Working Capital Loans: What They Are, How They Work, and How to Get One

Getting a small business loan can feel overwhelming, especially if you have never applied for one before. Between credit requirements, document checklists, and dozens of lender options, it is easy to get lost before you even start. The good news is that the process is more straightforward than most people think, and a majority of businesses that apply for financing receive some or all of the amount they request, according to the Federal Reserve's Small Business Credit Survey.

This guide walks you through everything you need to know about getting a small business loan, from qualification requirements and loan types to a step-by-step application process and what to do if you get denied. Whether you are launching a new venture or scaling an established business, the right funding can make all the difference. At Fundwell, we have helped thousands of business owners navigate this process and secure over $1 billion in funding, so we have seen firsthand what works and what trips people up.

What You Need to Qualify for a Small Business Loan

Before you start comparing lenders, it helps to understand what they are looking for. While every lender has its own criteria, most evaluate the same core factors when deciding whether to approve your application.

Credit Score Requirements

Your credit score is one of the first things lenders check. Most traditional banks and credit unions look for a personal credit score of 680 or higher, though some will consider applicants with scores as low as 620. Online and alternative lenders tend to be more flexible, with some accepting scores in the 500 to 580 range.

If your business has been operating for a while, lenders may also check your business credit score through agencies like Dun & Bradstreet, Experian Business, or Equifax Business. A strong business credit profile can help you qualify for better rates and larger loan amounts.

Time in Business

Most traditional lenders prefer businesses that have been operating for at least two years. This track record gives them confidence that your business can generate consistent revenue and handle debt payments. If your business is newer than two years, you still have options. SBA microloans, revenue-based financing, and some online lenders work with businesses that have as little as six months of operating history.

Annual Revenue

Lenders want to see that your business brings in enough money to cover loan payments on top of existing expenses. Minimum revenue requirements vary widely. Traditional banks may require $250,000 or more in annual revenue, while many online lenders set their minimums between $50,000 and $100,000 per year. Some providers, including Fundwell, focus primarily on your monthly revenue trends rather than rigid annual thresholds, which can open doors for growing businesses that are profitable but have not yet hit the revenue benchmarks larger banks require.

Cash Flow and Debt Service Coverage

Beyond raw revenue, lenders look at your cash flow to determine whether your business can comfortably handle additional debt. Many use the debt service coverage ratio (DSCR), which divides your net operating income by your total debt payments. A DSCR of 1.25 or higher is generally considered healthy, meaning your business generates 25% more income than it needs to cover its debts. If your DSCR falls below 1.0, most lenders will view your application as high risk.

Collateral and Personal Guarantees

Some loans require collateral, which is an asset the lender can seize if you default. Common forms of collateral include real estate, equipment, inventory, and accounts receivable. Secured loans typically offer lower interest rates because the lender takes on less risk.

Many lenders also require a personal guarantee, which means you agree to repay the loan from your personal assets if the business cannot. Unsecured loans exist, but they generally come with higher rates and stricter revenue requirements. Understanding these tradeoffs early helps you choose the right loan structure for your situation.

Types of Small Business Loans

Not every loan works for every situation. The right choice depends on how much you need, how quickly you need it, and what you plan to use the funds for. Here is a breakdown of the most common options.

Term Loans

A term loan gives you a lump sum of money upfront that you repay in fixed installments over a set period, typically one to ten years. These are a good fit for large, one-time investments like buying equipment, expanding to a new location, or funding a major project. Interest rates from traditional banks typically range from 6.3% to 11.5%, according to recent Federal Reserve data.

SBA Loans

SBA loans are partially guaranteed by the U.S. Small Business Administration, which reduces the lender's risk and allows them to offer more competitive rates. The most popular program is the SBA 7(a) loan, which can be used for working capital, equipment, real estate, and debt refinancing. Current SBA 7(a) fixed rates range from approximately 9.75% to 14.75%, depending on loan size and terms. The tradeoff is a longer approval process, often four to eight weeks, and more extensive paperwork than other options.

For smaller funding needs, the SBA Microloan program provides up to $50,000 through nonprofit intermediary lenders, making it a good option for newer businesses that may not qualify for a full SBA loan.

Business Lines of Credit

A business line of credit works like a credit card for your business. You get approved for a maximum amount and draw funds as needed, paying interest only on what you use. Lines of credit are ideal for managing cash flow gaps, covering seasonal expenses, or handling unexpected costs. Once you repay what you borrowed, the funds become available again.

Equipment Financing

If you need to purchase machinery, vehicles, or other equipment, equipment financing uses the equipment itself as collateral. This often makes approval easier and rates lower compared to unsecured options. Loan terms typically match the expected useful life of the equipment, and you may be able to finance up to 100% of the purchase price.

Revenue-Based Financing

Revenue-based financing (RBF) provides a lump sum that you repay as a fixed percentage of your monthly revenue. When sales are strong, you pay more. When business slows down, your payments decrease automatically. This flexibility makes RBF especially useful for businesses with seasonal or variable income. Unlike traditional loans, RBF providers focus more on your revenue history than your credit score, and funding can happen in as little as 24 hours. Fundwell's revenue-based financing option is one of our most popular products for exactly this reason, particularly among business owners who want predictable repayment without the rigidity of a fixed monthly bill.

Invoice Financing

If your business invoices other companies and waits 30, 60, or 90 days for payment, invoice financing lets you borrow against those outstanding invoices. You receive a percentage of the invoice value upfront, typically 80% to 90%, and the rest (minus fees) when your customer pays. This is a practical way to smooth out cash flow without taking on traditional debt.

The following table compares these loan types at a glance:

‍

How to Get a Small Business Loan in 7 Steps

Once you understand your options, the application process becomes much more manageable. Follow these steps to give yourself the best chance of approval.

1. Define Why You Need the Funding

Start by getting clear on what the money is for. Lenders will ask, and a specific answer builds confidence. There is a big difference between "I need working capital" and "I need $75,000 to purchase inventory ahead of our peak season, which historically increases revenue by 40%." The more precise your purpose, the stronger your application.

2. Calculate How Much You Need to Borrow

Borrowing too little can leave you short, while borrowing too much increases your costs and debt burden. List every expense the loan needs to cover, get actual quotes where possible, and add a small buffer of 10% to 15% for unexpected costs. This level of detail shows lenders you have done your homework and have a realistic plan.

3. Check Your Credit Scores

Before applying anywhere, check both your personal and business credit scores. You can get your personal credit report for free at AnnualCreditReport.com and check your business credit through Dun & Bradstreet, Experian, or Equifax. If your scores need improvement, you may want to spend a few months paying down debt and correcting any errors before applying. Even small improvements can mean better rates and terms.

4. Gather Your Financial Documents

Having your documents ready before you apply speeds up the process significantly. Most lenders will ask for some combination of the following:

• Business and personal tax returns (two to three years)
• Bank statements (three to six months)
• Profit and loss statements
• Balance sheets
• Business plan or executive summary
• Articles of incorporation or business license
• Government-issued photo ID

Online and alternative lenders often require less documentation. Some only need a few months of bank statements and a simple application to get started.

5. Research and Compare Lenders

Do not accept the first offer you receive. Compare at least three to four lenders across different categories: your current bank, an SBA lender, and one or two online or alternative lenders. Look beyond the interest rate and compare total cost, fees, repayment terms, prepayment penalties, and funding speed. A loan with a slightly higher rate but no origination fee and faster funding might save you money in the long run. One advantage of working with a platform like Fundwell is that you can explore multiple loan types through a single application, which saves time and lets you compare options side by side.

6. Submit Your Application

Once you have chosen a lender, submit your application with all required documents. Be responsive throughout the process. Lenders may request additional information, and delays on your end can push back your timeline by days or weeks. Traditional bank and SBA loans typically take two to eight weeks for approval, while online lenders can often provide a decision within one to three business days.

7. Review Your Loan Offer Carefully

Before signing anything, read the entire loan agreement. Pay close attention to the interest rate (fixed or variable), total repayment amount, payment frequency, origination and closing fees, prepayment penalties, and any personal guarantee requirements. If anything is unclear, ask the lender to explain it. A few hours of careful review can save you thousands of dollars over the life of the loan.

{{cta-light}}

Where to Get a Small Business Loan

Where you apply matters almost as much as what you apply for. Different lender types serve different needs, and understanding the tradeoffs helps you find the right fit.

Traditional Banks and Credit Unions

Banks and credit unions offer the lowest interest rates, but they also have the strictest qualification requirements. Expect to need strong credit (680+), at least two years in business, and solid financials. The application process is thorough and can take several weeks. If you have an existing relationship with a bank, that can work in your favor, as some institutions offer preferred rates to current customers.

SBA Lenders

SBA loans are issued by approved lenders (banks, credit unions, and some online platforms) but backed by the federal government. This guarantee means lenders can offer more favorable terms than they otherwise would. The FDIC recommends comparison shopping among SBA lenders, since terms are negotiated between you and the individual lender within SBA guidelines.

Online and Alternative Lenders

If speed and accessibility matter more than getting the absolute lowest rate, online lenders may be the right choice. Many offer streamlined applications you can complete in minutes, with decisions in one to three days and funding shortly after. Requirements are typically more flexible. Some work with credit scores as low as 500 and businesses with as little as six months of history. The tradeoff is that rates can be higher than traditional banks, but for businesses that need capital quickly or do not qualify for conventional financing, this path gets you funded when time matters.

Fundwell falls into this category, but with a few key differences. Rather than offering a single loan product, Fundwell matches you with the right financing option from multiple products, including term loans, lines of credit, revenue-based financing, and SBA loans. The application takes minutes, approvals can come the same day, and you work with a real person throughout the process. That combination of speed, flexibility, and human support is what sets the best online lenders apart from both traditional banks and purely automated platforms.

Here is how these lender categories compare:

‍

How Much Does a Small Business Loan Cost

Understanding the true cost of a loan goes beyond the advertised interest rate. Here is what you should factor into your calculations.

Interest Rates by Loan Type

Interest rates vary significantly depending on the type of loan, your creditworthiness, and the lender. As a general benchmark, traditional bank loan rates ranged from 6.3% to 11.5% in the third quarter of 2025, according to the Federal Reserve Bank of Kansas City. SBA 7(a) loan fixed rates currently fall between 9.75% and 14.75%, based on the current prime rate of 6.75%. Online lenders can charge anywhere from 8% to well over 50%, depending on the borrower's risk profile.

Fees to Watch For

Interest is not the only cost of borrowing. Common fees that can increase your total cost include:

• Origination fees, typically 1% to 6% of the loan amount, deducted at funding
• Application or underwriting fees, charged by some lenders regardless of approval
• Prepayment penalties, which charge you for paying off the loan early
• Late payment fees, usually a flat fee or percentage of the missed payment
• Draw fees on lines of credit, charged each time you access funds

Always ask for a complete fee schedule before committing to any loan. A loan with a low interest rate but high origination fees may end up costing more than an alternative with a slightly higher rate and no fees.

Calculating the True Cost of a Loan

The annual percentage rate (APR) is the most reliable way to compare loan costs because it includes both the interest rate and most fees. For a deeper look at how credit affects your rate, see our breakdown of business loan interest rates by credit score. For non-traditional products like revenue-based financing, lenders may quote a factor rate (such as 1.2 or 1.3) instead of an APR. To understand the real cost, multiply your loan amount by the factor rate. For example, a $100,000 advance with a 1.3 factor rate means you will repay $130,000 total. Knowing how to compare these different pricing structures helps you make an informed decision.

What to Do If Your Loan Application Is Denied

Getting turned down is more common than you might think, and it does not mean you are out of options. Understanding why you were denied and what to do next can get you closer to the funding you need.

Understanding Why You Were Denied

Lenders are required to provide a reason for denial. The most common reasons include insufficient credit history or a low credit score, inadequate time in business, weak cash flow relative to the loan amount, too much existing debt, and incomplete or inaccurate application information. Knowing the specific reason allows you to address it directly rather than guessing.

Steps to Strengthen Your Next Application

If your credit score was the issue, focus on paying down existing balances and ensuring your credit report is accurate. If cash flow was the concern, look for ways to increase revenue or reduce expenses before reapplying. Building a longer operating history by waiting three to six months can also make a meaningful difference. Some business owners also benefit from opening a business credit card and using it responsibly to build a separate credit profile for their company.

Alternative Funding Options

If traditional lenders are not the right fit right now, several alternatives may work for your situation. Platforms like Fundwell specialize in connecting business owners with the right funding option based on where they are today, not just where a bank thinks they should be.

• Revenue-based financing focuses on your business revenue rather than your credit score, with flexible repayments that adjust to your sales
• SBA microloans offer up to $50,000 through nonprofit lenders with more lenient qualification criteria
• Business credit cards can provide short-term funding and help you build credit history simultaneously
• Crowdfunding platforms let you raise capital from customers and supporters, though this works best for consumer-facing businesses
• Grants, while competitive, are available through the SBA and various state and local programs with no repayment required

The key is matching the funding type to your current situation rather than forcing a fit with a product you do not yet qualify for.

Tips for Improving Your Approval Odds

Beyond meeting basic requirements, these practical steps can strengthen your application and help you secure better terms.

• Prepare a clear business plan. Even if the lender does not formally require one, a concise plan that explains your business model, market, and financial projections demonstrates competence and builds lender confidence.
• Separate your business and personal finances. Open a dedicated business bank account if you have not already. This makes your financials cleaner and shows lenders you run a legitimate operation. The FTC recommends establishing your business credit profile as a separate entity.
• Build your business credit proactively. Open a business credit card, pay vendors on time, and work with suppliers who report to business credit bureaus. Even a few months of positive reporting can improve your profile.
• Apply for the right loan amount. Requesting more than your financials support is a common reason for denial. Be realistic about what your cash flow can handle and borrow accordingly.
• Consider offering collateral or a co-signer. If your credit or revenue is borderline, offering an asset as collateral or bringing in a co-signer with strong credit can tip the scales in your favor.
• Time your application wisely. Apply when your business financials look their strongest. If you know your Q4 numbers will be better than Q2, waiting a quarter can mean the difference between approval and denial.

{{cta-dark}}

Find the Right Funding for Your Business

Getting a small business loan does not have to be complicated. Start by understanding what lenders are looking for, explore the loan types that match your needs, and prepare a strong application. If you do not qualify for one type of financing today, there are alternative paths that can help you access capital while you build your credit and operating history.

The most important step is the first one. Whether you need a small business loan, a line of credit, or a flexible funding option like revenue-based financing, exploring your options puts you in control. The right funding partner will be transparent about costs, fast when you need them, and supportive throughout the process.

See what you qualify for today and take the next step toward growing your business.

Frequently Asked Questions

What credit score do I need for a small business loan?

It depends on the lender. Traditional banks typically look for personal credit scores of 680 or higher. SBA lenders often require 680 as well, though some may accept 650 with strong financials. Online and alternative lenders may approve borrowers with scores as low as 500 to 580. Your business credit score also matters for larger loan amounts and better terms.

How long does it take to get approved for a business loan?

Approval timelines vary widely by lender type. Online lenders can often provide a decision in one to three business days, with funding shortly after. Traditional bank loans typically take two to six weeks. SBA loans have the longest timeline, often four to eight weeks or more, due to the additional paperwork and government guarantee process.

Can I get a small business loan with no collateral?

Yes. Many online lenders and alternative financing providers offer unsecured loans that do not require collateral. Revenue-based financing and some business lines of credit also do not require you to pledge specific assets. However, unsecured options generally come with higher interest rates, and most lenders will still require a personal guarantee.

What is the easiest type of business loan to get?

Revenue-based financing and short-term online loans tend to have the most accessible qualification criteria. These options focus more on your recent revenue and business performance than your credit score or time in business. Business credit cards are another relatively easy form of financing to access, especially for smaller funding needs.

How much of a down payment do I need for a business loan?

Most small business loans do not require a down payment. Term loans, lines of credit, and revenue-based financing typically provide the full requested amount without an upfront payment. SBA loans may require a down payment of 10% to 20% for certain programs, particularly SBA 504 loans used for real estate or large equipment purchases. Equipment financing may also require a down payment of 10% to 20%, depending on the lender and the age of the equipment.

Accounts receivable financing lets businesses turn unpaid customer invoices into immediate cash instead of waiting 30, 60, or 90 days for payment. It's a funding method where you either sell your invoices to a third party or use them as collateral for a loan.

This guide covers how AR financing works, the different types available, typical costs and requirements, and how to determine if it's right for your business. We'll also explore a newer approach with a B2B payment platform that eliminates slow payments at the source instead of financing around them. In fact, 55% of all B2B invoiced sales in the United States are overdue, with 81% of businesses reporting an increase in delayed payments. Business owners dedicate an average of 10% of their workday, roughly 4 to 8.5 days annually, chasing unpaid invoices.

What is Accounts Receivable Financing

Accounts receivable (AR) financing is a way for businesses to get cash from unpaid customer invoices instead of waiting weeks or months for payment. You can either sell your invoices at a discount to a financing company (called factoring) or use them as collateral for a loan or line of credit (called invoice discounting or asset-based lending). Either way, you're converting future payments into money you can use today.

Here's the situation AR financing solves: You've delivered products or completed services for a customer, but their payment terms say you won't see that money for 30, 60, or even 90 days. Meanwhile, you have payroll to cover, inventory to purchase, or a growth opportunity you don't want to miss. AR financing bridges that gap by unlocking the value sitting in your unpaid invoices.

What makes AR financing different from a traditional bank loan? The approval process focuses primarily on your customers' creditworthiness rather than your own business credit history. A financing company cares more about whether your customers pay their bills on time than whether your business has been operating for five years or five months.

Types of Accounts Receivable Financing

AR financing isn't one-size-fits-all. The right option depends on how much control you want to keep over your invoices and customer relationships.

Invoice Factoring

Invoice factoring means selling your unpaid invoices to a third party called a "factor." The factor pays you an advance, typically 80-90% of the invoice value, right away. When your customer pays the invoice, you receive the remaining balance minus the factor's fees.

The factor takes over collections, which means they'll communicate directly with your customers about payment. Some business owners appreciate the hands-off approach since chasing payments takes time and energy. Others prefer to keep their financing arrangements private, which factoring doesn't allow.

Accounts Receivable Loans

An AR loan lets you borrow money using your invoices as collateral, but you keep ownership of those invoices. You're still responsible for collecting payments from your customers, and they typically never know you've secured financing against what they owe you.

The trade-off is straightforward: you maintain control and confidentiality, but you're on the hook for repaying the loan whether or not your customers pay on time. If a customer pays late or defaults, that's your problem to solve.

Selective Receivables Financing

Sometimes you don't want to finance all your invoices, just a few specific ones. Selective receivables financing gives you that flexibility. Maybe you have one large invoice creating a cash flow crunch, or perhaps you only want to finance invoices from certain customers. This approach lets you pick and choose without committing to a broader arrangement.

Accounts Receivable Loan vs Invoice Factoring

The choice between an AR loan and invoice factoring often comes down to two questions: Do you want to handle collections yourself? And do you want your customers to know about your financing arrangement?

‍

How Does Accounts Receivable Financing Work

While the details vary depending on whether you choose factoring or a loan, most AR financing follows a predictable sequence.

1. Submit Your Outstanding Invoices

First, you provide documentation of your unpaid invoices to the financing company. They'll review the creditworthiness of your customers, looking at payment histories and credit profiles. Your own business financials matter less than whether your customers reliably pay their bills.

2. Receive Your Cash Advance

Once approved, you receive an upfront percentage of the total invoice value. This percentage, called the "advance rate," typically ranges from 70-95% depending on your industry, invoice volume, and how creditworthy your customers appear. The remaining percentage is held in reserve.

3. Your Customer Pays the Invoice

When the invoice comes due, payment collection depends on your financing type. With factoring, your customer pays the factor directly. With an AR loan, you collect payment as usual and then repay the lender.

4. Final Settlement and Reconciliation

After your customer pays in full, you receive the reserve amount minus the financing company's fees. For factoring, the factor sends you the remaining balance. For AR loans, you repay the borrowed amount plus interest, and any reserve held is released back to you.

Benefits of AR Financing for Small Businesses

AR financing offers several advantages that traditional bank loans typically can't match.

• Speed: AR financing converts slow-paying receivables into cash within days. Traditional bank loans often take weeks or months to process and fund.
• Scalability: Unlike a fixed loan amount, AR financing grows with your sales. The more invoices you generate, the more financing becomes available. This works particularly well for seasonal businesses or companies experiencing rapid growth.
• Accessibility: Since approval depends primarily on your customers' creditworthiness, businesses with limited operating history or imperfect credit can often qualify. A two-year-old company with reliable, creditworthy customers may have an easier time getting AR financing than a traditional bank loan.
• No equity dilution: AR financing is debt-based, not equity-based. You access capital without giving up ownership in your business.

Limitations of Traditional AR Financing

AR financing solves immediate cash flow gaps, but it comes with trade-offs worth considering.

Your customers may find out. With factoring, your customers are notified that a third party now owns their invoice. Some businesses worry this signals financial distress, even when it doesn't.

You're still waiting on slow payers. AR financing doesn't change customer payment behavior—it just helps you work around it. You'll keep dealing with the same 45, 60, or 90-day cycles.

Fees reduce your margins. Factor rates of 1-5% per month add up, especially on invoices that take longer to collect. For businesses with thin margins, these costs can be hard to absorb.

It's reactive, not proactive. Traditional AR financing addresses the symptom (you need cash now) rather than the root cause (your customers have limited ways to pay).

Modern Alternatives to AR Financing

What if instead of financing your receivables after slow payments pile up, you could prevent the problem in the first place?

A newer category of B2B payment platforms takes this approach. Rather than selling invoices or borrowing against them, these platforms embed flexible payment options directly into your invoicing. Your customers choose how they want to pay (card, ACH, installments over 12 months, or net terms up to 24 months) and you get paid within days regardless of which option they pick.

Fundwell is one platform built specifically for this. When you send an invoice through Fundwell, your customer sees multiple payment options at checkout. They can pay immediately by card or bank transfer, split the payment into installments using Buy Now Pay Later, or select net terms if they need more time. You receive funds quickly no matter what they choose.

The results speak for themselves. One distributor who previously waited 45+ days for payment started getting paid the same week after enabling flexible payment options. A supplier sending thousands of invoices monthly saw a 47% increase in invoices getting paid after adding installment options. Customers who used to delay large orders started buying more because they could spread payments over time.

How it compares to traditional AR financing:

‍

‍

See It in Action →

Accounts Receivable Financing Requirements

Eligibility criteria vary by lender, but most AR financing companies look for similar characteristics.

• B2B invoices: Most providers work with business-to-business invoices rather than consumer receivables. If you sell primarily to individual consumers, AR financing probably isn't the right fit.
• Creditworthy customers: Your customers' payment track records matter more than your own credit score. Financing companies want to see that the businesses owing you money actually pay their bills.
• Invoice documentation: You'll provide proof that goods were delivered or services completed. Invoices for work not yet finished typically don't qualify.
• Minimum thresholds: Some lenders set minimum requirements, often starting around $10,000-$25,000 in monthly receivables. Smaller invoice volumes may not be cost-effective for certain financing companies.
• Operating history: Requirements range from a few months to two years depending on the provider. Newer businesses can often qualify if their customers have strong credit profiles.

Accounts Receivable Financing Rates and Costs

Understanding the full cost structure helps you compare options accurately and avoid surprises down the road.

Factor Rates and Discount Fees

The primary cost is usually expressed as a factor rate, which is a percentage of the invoice value charged for the financing. Rates commonly range from 1-3% per month, though they vary based on invoice volume, customer creditworthiness, and payment terms.

Some providers use variable rates that increase the longer an invoice remains unpaid. For example, you might pay 1% for the first 30 days, then an additional 0.5% for each 10-day period after that. This structure incentivizes quick customer payment and can significantly increase costs if invoices go past due.

Service Fees and Additional Costs

Beyond the factor rate, other charges can add up:

• Origination fees: One-time costs for setting up the financing arrangement
• Monthly minimums: Fees charged if your financing volume falls below a required threshold
• ACH or wire fees: Charges for electronic fund transfers
• Early termination fees: Penalties for ending an agreement before the contract term expires

How to Compare AR Financing Companies

When evaluating providers, look beyond the headline rate. Calculate the total cost of financing including all fees, examine contract flexibility and length, ask about funding speed, and assess the quality of customer support. The best providers explain all potential costs upfront without you having to dig for information.

Tip: Request a complete fee schedule before signing any agreement. Reputable AR financing companies provide this information readily.

How to Apply for Accounts Receivable Financing

The application process has become increasingly streamlined, especially through online platforms that connect businesses with multiple funding options.

1. Gather Your Business and Invoice Documents

Before starting an application, collect your accounts receivable aging report, sample invoices, basic business financials, and information about your major customers. Having these documents ready speeds up the process considerably.

2. Submit Your Online Application

Most applications take just a few minutes to complete. You'll provide basic information about your business, industry, and financing needs.

If you're exploring AR financing options, Fundwell can help you compare offers from multiple providers. But if you'd rather solve the slow-payment problem at its source—by giving your customers flexible ways to pay—Fundwell's B2B payment platform offers a different path.

Compare Financing Options or Explore Fundwell's Payment Platform

3. Review and Compare Funding Offers

You may receive multiple offers with different terms, advance rates, and fee structures. Take time to compare the total costs rather than focusing only on the advance rate. A higher advance rate with higher fees might cost more overall than a lower advance rate with minimal fees.

4. Accept Your Offer and Get Funded

After finalizing paperwork, funding can happen quickly. Many businesses receive funds within 24-72 hours of approval, which is significantly faster than traditional bank financing.

Is Accounts Receivable Financing Right for Your Business

AR financing works well in certain situations but isn't the right fit for every business. Businesses that automate AR processes save an average of 23 days on their Days Sales Outstanding, and AR teams can process functions 87% faster with automation.

You're likely a good candidate if you sell to other businesses with reliable payment histories, if long payment terms like net 30, 60, or 90 create cash flow gaps, if you want working capital faster than traditional loans provide, or if you prefer to fund growth without taking on conventional debt or giving up equity.

On the other hand, AR financing may not work well if your customers have poor payment histories, if your profit margins are too thin to absorb financing costs, or if you primarily sell to individual consumers rather than businesses. The fees associated with AR financing eat into your margins, so businesses operating on very tight margins may find the cost outweighs the benefit.

FAQs About Accounts Receivable Financing

What industries commonly use accounts receivable financing?

AR financing is popular in industries with long payment cycles. Staffing agencies, manufacturers, wholesale distributors, transportation companies, construction firms, and government contractors frequently use AR financing because their customers often take 30-90 days to pay invoices.

Will customers know when a business uses accounts receivable financing?

It depends on the financing type. With invoice factoring, customers are typically notified because the factor collects payment directly and becomes the point of contact for invoice-related questions. With AR loans, the arrangement usually remains confidential since you maintain collection responsibilities and customer communication.

What is the difference between recourse and non-recourse factoring?

With recourse factoring, you're responsible for repaying the advance if your customer fails to pay the invoice. The factor can "recourse" back to you for the money. Non-recourse factoring means the factor assumes the credit risk of non-payment, though this protection typically only covers specific situations like customer bankruptcy, not payment disputes or other issues. Non-recourse arrangements usually cost more because the factor is taking on additional risk.

How is accounts receivable financing treated in accounting?

The accounting treatment depends on the financing type. Factoring is typically recorded as a sale of assets since you're selling the invoices to another party. AR loans appear as liabilities on your balance sheet since you're borrowing money with invoices as collateral. The distinction matters for financial reporting and can affect how lenders and investors view your business finances.

What happens if a customer disputes a financed invoice?

If a customer disputes a financed invoice, you'll typically work with the financing company to resolve the issue. The disputed amount may be deducted from future advances or held in reserve until the matter is settled. Most financing agreements include provisions for handling disputes, so understanding these terms before signing is helpful.

Are there alternatives to traditional accounts receivable financing?

Yes. B2B payment platforms like Fundwell take a different approach by embedding flexible payment options—card, ACH, installments, net terms—directly into your invoices. Instead of financing receivables after they become slow to collect, you prevent the problem by giving customers more ways to pay upfront. You get paid within days, and your customers get the flexibility they need.

SBA loans consistently offer some of the lowest interest rates available to small business owners, but figuring out exactly what you'll pay requires understanding how these rates actually work. Unlike a simple fixed percentage, SBA loan rates combine a base rate with a spread that varies by program type, loan amount, and repayment term.

This guide breaks down current rates for each SBA loan program, explains the factors that determine your specific rate, and walks through practical strategies for securing the best terms possible.

What Are Current SBA Loan Interest Rates

SBA loan rates depend on the program you choose, but they all follow a similar formula: a base rate (usually the prime rate) plus a margin that the SBA caps. For 7(a) loans, the most popular option, variable rates currently range from about 10% to 13.5% when you add the prime rate to the allowable spread. Meanwhile, 504 loans offer fixed rates tied to Treasury bonds, typically landing between 6% and 7%. Disaster loans come in even lower, with fixed rates around 4%.

Here's something that often surprises first-time borrowers: the SBA doesn't actually lend money directly. Instead, it partners with banks and other approved lenders, guaranteeing a portion of each loan. This guarantee reduces the lender's risk, which is why SBA loans tend to offer better rates than you'd find with most conventional business financing.

The rate cap system is what makes SBA loans particularly attractive. Lenders can charge up to the maximum rate the SBA allows, but they can't exceed it. So while your final rate depends on factors like your credit score and loan size, you'll always know the ceiling.

‍

{{cta-light}}

SBA Loan Rates by Program Type

SBA 7(a) Loan Rates

The 7(a) program is where most small business owners start, and for good reason. You can use these loans for almost anything: working capital, equipment, inventory, or even buying real estate. The SBA closed fiscal year 2025 with a record $44.8 billion in guaranteed loans, with over 50% of 7(a) loans under $150,000, marking a dramatic shift from pandemic-era lending patterns toward small-dollar transactions distributed across a broader population of businesses.

Interest rates on 7(a) loans combine a base rate with a spread that changes based on how much you borrow:

• Loans $50,000 or less: Base rate plus up to 6.5%
• Loans $50,001 to $250,000: Base rate plus up to 6.0%
• Loans $250,001 to $350,000: Base rate plus up to 4.5%
• Loans over $350,000: Base rate plus up to 3.0%

Most lenders use the prime rate as their base. Some choose the SBA's optional peg rate instead, which updates quarterly rather than fluctuating with each Federal Reserve decision.

SBA 504 Loan Rates

If you're planning to buy commercial real estate or heavy equipment, 504 loans deserve a close look. These loans feature fixed rates tied to U.S. Treasury bonds, and they typically fall between 6% and 7% for terms stretching 10, 20, or 25 years.

The structure works a bit differently than other SBA loans. A Certified Development Company (a nonprofit organization focused on economic development) provides up to 40% of the financing. A traditional bank covers up to 50%. And you contribute at least 10% as a down payment. This three-way split keeps rates low while spreading risk among multiple parties.

SBA Microloan Rates

Microloans fill a gap for startups and smaller businesses that only need up to $50,000. Rather than going through traditional banks, these loans come from nonprofit intermediary lenders, and rates typically range from 8% to 13%.

Why the higher rates? Smaller loans to newer businesses carry more risk. On the other hand, microloans often include technical assistance and mentoring, resources that can prove valuable when you're just getting started.

SBA Express Loan Rates

Sometimes speed matters more than getting the absolute lowest rate. Express loans can be approved within 36 hours, but lenders can charge higher rates than standard 7(a) loans. The maximum loan amount tops out at $500,000, and the SBA only guarantees 50% compared to up to 85% for regular 7(a) loans.

SBA Community Advantage Loan Rates

This program reaches businesses in underserved markets through mission-focused lenders. The rate structure mirrors the 7(a) program, but Community Advantage loans specifically target entrepreneurs who might otherwise struggle to access traditional financing.

How SBA Loan Interest Rates Are Determined

Prime Rate and Base Rate Explained

The prime rate forms the foundation for most SBA 7(a) loan pricing. When the Federal Reserve adjusts the federal funds rate, the prime rate typically follows within days. As of late 2024, the prime rate sits around 7.5%, though this changes with Fed decisions.

For 504 loans, the math works differently. Rates tie to Treasury bond yields, which move based on broader economic conditions and investor behavior rather than direct Fed action.

The SBA also publishes an optional peg rate each quarter. Some lenders prefer this alternative because it only changes four times per year, making payments more predictable for borrowers.

Variable vs Fixed Rate Structures

Variable-rate loans adjust whenever the underlying base rate moves. If the prime rate climbs by 0.25%, your interest rate (and your monthly payment) climbs by the same amount. This works in your favor when rates are falling, but it makes budgeting less predictable.

Fixed-rate loans lock in your rate for the entire repayment period. SBA 504 loans are always fixed. Some 7(a) loans offer fixed-rate options too, though the initial rate tends to be slightly higher than variable alternatives.

Rate Caps by Loan Amount

Larger loans often qualify for lower rate spreads, a detail that catches many borrowers off guard. The SBA's tiered system means a $400,000 loan might carry a maximum spread of just 3% above prime, while a $40,000 loan could have a spread of 6.5%. However, it's important to consider that total borrowing costs on SBA loans frequently reach 60-70% of the original loan amount over 10-year terms when accounting for guarantee fees, lender fees, closing costs, and prepayment penalties on top of interest rates.

‍

SBA Loan Fees and Total Borrowing Costs

Interest rates only tell part of the story. Fees can add thousands to your total borrowing costs, so understanding them upfront helps you compare offers accurately.

SBA Guarantee Fees

The SBA charges a guarantee fee based on the guaranteed portion of your loan and its term length. For larger loans with terms exceeding 12 months, this fee can reach 3.5% of the guaranteed amount. Most borrowers roll the fee into the loan rather than paying it at closing.

Lender and Packaging Fees

Individual lenders may charge their own fees on top of what the SBA requires:

• Packaging fees: Charges for preparing and submitting your application
• Closing costs: Similar to what you'd pay on a mortgage
• Servicing fees: Ongoing charges for loan administration

These vary considerably between lenders, which is why requesting detailed fee breakdowns from multiple sources makes sense.

Prepayment Penalties

Planning to pay off your loan early? Be aware that 7(a) loans with terms of 15 years or more carry prepayment penalties during the first three years. The penalty starts at 5% in year one, drops to 3% in year two, and falls to 1% in year three. After that, you can pay off the balance without penalty.

SBA Loan Terms and Repayment Periods

The length of your loan affects both your monthly payment and the total interest you'll pay over time. The SBA sets maximum terms based on how you plan to use the funds:

‍

Longer terms mean lower monthly payments, which can help with cash flow. However, you'll pay more in total interest. A 25-year real estate loan at 10% costs significantly more over its lifetime than a 10-year loan at the same rate.

How to Get the Best SBA Loan Rate

1. Strengthen Your Credit Profile

Your personal credit score plays a significant role in the rate lenders offer. While the SBA doesn't set minimum credit requirements, most lenders look for scores of 680 or higher when offering their best rates. Before applying, it's worth reviewing your credit reports for errors and addressing any issues that might be pulling your score down.

2. Prepare Complete Financial Documentation

Thorough documentation speeds up approval and signals to lenders that you're organized and serious. Most lenders want to see:

• Two to three years of business and personal tax returns
• Year-to-date financial statements
• Recent business bank statements
• A detailed business plan (especially for newer companies)

3. Compare Multiple SBA Lenders

Different lenders offer different rates within SBA guidelines. Some prioritize speed and charge rates closer to the maximum. Others compete on price. Getting quotes from at least three lenders gives you a clearer picture of what's available—and some leverage to negotiate.

Tip: Platforms like Fundwell help you compare multiple SBA loan options alongside alternative financing, so you can see competitive offers without spending weeks on applications. Get Funded

4. Consider Your Loan Amount Strategically

Because rate caps decrease as loan amounts increase, borrowing slightly more can sometimes result in a lower overall rate. If you're close to a tier threshold—say, $345,000—running the numbers on a $355,000 loan might reveal a better deal.

{{cta-dark}}

SBA Loans vs Other Small Business Loan Options

Traditional Bank Loans

Conventional bank loans may offer rates comparable to SBA loans, but qualification requirements tend to be stricter. Banks typically want longer business histories, stronger revenues, and more collateral. The approval process also takes longer without the SBA's standardized framework.

Online Business Loans

Online lenders prioritize speed over price. You might get funded within days rather than weeks, but interest rates often run significantly higher, sometimes 20% to 50% or more. For businesses that need capital quickly or don't qualify for SBA financing, online loans fill an important gap.

Revenue-Based Financing

This alternative ties repayment to your business revenue rather than fixed monthly payments. Instead of an interest rate, you'll see a factor rate that determines your total repayment amount. It's not directly comparable to traditional loans, but the flexibility works well for businesses with variable income.

Find the Right SBA Financing for Your Business

The right financing depends on your specific situation: how much you need, what you'll use it for, how quickly you need it, and what you can realistically qualify for. Taking time to calculate total borrowing costs, not just interest rates, often reveals that a loan with a slightly higher rate but lower fees costs less overall.

Fundwell helps business owners compare SBA loans alongside alternative financing solutions, with transparent terms and real human support throughout the process.

{{cta-light}}

FAQs About SBA Loan Interest Rates

What is the monthly payment on a $50,000 SBA loan?

Monthly payments depend on your interest rate and loan term. As a rough example, a $50,000 loan at 11% over 10 years would run approximately $690 per month, while the same loan over 7 years would be closer to $840. An SBA loan calculator or a conversation with a lender can give you personalized estimates based on current rates.

Are SBA loan interest rates negotiable with lenders?

While the SBA sets maximum rates, lenders have flexibility within those caps. A borrower with excellent credit and strong financials may receive rates well below the maximum. Comparing offers from multiple lenders gives you negotiating leverage and a clearer sense of what's possible.

How often do SBA variable loan rates change?

Variable rates adjust whenever the underlying base rate changes. Since most SBA loans use the prime rate, your rate could change several times per year based on Federal Reserve decisions. Rate changes typically take effect within one to two billing cycles after the prime rate moves.

Can I refinance an existing SBA loan if interest rates drop?

Refinancing is possible, though restrictions apply. You generally cannot use one SBA loan to refinance another SBA loan unless specific conditions are met. However, refinancing with a conventional loan or exploring other SBA programs may be options depending on your situation.

What credit score do lenders require for the lowest SBA loan rates?

Most lenders prefer credit scores of 680 or higher for competitive rates, though some work with scores as low as 620. The strongest rates typically go to borrowers with scores above 720, along with solid business financials and adequate collateral.