Business loans: Types, costs, and how to compare your options with Rho
Explore small business loans, SBA programs, credit lines, and alternatives. See costs, eligibility, risks, and how Rho supports funding decisions.
Rho Editorial Team
If you’re a small business owner or startup founder, access to the right capital can determine how fast you grow and how stable your operations remain. Loans can cover working capital, commercial real estate, equipment, and refinancing higher-cost debt.
Fortunately, small business loans are not the only path. Grants, equity financing, and non-profit business development programs can supplement or replace loans in certain situations.
With Rho, founders gain a faster, clearer way to explore non-dilutive funding options such as business lines of credit and working capital solutions, all integrated within the same platform they use for banking, treasury, and expense management.
How small business loans work
Lenders include traditional banks, credit unions, online platforms, and government-backed programs from the U.S. Small Business Administration. They provide capital for business needs such as expansion, equipment, or working capital, but each loan type comes with different terms, risks, and eligibility requirements.
The loan application process
Most loans begin with a formal loan application, where borrowers submit financial statements, tax returns, and a business plan.
The application process can feel demanding, but lenders use this information to assess repayment ability and overall creditworthiness.
Startups and new businesses may need to demonstrate projected cash flow or secure a personal guarantee to strengthen their application.
Underwriting and loan guarantee
After the application, underwriting begins. This is when the lender evaluates the company’s credit score, credit history, and annual revenue. Some loan programs, such as SBA loans, include a loan guarantee from the federal government.
Costs and repayment
The cost of borrowing depends on interest rates, loan amounts, and repayment schedules. Some lenders advertise competitive rates, but fees such as origination or early repayment penalties may increase the total cost.
For entrepreneurs, it’s critical to understand how repayment terms affect cash flow and whether refinancing may be required in the future.
Types of business loans
Small business financing comes in several forms, each with different uses, eligibility requirements, and repayment structures.
Below, we break down how the most common loan types work, along with what they typically look like in practice.
1 - SBA loans
The U.S. Small Business Administration (SBA) supports small business loans by guaranteeing a portion of the loan amount. This loan guarantee lowers the risk for lenders, which makes it easier for small business owners and entrepreneurs to access capital.
SBA loans are often used for working capital, real estate, or refinancing existing debt, and they tend to offer competitive rates and longer repayment terms than many other financing options.
Different types of SBA loans
SBA 7(a) loansThese are the most common SBA loan program. Borrowers can use funds for a wide range of business needs, including working capital, commercial real estate, and refinancing. Loan amounts can reach up to $5 million, with repayment terms that extend up to 10 years for most uses.
SBA 504 loansThis program focuses on commercial real estate and equipment financing. SBA 504 loans are designed for long-term development, such as purchasing or upgrading facilities. Repayment terms can extend to 20 years, making them attractive for stable businesses planning major investments.
SBA microloansFor startups and new businesses, SBA microloans provide smaller loan amounts, often through community development financial institutions and non-profit lenders. They are commonly used for early-stage expenses such as inventory, supplies, or initial working capital.
Eligibility and costs
Eligibility requirements for SBA loans generally include a strong personal credit score (usually above 680), a detailed business plan, and annual revenue that demonstrates repayment capacity.
While SBA loans typically offer competitive rates, the application process can be lengthy, and borrowers should expect to provide collateral and a personal guarantee.
2 - Term loans
Term loans are one of the most straightforward types of business financing. A borrower receives a fixed loan amount upfront and repays it in regular installments over a set schedule, usually with interest rates that vary depending on creditworthiness, collateral, and the lender.
For small business owners, term loans are often used to finance equipment purchases, expand facilities, or refinance higher-cost debt.
How term loans work
Funds are disbursed as a lump sum.
Repayment is structured in fixed monthly or quarterly installments.
Interest rates may be fixed or variable depending on the lender.
3 - Business line of credit
A business line of credit is a flexible financing option that allows small business owners and entrepreneurs to draw funds as needed, up to a set limit. Unlike term loans, repayment only applies to the amount borrowed, making lines of credit useful for covering short-term business needs such as payroll, inventory, or uneven cash flow.
How a business line of credit works
Functions like a revolving account: borrow, repay, and borrow again.
Interest rates are applied only to the balance in use.
Some lenders, especially online lenders, may offer faster approvals but charge higher fees compared to a traditional bank or credit union.
4 - Equipment financing and real estate loans
Many small businesses rely on loans to purchase or upgrade physical assets. Equipment financing and real estate loans are designed specifically for these needs, helping entrepreneurs invest in machinery, vehicles, or commercial real estate without draining cash reserves.
How these loans work
The lender provides capital for specific machinery or technology, often using the equipment itself as collateral.
These cover commercial real estate purchases or improvements, with repayment terms that can extend for several years.
Since these loans are asset-backed, lenders evaluate the value of the equipment or property closely during underwriting.
Benefits and risks
Businesses can spread the cost of large purchases over time rather than tying up working capital.
Loan amounts depend heavily on collateral value and the borrower’s credit score.
Refinancing may become necessary if equipment value declines or if repayment schedules put pressure on cash flow.
5 - Credit cards and charge cards
Credit cards can act as short-term business financing tools, giving small business owners flexibility for everyday expenses. While not a substitute for larger business loan options, they can provide working capital for travel, supplies, or emergencies.
How business credit cards work
Borrowers can use cards for recurring purchases or vendor payments.
Interest rates are typically higher than those for term loans or lines of credit.
Rewards and perks may offset costs, but balances that carry over can quickly strain cash flow.
Benefits and risks
Cards are often easier to qualify for than larger loan programs, though approval may rely on personal credit.
Responsible use can improve business creditworthiness, while missed payments may affect personal credit.
Loan amounts (credit limits) are relatively small compared to term loans, equipment financing, or SBA loans.
Business credit cards with Rho
Our platform provides corporate cards to help startups manage everyday spend.
These cards help manage everyday spend, set team-level controls, and track expenses in real time—complementing larger financing options like loans or credit lines.
Alternative financing options to know
Some small business owners and entrepreneurs turn to alternative financing options when they need quick access to working capital or can’t qualify for traditional bank products. These options can be more flexible but often come with higher costs or shorter repayment periods.
6 - Merchant cash advances (MCA)
Merchant cash advances provide an upfront lump sum that is repaid through a percentage of future sales. They are fast but can become expensive if revenue fluctuates. This is best suited for businesses with steady daily sales.
7 - Revenue-based financing (RBF)
Revenue-based financing ties repayment to a percentage of monthly revenue, making it flexible for startups with sales cycles that rise and fall. These are popular with eCommerce businesses or SaaS companies with recurring revenue.
8 - Invoice factoring
Invoice factoring allows businesses to advance cash against outstanding receivables. A factoring company collects payment from customers directly.
Useful for businesses that invoice on net-30, net-60, or net-90 terms.
Costs depend on the factoring fee and the aging of receivables.
9 - Purchase order (PO) financing and trade finance
Purchase order financing helps cover supplier costs when fulfilling large customer orders. Trade finance extends this structure, advancing funds against both the PO and receivables. Strong financial reporting and supplier contracts are usually required.
10 - Consolidation loans
Consolidation loans refinance multiple short-term debts into a single repayment structure, often lowering costs or simplifying cash flow management. Best for businesses juggling multiple MCA positions or high-cost loans.
Other financing options beyond loans
Depending on stage, industry, and business needs, small business owners and entrepreneurs may also consider non-debt financing options. These alternatives can reduce repayment pressure and provide funding without increasing liabilities.
11 - Grants
Government and non-profit programs sometimes provide grants to support small businesses, startups, or community development.
Grants are highly competitive but attractive because they do not require repayment. They often focus on specific industries such as research, technology, or local business development.
12 - Venture capital and equity financing
Equity financing is another route, particularly for startups with high growth potential. Venture capital firms provide large injections of capital in exchange for ownership. While there is no repayment obligation, equity financing dilutes existing ownership and may shift control toward investors.
13 - Business development and community sources
Local and state business development funds, along with community development financial institutions, can provide targeted financing or grant support.
These programs often aim to stimulate regional economies or help new businesses launch in underserved areas.
Choosing the right loan for your business with Rho
The best financing choice is the one that fits your stage, cash flow, and long-term plan. Founders should align repayment schedules with projected revenue, avoid unnecessary personal guarantees, and maintain a healthy balance between debt and equity.
Rho makes this process simpler by helping startups and growing businesses access vetted financing options through a fast and transparent application process. Instead of chasing multiple lenders, you can compare tailored offers side by side and choose the structure that best supports your goals.
How Rho supports your funding process
Clear visibility into repayment terms and structures before you commit.
Neutral guidance, Rho is not the lender and stays focused on your needs.
Facility sizes suitable for short-term working capital and credit line access.
Terms designed to support startups and growth-stage businesses.
No excessive personal guarantees, hidden fees, or legacy requirements.
With Rho, founders save time, gain clarity, and access the right type of funding without losing focus on building their business.
Preparing your business for funding
Even with the right partner, strong preparation makes financing faster and smoother. Before applying, founders should:
Organize financial documents such as YTD financials, corporate tax returns, and debt schedules.
Tie capital use to specific growth initiatves like hiring, inventory, or marketing.
Keep your capital stack balanced across debt and equity to support long-term growth.
Fund what’s next with Rho
Choosing the right financing means finding a structure that aligns with your business plan, protects cash flow, and supports long-term growth.
Rho gives founders a faster, clearer way to access non-dilutive funding without the frustration of chasing multiple lenders. Through the same platform you use for banking, treasury, and spend management, you can explore business lines of credit and working capital solutions designed to fit your stage and goals.
More importantly, Rho’s process is transparent and neutral, helping you compare terms with confidence and select the funding option that best supports your business.
FAQs about business loans
What credit score do you need for small business loans?
Most small business loans require a personal credit score of at least 650–700. Stronger credit histories improve eligibility for larger loan amounts, lower interest rates, and longer repayment terms. Some alternative financing options, like revenue-based financing or invoice factoring, focus more on cash flow than creditworthiness, which can help startups or new businesses with limited credit history.
What is the SBA 7(a) loan program?
The SBA 7(a) loan program is the most common option backed by the U.S. Small Business Administration. Borrowers can use funds for working capital, refinancing, equipment, or real estate. Loan amounts go up to $5 million, with repayment terms as long as 10 years.
Can startups get business loans without a credit history?
Yes, though options are more limited. Traditional banks and credit unions usually require a strong credit score and proven annual revenue. However, alternative financing options may be available to startups with limited credit history. These products often rely on receivables, sales data, or community development programs instead of personal credit alone.
What are the risks of using personal credit for business financing?
Using personal credit for business loans can blur the line between your finances and the company’s. Missed repayments may damage your credit score, limit future borrowing, or trigger personal guarantees. Small business owners should weigh whether short-term access to credit cards or personal loans is worth the long-term risk.
Is Rho a lender?
No. Rho is not a lender. Instead, Rho connects businesses to vetted financing options, such as business lines of credit and working capital loans, while also providing banking, spend management, and treasury tools in one platform.
How fast can I get funding through Rho?
Timelines vary depending on the lender and facility size. Many smaller credit lines and working capital solutions can fund in as little as a few business days, while larger facilities may take longer to underwrite.
Does Rho require personal guarantees?
Some traditional lenders may require personal guarantees, especially for early-stage businesses. However, Rho works with financing partners that often provide more flexible options, helping founders avoid excessive personal guarantees and hidden fees.
What types of businesses use Rho for financing?
Rho supports startups and growth-stage companies across industries like SaaS, eCommerce, consumer products, and professional services. The platform is best suited for businesses that need short-term working capital, spend management, and scalable financial operations in one place.
Why choose Rho for financing instead of going directly to a bank?
Rho simplifies the process by providing side-by-side comparisons of vetted financing offers. This saves founders time, increases transparency around terms, and helps align funding decisions with broader cash flow management, all without juggling multiple lender relationships.
