Unsecured Business Loans: Requirements and Approval Process

Understanding how business loan interest rates work is an important part of planning for your company's financial future. In 2025, interest rates can vary widely, and your credit score plays a central role in determining which rates you may qualify for.

Business owners often search for "business loan interest rates by credit score range" to find out what to expect before applying for financing. The rates lenders offer reflect your business's perceived risk, which is influenced by your credit score, business history, and other financial details.

Knowing the current landscape of business loan rates in 2025 provides context as you explore your funding options. Here is an overview of what to expect this year.

What Are Typical Business Loan Interest Rates in 2025

Business loan interest rates in 2025 generally range from 6.6% to 99% or more in terms of Annual Percentage Rate (APR). Average small-business bank loan interest rates range from 6.6% to 11.5% in Q1 2025 according to Federal Reserve data, while alternative lenders offer rates spanning from 14% to 99% APR. The APR represents the total yearly cost of your loan, which includes both the interest rate itself and any fees charged by the lender.

Rate ranges by lender type:

• Traditional bank loans: 6.6% to 11.5% APR for the most qualified borrowers
• SBA loans: 11% to 14% APR with government backing
• Online business lenders: 9% to 60% APR with faster approvals
• Alternative financing: 25% to 99%+ APR for higher-risk borrowers

These ranges reflect current averages and can change over time, depending on the economy and shifts in the Federal Reserve's policies. Despite online retail revenues exceeding $300 billion quarterly and representing over 16% of total U.S. retail sales, commercial credit inquiries from e-commerce businesses declined by nearly 25% in the past year. The type of loan, lender requirements, and your credit score range are the main factors that determine where your business fits within these interest rate brackets.

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How Credit Score Impacts Your Business Loan Rate

Credit scores are three-digit numbers that range from 300 to 850. These numbers are used by lenders to estimate how likely a borrower is to repay debt. Both personal and business credit scores are reviewed when a business applies for a loan.

Lenders use credit scores as a way to measure risk. A higher credit score means the lender sees less risk, so the interest rate offered is usually lower. A lower credit score means the lender sees more risk, so the interest rate offered is usually higher or the loan may not be approved.

How different credit score ranges typically affect business loan offers:

• 740+ credit score: Often qualifies for the lowest advertised interest rates
• 680-739 credit score: Usually results in slightly higher rates, but still competitive
• 620-679 credit score: May limit loan options and result in higher rates
• Below 620 credit score: Often results in much higher rates or loan denial

Knowing the credit score range helps to estimate what interest rate a business is likely to receive when looking for the average interest rate on a business loan.

Average Rates by Credit Score Range

Average business loan interest rates in 2025 differ depending on the applicant's credit score, the type of lender, and the loan product. The table below shows the typical APR ranges for different lenders based on credit score range.

Table: 2025 Business Loan Rates by Credit Score

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A credit score of 740 or above generally qualifies for the lowest business loan APRs. For example, borrowing $100,000 at a 7% APR over five years creates an estimated monthly payment of $1,980.

A credit score between 680 and 739 usually results in slightly higher APRs. A $100,000 loan at 10% APR over five years leads to a monthly payment of about $2,125.

A credit score from 620 to 679 often means fewer lender options and higher APRs. At 20% APR, a $100,000 loan over five years has a monthly payment of around $2,650.

A credit score below 620 usually means banks and SBA lenders will not approve most applications. Online or alternative lenders may approve loans at APRs of 31% or higher, with monthly payments exceeding $3,500 for a $100,000 loan.

Factors That Influence Business Loan Interest Rates

Business loan interest rates depend on more than just credit scores. Lenders look at several other factors before deciding what rate to offer.

Key factors beyond credit score:

• Time in business: Lenders usually prefer companies operating for at least two years
• Annual revenue: Higher revenue suggests stronger ability to make loan payments
• Industry type: Some industries are considered riskier based on historical failure rates
• Loan amount and term: Larger loans or longer repayment periods may affect rates
• Collateral: Secured loans backed by assets usually have lower rates than unsecured loans
• Economic conditions: Federal Reserve policies influence all lending rates

These are the main elements that determine what interest rates lenders offer to businesses beyond credit score considerations.

Ways to Qualify for the Best Business Loan Rates

Lenders use several criteria to decide which interest rate to offer a business. The following approaches outline the most common ways to qualify for the best business loan interest rates in 2025.

Improve Personal and Business Credit

Both personal and business credit scores influence business loan offers. Personal credit scores, such as FICO, range from 300 to 850. Business credit scores can be found with agencies like Dun & Bradstreet (DUNS) and Experian Business.

Actions that can improve these scores include paying bills on time, keeping credit balances low compared to available credit, and opening accounts in the business's name.

Maintain Strong Financials and Revenue

Lenders review a company's financial performance. They look for steady or growing revenue, positive cash flow, and accurate financial records. Debt-to-income ratio is another factor, measuring how much a business owes compared to what it earns.

Compare Lender Offers Directly

Interest rates and annual percentage rates (APR) can vary between lenders. Comparing multiple loan offers helps identify the most cost-effective option. Looking at APR, not just the interest rate, gives a clearer picture of the total loan cost, including fees.

Offer Collateral When Possible

Some business loans require collateral, which is an asset like equipment or property that a lender can claim if the loan is not repaid. Collateral reduces risk for the lender. Loans backed by collateral usually have lower interest rates compared to unsecured loans.

Comparing Bank SBA and Online Lenders

Business owners looking for funding in 2025 often compare options from banks, SBA lenders, and online lenders. Each lender type has different requirements, approval processes, and interest rates.

Traditional bank loans generally require a credit score of at least 680, two or more years in business, and strong financial statements. These loans tend to offer the lowest interest rates among business lenders. However, the approval process is often slower and the requirements are strict.

SBA loans are backed by the federal government through the Small Business Administration. Lenders that offer SBA loans follow set guidelines, including rate caps designed to keep interest rates within a certain range. SBA loans may be available to borrowers who do not qualify for traditional bank loans, but the application process involves more documentation.

Online lenders and fintech platforms like Fundwell have faster approval processes and more flexible qualification standards than banks or SBA lenders. These lenders may accept lower credit scores and newer businesses, making funding accessible to entrepreneurs who might not qualify through traditional channels. While interest rates from online lenders are typically higher than those from banks or SBA lenders, platforms such as Fundwell offer transparency in their pricing and connect business owners with multiple financing options tailored to their specific needs and qualifications.

Fixed vs Variable Rates and Other Cost Considerations

Business loans can have either fixed or variable interest rates. A fixed interest rate stays the same for the entire loan term, so the monthly payment amount does not change over time. A variable interest rate can go up or down depending on market conditions, which means payments may change during the loan.

Fixed rates provide predictable payments, making it easier to know exactly what the loan will cost each month. Variable rates may start lower than fixed rates, but they can increase if market interest rates rise.

Common fees and costs with business loans:

• Origination fees: Charged upfront, usually 1% to 6% of the total loan amount
• Processing fees: Cover administrative tasks involved in setting up the loan
• Prepayment penalties: Charges if a loan is paid off before the agreed end date
• Late payment fees: Added if a scheduled payment is missed or paid after the due date

Business loan APR, or annual percentage rate, combines the interest rate and most required fees into a single number that shows the yearly cost of borrowing.

Frequently Overlooked Fees Beyond the APR

The lowest advertised interest rate does not always mean the loan is the least expensive. The total cost of borrowing often includes other fees that are not part of the APR.

Common hidden costs include:

• Application fees: Charges required to submit a loan application, nonrefundable even if denied
• Underwriting fees: Cover the cost for lenders to review financial documents
• Documentation fees: Charges for preparing and processing loan documents
• Maintenance fees: Regular fees for keeping a business line of credit open
• Draw fees: Paid each time money is withdrawn from a business line of credit

In some cases, a loan with a higher interest rate but fewer fees can result in lower total costs than a loan with a lower rate but high upfront or ongoing fees.

Moving Forward With A Transparent Funding Partner

Selecting a funding partner involves evaluating how clearly terms are presented, how quickly decisions are made, and whether the terms are fair. Transparent business loans provide all the details about rates, fees, and repayment requirements before any agreements are signed.

The most reliable business funding options display offers in real-time and provide direct access to expert support. Fast business financing is possible when technology is used to match applicants with suitable products and clarify expectations at every step.

Fundwell offers business owners a platform with transparent pricing, a range of financing products, and the ability to view funding offers as they are available. Information about funding options can be found at https://www.fundwell.com/solutions.

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FAQs About Business Loan Interest Rates

What credit score qualifies for the lowest business loan interest rates?

A credit score of 740 or higher usually qualifies for the lowest business loan rates offered by traditional banks and SBA lenders.

Can businesses with credit scores below 600 get approved for loans?

Business loans are available to applicants with credit scores below 600, but these loans often come from online lenders, such as Fundwell, or alternative financing sources with interest rates from 30% up to 99% or more APR.

Do business loan interest rates change after loan approval?

Loans with a fixed interest rate keep the same rate throughout the loan term. Loans with a variable rate can increase or decrease during the loan based on changes in the market and the prime rate.

How much can credit score improvement reduce business loan rates?

Raising a credit score by 60 to 80 points, such as moving from the fair to good credit range, can reduce a business loan's interest rate by about 5 to 15 percentage points.

What distinguishes interest rate from APR on business loans?

The interest rate is the yearly cost charged for borrowing money, not including fees. The APR includes the interest rate plus additional fees, showing the total yearly cost of the loan.

Choosing the right type of business financing is an important decision for any business owner. Two common options are business lines of credit and term loans. These products work differently and are designed for different business needs.

Understanding the structure and features of each option makes it easier to compare them. Below, each product is explained in simple terms, starting with term loans.

What is a Term Loan

A term loan is a type of business financing where a company borrows a specific amount of money and agrees to pay it back over a set period. The repayment is made through regular, scheduled payments that include both the amount borrowed and interest.

When comparing term loan vs line of credit options, term loans provide all funds upfront in a single lump sum. This makes them ideal for large, one-time purchases like equipment or real estate.

Key features of term loans:

• Lump-sum disbursement: All the borrowed money is provided at once
• Fixed repayment schedule: Payments are made on a regular basis, usually monthly, for the entire loan term
• Predetermined loan term: The length of the loan is established upfront, commonly lasting one to ten years
• Interest structure: Term loans may have either fixed or variable interest rates

Each payment includes both principal (the original borrowed amount) and interest (the cost of borrowing). This structure provides consistency in how much is paid each month, making it easier for businesses to budget and plan their cash flow.

A fixed interest rate does not change over the life of the loan, while a variable interest rate can go up or down depending on changes in market rates. Fixed rates offer predictability, but variable rates might start lower.

Some term loans require collateral, which is an asset pledged as security for the loan. Examples include equipment, property, or inventory. Unsecured term loans don't require collateral but typically have higher interest rates to offset the increased risk to lenders.

What is a Business Line of Credit

A business line of credit provides access to a set amount of money that can be borrowed, repaid, and borrowed again. It operates similarly to a business credit card but often comes with higher credit limits and different terms.

Unlike a term loan, which provides a single lump sum, a line of credit offers ongoing access to funds as needed. This flexibility makes it particularly useful for managing cash flow or covering unexpected expenses. According to the 2024 Small Business Credit Survey, 40% of small businesses applied for a business line of credit, making it the most commonly sought form of financing. This flexibility makes it particularly useful for managing cash flow or covering unexpected expenses.

Key features of business lines of credit:

• Revolving credit limit: The credit limit is the maximum amount available to borrow
• Draw-as-needed access: Funds can be withdrawn at any time, in any amount up to the credit limit
• Interest on used funds only: Interest accrues only on the amount currently borrowed
• Repayment flexibility: Minimum monthly payments are required, but the full balance can be repaid anytime

The revolving nature means that as amounts are borrowed and repaid, funds become available to use again, up to the established limit. This differs significantly from the line of credit vs term loan structure, where term loans provide funds only once.

Interest is charged only on the amount that has been withdrawn from the line of credit. Some lenders may also charge a small fee each time funds are accessed, called a draw fee. These fees typically range from $25 to $100 per draw.

Working capital refers to the money needed for daily operations. A line of credit helps cover temporary gaps in cash flow, manage seasonal changes, or pay for unexpected costs like emergency repairs or sudden opportunities.

Business Line of Credit vs Term Loan: Key Differences

The main difference between loan versus line of credit is how money is provided and how it is paid back. Understanding these differences helps businesses choose the right financing option for their specific needs.

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Funding structure differences:

A term loan gives all funds at once, commonly used for buying equipment, real estate, or other large expenses. A line of credit allows access to funds as needed, up to a set limit, and funds can be drawn, repaid, and drawn again.

Repayment approach variations:

Term loans follow a fixed repayment schedule, usually with the same amount due each month. This makes future payments predictable and easier to budget for. A line of credit has a flexible repayment structure where only a minimum payment is required each cycle, but higher payments or full repayment are allowed at any time.

Interest on a term loan is charged on the entire amount from the start, and rates are often lower for businesses with strong qualifications. A line of credit charges interest only on the amount currently borrowed. Rates and fees can be higher, but interest applies only to funds in use, not the full credit limit.

Common use cases:

• Term loans: Equipment purchases, real estate acquisitions, business expansion projects, debt consolidation
• Lines of credit: Inventory purchases, payroll gaps, seasonal cash flow management, emergency expenses

How to Choose Between a Term Loan vs Line of Credit

The decision between a business term loan vs line of credit depends on several factors including funding needs, repayment preferences, and business qualifications.

Assess your funding requirements:

Term loans work best for situations where a business requires a specific amount of money at one time, such as for a large project or purchase. Business lines of credit are designed for flexible, ongoing access to funds, which can be useful for handling expenses that come up over time.

Consider whether the need is for a lump sum or repeated access to smaller amounts. A restaurant buying new kitchen equipment would likely choose a term loan, while a seasonal retailer managing inventory fluctuations might prefer a line of credit.

Evaluate repayment preferences:

Term loans have set monthly payments, which remain the same for the duration of the loan if the interest rate is fixed. Business lines of credit offer flexible repayment, allowing a business to pay the minimum required or more at any time.

The choice depends on whether steady, predictable payments are preferred, or if flexibility is more important due to varying cash flow patterns throughout the year.

Compare costs and qualification requirements:

Term loans may offer lower rates for qualified businesses, but interest applies to the full amount borrowed from day one. Lines of credit may have higher rates or fees, but interest is only charged on what is drawn. Additionally, the small business lending market is projected to grow at a compound annual growth rate of 13% from 2024 to 2032, ultimately reaching a market size of $7.22 trillion.

Lenders often require higher credit scores, longer time in business, and more established revenue history for term loans. Business lines of credit may have less strict requirements and can be accessible to businesses with shorter histories or fluctuating revenue.

Avoiding Common Business Financing Mistakes

When considering a business loan vs line of credit, several common mistakes can impact a business's financial health and long-term success.

Focusing only on interest rates:

Interest rates represent just one factor in the total cost of borrowing. Fees, repayment schedules, and other charges can increase the overall expense, even when the interest rate appears low. A loan with a lower rate but high origination or maintenance fees may end up costing more than a loan with a slightly higher rate but fewer additional charges.

Mismatching financing type to business needs:

The intended use of funds affects which financing option is most appropriate. Term loans are designed for large, one-time investments, while lines of credit are structured for ongoing or fluctuating expenses. Using a term loan for day-to-day operating costs or a line of credit for a substantial, single purchase can result in higher costs or create cash flow challenges.

Overlooking qualification requirements:

Lenders may have requirements such as personal guarantees, financial covenants, or collateral to secure the financing. Failing to review all terms may expose a business to risks if requirements are not met. Reading and understanding all conditions before agreeing to any financing helps avoid unexpected obligations.

Finding the Right Business Financing Solution

Selecting between a business line of credit versus loan depends on the specific requirements and goals of a business. Some businesses look for funding that covers one-time, large expenses. Others prefer access to funds over time to handle ongoing or unpredictable costs.

The process involves comparing features, repayment terms, interest rates, and qualification criteria of each option. Fundwell provides a transparent platform where business owners can review and compare these choices side by side.

Through Fundwell's platform, users have access to clear terms and professional guidance for both term loans and lines of credit. This approach centers on offering options and information, allowing each business to select the financing solution that fits its unique needs.

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Frequently Asked Questions About Business Lines of Credit and Term Loans

Can a business have both a term loan and line of credit simultaneously?

Yes, many businesses maintain both a term loan and a line of credit at the same time, using each for different purposes as long as they meet lender requirements and maintain manageable debt levels.

How quickly can businesses access funds from term loans versus lines of credit?

Term loans typically take several days to a few weeks for approval and funding, while lines of credit can provide access to funds within a few days after the initial approval process is complete.

What happens if a business cannot make payments on time for either option?

Late payments on either a term loan or a line of credit can result in late fees, damage to credit scores, and potential legal action or loss of collateral if the loan is secured.

Which financing option works better for new businesses?

Lines of credit are often more accessible for new businesses since term loans typically require a longer operating history and stronger financial documentation to qualify.

Can businesses convert a line of credit balance to a term loan?

Some lenders offer the option to refinance a line of credit balance into a term loan, which allows the outstanding balance to be paid off over a set period at a fixed interest rate.

Some businesses grow quickly. Others grow steadily over time. In either case, growth often requires capital, whether to hire staff, expand locations, or purchase inventory.

Small businesses that generate steady revenue but do not meet traditional loan requirements sometimes explore alternatives. One of these alternatives is revenue based financing.

This article explains how revenue based financing works, how it differs from other funding options, and how small businesses use it to support growth.

What is Revenue Based Financing?

Revenue based financing is a funding option where businesses receive capital in exchange for a percentage of their future revenue. Unlike traditional loans, there are no fixed monthly payments. Instead, the amount paid changes based on how much the business earns.

This type of financing doesn't require giving up ownership in your company like equity financing does. The business keeps full control while gaining access to growth capital (a form of non-dilutive capital).

You might also hear terms like "revenue based funding," "revenue based finance," or "revenue financing." All these refer to the same basic concept, which is funding that's repaid through a portion of your ongoing sales.

Small businesses often choose revenue based financing because:

• It offers flexible payments that adjust with business performance
• The approval process is typically faster than traditional bank loans
• It doesn't require personal collateral or perfect credit
• Business owners maintain full ownership

How Does Revenue Based Funding Work?

Revenue based funding provides a business with a lump sum of money upfront. In return, the business agrees to pay back a percentage of its monthly revenue until reaching a predetermined total amount.

The process is straightforward:

1. A business applies with a revenue based funding provider
2. The provider reviews the business's revenue history
3. If approved, the business receives capital (often between $50,000 to $3 million)
4. The business pays back a fixed percentage of monthly revenue (typically 1-9%)
5. Payments continue until reaching the agreed total repayment amount

For example, if a business receives $100,000 with a 1.5x repayment cap, they'll ultimately pay back $150,000. If the agreement sets the payment at 5% of monthly revenue, a month with $50,000 in revenue would require a $2,500 payment.

The key difference from traditional loans is that payments flex with your business performance. During slower months, you pay less. During stronger months, you pay more.

Who Benefits From Revenue Based Loans?

Revenue based loans work best for businesses with consistent revenue streams and strong growth potential. These loans are particularly valuable for companies that want funding without fixed payment obligations.

Ideal candidates include:

• Software-as-a-Service (SaaS) companies with subscription revenue
• E-commerce businesses with steady sales
• Professional service firms with recurring clients
• Seasonal businesses that need flexible payment structures
• Growth-stage companies needing capital to scale

The common thread is predictable revenue. Most revenue based lenders look for businesses earning at least $10,000 in monthly revenue with operating histories of six months or more.

Recurring Revenue Businesses

Subscription-based businesses benefit greatly from revenue based financing. Their predictable monthly income makes it easier to forecast repayments and manage cash flow.

For example, a software company might use revenue based business funding to develop new features that attract more subscribers. As new customers sign up, a portion of that increased revenue goes toward repayment.

Seasonal or High-Growth Companies

Businesses with seasonal fluctuations often struggle with traditional loans that require the same payment regardless of revenue. Revenue based loans adjust automatically with business cycles.

A retail business might use revenue based financing to stock up before the holiday season. During peak sales months, they'll make larger payments, while slower months require smaller payments—aligning the funding costs with their natural business rhythm.

How Revenue Based Lending Differs From Traditional Loans

The most significant difference is how payments work. With revenue based loans, your payment amount changes each month based on your actual revenue. Traditional loans require the same payment amount regardless of how your business performs.

Revenue based lenders focus primarily on your revenue history rather than credit scores or collateral. This makes them more accessible to growing businesses that might not qualify for traditional financing.

The cost structure also differs. Instead of interest rates, revenue based financing uses a repayment multiple or "factor rate" that determines the total amount you'll pay back. For example, with a 1.5x multiple on $100,000, you'll repay $150,000 total.

Advantages and Drawbacks of Revenue Based Financing

Revenue based finance offers unique benefits but also comes with limitations. Understanding both helps determine if it's right for your business.

Benefits

Flexible payments: When revenue decreases, so do your payments. This helps manage cash flow during slower periods.

Maintain ownership: Unlike equity financing, you don't give up any control of your business.

Faster approval: Many revenue based financing companies can approve and fund applications within days or weeks.

Revenue focus: Qualification is based primarily on your revenue performance rather than personal credit or collateral.

Growth alignment: The payment structure aligns with your business growth—as you grow, you pay back faster.

Potential Drawbacks

Higher total cost: The total repayment amount is typically higher than traditional loan principal plus interest.

Revenue reporting: You'll need to provide regular revenue reports to your funder.

Revenue requirements: Most revenue based financing firms require minimum monthly revenue (often $10,000+).

How To Get Started With Revenue Based Business Funding

If revenue based financing seems like a good fit for your business, here's how to prepare for the application process:

Check Your Revenue Stability

Review your monthly revenue for the past 6-12 months. Most revenue based lenders look for:

• Consistent or growing monthly revenue (typically $10,000+)
• At least 6-12 months of operating history
• Profit margins that can support the revenue percentage payments

Gather Your Financial Documents

Prepare these key documents that lenders will request:

• 4 months of business bank statements
• Profit and loss statements
• Revenue reports by month
• Business tax returns
• Business plan (for newer businesses)

These documents help lenders verify your revenue claims and assess your business's financial health.

Submit Your Application

The application process varies by lender but typically includes:

1. Completing an online application
2. Sharing your financial documents
3. Discussing your business and funding needs
4. Reviewing and accepting an offer
5. Receiving funds (often within days of approval)

Many platforms like Fundwell connect businesses with multiple revenue based lenders through a single application, making it easier to compare options.

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Using Revenue Based Financing for Business Growth

Small businesses use revenue based financing to fuel various growth initiatives. The flexible payment structure makes it particularly well-suited for investments that generate additional revenue.

Common uses include:

Marketing expansion: Increasing advertising spend to acquire new customers.

• Digital advertising campaigns
• Content marketing initiatives
• Trade show participation

Inventory investments: Purchasing additional inventory to support sales growth.

• Seasonal inventory buildups
• New product launches
• Bulk purchasing discounts

Team growth: Hiring additional staff to increase capacity.

• Sales team expansion
• Customer support personnel
• Specialized roles like developers or designers

Equipment and technology: Upgrading systems to improve efficiency.

• Software implementations
• Manufacturing equipment
• Technology infrastructure

The key is using the funding for activities that will generate more revenue, creating a positive cycle where the additional income helps repay the financing.

Is Revenue Based Financing Right for Your Business?

Revenue based financing offers a flexible alternative to traditional loans and equity investments. It works particularly well for businesses with predictable revenue that need capital to grow.

Consider revenue based financing if:

• Your business has consistent monthly revenue
• You want payment flexibility that aligns with your revenue cycles
• You prefer to maintain full ownership of your business
• You need funding faster than traditional loans can provide
• Your growth plans will generate additional revenue to support repayment

The most successful users of revenue based financing are businesses that can clearly connect their funding use to revenue growth. When the investment generates more income, the percentage-based repayment structure becomes even more advantageous.

To explore revenue based financing options tailored to your business needs, consider platforms like Fundwell that can match you with appropriate lenders based on your revenue profile and funding requirements.

FAQs About Revenue Based Financing

What minimum monthly revenue do I need for revenue based financing?

Most revenue based financing providers require businesses to generate at least $10,000 in monthly revenue, though some lenders may have higher thresholds of $15,000 to $50,000 depending on the funding amount requested.

How is the repayment percentage determined for revenue based loans?

Lenders determine the repayment percentage (typically 1-9% of monthly revenue) based on your business's revenue consistency, industry type, growth rate, and the amount of funding provided.

Can I pay off revenue based financing early?

Yes, most revenue based financing agreements allow early repayment, sometimes with a discount on the remaining balance, though the terms vary by lender and should be confirmed before signing.

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