of the total amount you borrowed. The factor rate on a cash advance usually ranges between 1.1 and 1.5 — so if you got a cash advance of $20,000 at a factor rate of 1.5, you would repay a total of $30,000.
You’d repay a cash advance with money taken directly from your daily or weekly income by your lender, usually between 10% and 20% of it over a 3- to 18-month period until the balance is paid off. The final percentage agreed to by you and the lender is called the “holdback rate.”
What is the loan maturity date?
The loan maturity date is the date at which the final loan payment is due and the loan must be repaid in full.
What is a prepayment penalty?
Some lenders will charge a prepayment penalty or fee if you pay off a loan sooner than the agreed-upon term.
Lendio is a business lending marketplace that allows you to compare multiple financing offers side by side. It’s a low-pressure way to explore different business loan terms in one place. Compare options for a small business loan today.
