Lending Library

Business lines of credit are one of the most widely used types of financing when it comes to small businesses. According to findings from the Federal Reserve Banks’ 2024 Small Business Credit Survey, 34% of small businesses surveyed regularly used or carried a balance on lines of credit.

This type of small business financing is a great solution for short-term funding and covering operating expenses. But what is it, and how exactly does it work? We’ll break down everything you need to know about business lines of credit in this guide.

What is a small business line of credit?

A small business line of credit is a flexible financing option for businesses that allows business owners access to a predetermined amount of money that they can draw from as needed. With a line of credit, the owner has access to the money, but doesn’t receive it all in a lump sum upfront. This structure makes a line of credit more similar to a credit card than a traditional term loan.

How a business line of credit works.

When you’re approved for a small business line of credit, your lender gives you access to an amount of money to use for business purposes up to the limit agreed upon. You can then use amounts you need from the line of credit at any time, up to the limit. 

Think of it like an envelope of cash the bank gives you for rainy day expenses. You don’t have to ask the bank for money every time you need it, since you’ve already been approved for that amount. You also don’t have to use all the funds if you don’t need to, giving small businesses more control over expenses, interest, and paying back on the loan.

To use the line of credit, generally you’ll transfer the funds you need into your bank account from the line of credit, or use special checks to draw directly from the line. 

Depending on the type of line of credit you have, the funds you borrow and repay may or may not become available again to borrow up to your limit. Let’s talk about these categories of lines of credit next, so you know the difference.

Revolving vs. non revolving line of credit.

Your line of credit will typically fall into two categories: revolving, or non-revolving. With a revolving line of credit, you can borrow repeatedly up to the credit limit as you repay the balance—similar to a credit card.

A non-revolving line of credit is a fixed limit. Each time you borrow from the line, and repay, that amount is not available for use again. Once you use all of the approved funding up to the limit, the account can’t be reused, and you’ll need to apply for a new loan. This makes a non-revolving line of credit more similar to a traditional loan.

Paying back a line of credit.

Business lines of credit are a short-term funding solution. Most lines of credit will need to be repaid within 1-2 years. Similar to any other loan, you’ll make regular payments on your balance towards the principal, as well as interest charges on the funds you have used. 

Read our guide to business line of credit interest rates to learn about average rates and what influences the rate you get.

Financing your business with an SBA loan can help you grow your business with long term, low interest financing. SBA loans are one of the most sought after forms of financing for small businesses, but come with their share of requirements to get approval. One of those lesser-known requirements is hazard insurance, particularly if you’re securing your loan with collateral such as commercial property or equipment.

What is hazard insurance?

Hazard insurance is a type of business property insurance that covers damage to the physical property caused by accidents, damage, weather, and some natural disaster-related incidents. Your specific insurance policy will outline “covered events”. These are the types of events that may occur and cause damage to your property. When that happens, your hazard insurance kicks in and covers the damage within the limits of your policy.

Most hazard insurance policies typically cover the following events that cause damage to the physical property, or significant business property inside such as furniture, equipment, tools, and inventory:

• Theft and vandalism
• Fire or explosions
• Weather and storm damage
• Vehicle damage
• Water damage (such as damage caused by burst pipes)

Hazard insurance doesn’t extend over every type of event. Typically, these types of events are not covered under a hazard insurance policy, and require additional coverage policies:

• Personal belongings
• Liability for the property
• Natural disasters, such as floods, earthquakes, and landslides
• Damage as a result of lack of maintenance, or maintenance issues

When is hazard insurance required?

Hazard insurance isn’t only required for business loans. The most common scenario when a hazard insurance policy is required is for a mortgage on a home. However, most lenders will require a hazard insurance policy on any property—personal or commercial—used to secure a loan, or on the commercial property you are financing with your loan. 

The reason why hazard insurance is required by lenders is straightforward. Your lender has a significant financial stake in your property or equipment. If that property is damaged or destroyed, hazard insurance means they can recoup their investment. Plus, it also protects you from the loss of what is undoubtedly an expensive purchase! 

This also applies to property or commercial equipment used as collateral. If your collateral is destroyed or damaged, lenders are exposed to risk if you default on your loan. With hazard insurance on the property, they can mitigate that risk.

SBA hazard insurance requirements.

Like most lender policies on hazard insurance, the SBA hazard insurance requirement applies to property that is used as collateral. Most SBA loans, including 7(a) and 504 loans, require some type of collateral in order to be approved. 

Because it’s used as collateral, the property must be properly insured. That way, if there’s any damage done that’s out of your control, the building can be repaired or replaced and still maintain its value.

Here’s the breakdown on hazard insurance requirements for each type of SBA loan:

Hazard insurance vs. other insurance policies.

Hazard insurance is often confused for other types of business insurance. And, not all insurance companies refer to property insurance as hazard insurance. Instead, they may call it commercial property insurance. Here are some other types of small business insurance to know as you look for coverage required by the SBA.

Commercial Property Insurance

Commercial property insurance is the same thing as hazard insurance. Any covered events provide reimbursement for building repairs, as well as damaged items within the building. With this type of insurance, you would need to file a claim for your business. Then an insurance adjuster would assess the damage and provide you with reimbursement accordingly.

Flood insurance

Anytime your commercial property is located in a flood zone and used as SBA loan collateral, you’ll need a flood insurance policy as well. That’s because damage caused by flooding is not typically included in most hazard or property insurance policies. 

To see if you need flood insurance, first visit FEMA’s online flood map tool to see if your property’s address is located in a flood zone, and then check your need for insurance when you apply for an SBA loan. If you do, you will need to pay an extra premium, but it will be worth the investment, if you’re in an area at risk of flooding. 

Earthquake insurance

Similar to floods, earthquake damage is not covered in most hazard insurance policies, but is instead covered under a specialized insurance. This insurance is usually optional, unless your business is located in a high-risk zone, such as near a fault line.

You can check whether you’re located near a fault line with the U.S. Geological Survey’s interactive map and speak to your insurance agent to learn more.

Business interruption insurance

While a hazard insurance policy protects your commercial property from physical damage caused by hazards, it doesn’t usually cover business interruption, or lost income due to being unable to operate due to a covered hazard. This type of insurance can be a separate policy, or in some cases, added onto your hazard insurance policy.

General liability insurance

As mentioned before, hazard insurance doesn’t cover liability. This is a separate policy, called general liability insurance, which covers bodily injury, legal defense, and property damage to others, not your own property.

Limitations of hazard insurance.

Hazard insurance policies don’t give your business an automatic blank check when a covered event occurs. Each policy comes with a coverage limit for both the building and the property within. So it’s important to get a policy large enough to cover a worst-case scenario, such as a total loss.

Your hazard insurance policy will also come with a deductible—the amount you’re responsible to pay before your coverage kicks in.

Satisfying your SBA lender’s hazard insurance requirements.

When you apply for an SBA loan, your lender has to confirm that you carry the right hazard insurance on any assets pledged as collateral. Here’s what that means in practice, and what you need to do to stay compliant.

1. Make sure you’re insuring the right assets.

For SBA 7(a) and 504 loans over $50,000, hazard insurance is required on:

• Any real estate pledged as collateral
• Any business personal property used as collateral (equipment, inventory, fixtures, etc.)

If the property cannot be insured, the SBA will not allow the loan to be approved. This is why lenders almost always ask for proof of hazard insurance early in the process.

2. Verify you have enough coverage.

The SBA requires coverage, or replacement cost, at:

• Full replacement cost whenever possible
• Maximum insurable value if a full-replacement policy isn’t available.

This ensures the lender’s collateral can be completely restored after a covered loss.

 3. Add the required lender clauses to your policy.

This is one of the most important steps, and easy to overlook. Depending on what your collateral is, you’ll need to add the following:

• If the collateral is real estate - Your policy must have a Mortgagee Clause naming the SBA lender for 7(a) loans, or CDC/SBA for 504 loans.
• If the collateral is business personal property - Your policy must have a Lender’s Loss Payable Clause, naming the SBA lender for 7(a) loans, or CDC/SBA for 504 loans.

These clauses essentially say:

• The lender's interest cannot be invalidated by the borrower’s actions
• The insurer must give the lender at least 10 days written notice before cancelling the policy. 

4. Secure any additional hazard-related policies required

Some states or localities require separate policies for things like:

• Wind or hail
• Earthquakes
• Named storms

If your business is in one of these states, the SBA requires you to carry those additional policies. If your property also is in a FEMA-designated Special Flood Hazard Area, you’ll also need to secure flood insurance to move forward with your loan.

5. Provide proof of insurance to your lender.

Lenders will typically require a declaration page listing coverage amounts, evidence of the required clauses naming the lender, contact information for the insurance provider, and confirmation of policy dates. 

6. Maintain your coverage throughout the life of the loan.

The hazard insurance requirement doesn’t end once your SBA loan closes. You must:

• Keep the policy active
• Keep the required lender clauses in place
• Notify the lender if you switch carriers
• Maintain replacement cost or maximum insurable coverage

Lenders may periodically ask for updated proof of insurance, so keep these documents on hand to provide your lender with current copies.

Getting proper hazard insurance is just one step in obtaining an SBA loan. Lendio’s team of experts can help you throughout the entire process. Apply for an SBA loan now!

The first steps in setting up your business can be exciting, and building something from an idea can be transformative. You dream of expansion, yet when you’re ready to take the next steps, you may find yourself unable to move forward due to a lack of capital and staffing bottlenecks.

It’s people that are the beating heart of any business. Yes, exciting and efficient tech has its place, such as onboarding and payroll software, but it’s your staff who implement and drive your company and its brand.

For instance, you might be ready to expand your team to support growth or improve payroll efficiency, but lack the funds to bring in the right expertise. As you remove operational bottlenecks, you may also need to invest in people who can create smoother, more consistent onboarding experiences for new employees.

If you’re at the point where you’re ready to bridge the gap between your ambitions and your current resources, keep reading to learn how a business loan for hiring could help you grow your team.

Why is hiring a strategic investment?

You may find yourself stretched too thin simply because you don’t have enough time or team members to support your growth. This, in turn, limits your bandwidth for strategic work because your focus is distilled. The more you’re able to delegate the operational tasks, such as onboarding, payroll, and so on, the more you can focus on strategic aspects of your business.

In other words, by taking on skilled hires, you’re confidently investing in boosting productivity, sales, and your customer experience. An investment in people facilitated by, for example, a business loan for hiring or a payroll loan,  can bring you long-term returns on your investment (ROI). You’re building a business that not only offers excellent products and services but is also backed up by exceptional talent, creativity, and efficiency.

How business loans can help you grow your team.

There are a number of ways in which your business growth can be boosted. For example:

• Working capital loan: a short-to-medium business loan to fund day-to-day operations and cover immediate cash flow shortfalls
• Term loan: a loan that offers a set amount of money to be repaid by a pre-agreed period of time using regular repayments‍
• Lines of credit: a more flexible option that gives you access to a pre-agreed amount of cash that can be borrowed and repaid multiple times

Any of the above options can be used to fund or create a cushion or financial buffer for expenses incurred during periodic or one-off recruitment drives, subsequent onboarding, and payroll. In addition, you may consider a business loan for any of the following hypothetical hiring scenarios:

• More sales reps to focus on growing the business by entering new markets
• More production staff to meet growing demand
• Install a marketing specialist to raise brand awareness
• New employees for a time-sensitive project

Any of the above can potentially free up leadership time to focus on strategic business development.

The beauty of a business loan is that you have the freedom to use it to cover not only upfront costs but also ongoing expenses, such as employee salaries, benefits, and software tools. Not only that, but the right business loan can give you the space to grow without disrupting your cash flow.

Covering payroll and recruitment costs.

Instead of a long-term business loan, you may benefit from something shorter-term to stabilize payroll during hiring periods or cash flow gaps.

Such a loan might, for example, cover:

• Hiring fees and job postings
• Background checks and onboarding
• Staff training and certifications
• Initial payroll run until revenue generated from hiring increases

The last point is especially significant because time-to-productivity can be weeks to months. For example, explain why this matters: new employees often take weeks or months to become fully productive. A Gallup report suggests that it can take up to 12 months for new hires to become productive.

Choosing the right financing option.

If your priority is to cover immediate hiring or payroll costs, a short-term loan can provide quick access to funds when you need them most. For companies that experience seasonal surges or ongoing recruitment cycles, a business line of credit offers flexibility by allowing you to draw funds as required to manage payroll during busier periods.

When planning for sustained growth and larger-scale hiring, SBA loans (small business loans) are often the most suitable option, offering lower interest rates and longer repayment terms.

Tip: Use cash flow projections to help gauge your repayment capacity. A well-timed loan, aligned with a clear hiring plan, can help your business unlock meaningful growth.

Avoiding common pitfalls.

Before diving in and applying for a hiring loan, it’s essential to avoid common mistakes. These include:

• Overhiring before your revenue justifies the expense
• Not being strategic about hiring, for example, hiring for roles that don’t generate or protect revenue.
• Poor record keeping. It’s essential that you keep detailed and consistent financial records to ensure your loan funds are used responsibly.

In addition, it’s important that you approach a lending institution that meets your needs. For example, According to the FDIC Small Business Lending Survey, 53% of small businesses prefer to apply for a loan online. Yet, only 29% of large banks and 8% of smaller ones have the technology to do this.

When lenders look at small business loan applications, they will assess your application. Strong workforce planning will help lenders see you as a lower risk, thereby improving future financing options.

Long-term payoff: Turning payroll into growth

Instead of viewing hiring as an expense, think of it as an investment in your business’s long-term growth and performance.

For example, imagine a small retail business that takes out a loan to hire a digital marketing manager. Within six months, that new hire drives a 40% increase in online sales through targeted campaigns that build brand visibility and customer engagement.

This hypothetical scenario shows how investing in talent through business financing can create measurable, sustainable growth. Lendio’s mission is to help small business owners turn their ambitions into reality. Start your application today to grow your team and unlock your full potential.

If you’ve taken on debt for your small business, you’re not alone. The latest Small Business Credit Survey found that roughly 87% of small businesses rely on financing—either loans or credit cards.

Debt can be necessary at times, but high interest rates can cut into your monthly profits. Having to juggle multiple payment dates can also be stressful, sometimes overwhelmingly so. With an SBA loan, small business owners can refinance their existing debts to simplify repayment and lower interest rates, turning financial strain into long-term stability.

Why refinancing makes sense for small businesses.

Whether you’re just starting or you’ve been in business for a while, refinancing your high-interest debts can be a smart move. That’s because interest charges can eat into operating margins, especially for businesses that rely on expensive financing options like:

• Revenue-based financing—Might have anywhere from a 40% to a 350% equivalent rate‍
• Business credit cards—Tend to have high rates, with some lenders offering between 15% and 26% APR

With interest rates expected to remain elevated, small business owners are increasingly turning to SBA funding for relief. So far this year, the SBA has provided financing to nearly 80,000 small businesses via 7(a) and 504 loans with a total approval amount of $37 billion (including both financing and refinancing).

Here’s why refinancing with an SBA loan might make sense for your small business:

• You could get a lower rate—This means less money spent on interest payments
• It lowers your monthly payments—A lower rate or a longer repayment term could mean smaller monthly payments
• It improves cash flow—The less you spend on your debts, the more cash you’ll have to maintain or expand your venture
• Payments are easier to manage—Refinancing can consolidate business debts into one simply monthly payment for easier bookkeeping

How SBA loans work for refinancing.

SBA loans are business loans that are partially backed by the U.S. Small Business Administration. The SBA guarantees a certain percentage of these loans (between 50% and 90%), making them easier to get than other commercial financing. Rates and terms may also be more favorable.

SBA loans can be used to consolidate business debt or refinance existing loans, provided certain requirements are met. Common criteria include:

• 165 minimum FICO Small Business Scoring Service (SBSS)
• 650 minimum credit score
• 2+ years in business
• Sufficient revenue (varies)

The SBA has multiple programs for small businesses, but two of the most popular refinancing options are:

• SBA 7(a) loans—The SBA’s most flexible loan program, SBA 7(a) loans, are often used to refinance multiple high-interest debts or commercial real estate loans‍
• 504 loans—These loans are typically used to consolidate or refinance qualified debt, including fixed-asset loans like equipment or commercial real estate

Standard 7(a) loans range from $350,001 to $5 million and come with 10-year repayment terms (or 25 years for real estate refinancing). SBA loan interest rates may be fixed or variable, and the maximum variable rate is set every month according to the Wall Street Journal Prime Rate. Visit our quick guide for the most current SBA interest rates.

Repayment terms for 504 loans are also 10 to 25 years. Interest rates are fixed. Most loans cap out at $5.5 million, but may require up to a 10% down payment.

Before offering an SBA loan refinance, lenders must ensure it will improve your financial position. The new loan must get you a lower interest rate, a longer repayment term, or both.

You may need to meet other criteria, too. Say you want to refinance an installment loan with an SBA 504 loan. At least 75% of your original debt must have been used to purchase major equipment or commercial real estate. Verify any lender’s requirements before you apply.

Key benefits of SBA loan refinancing.

Refinancing business debt with an SBA loan comes with many benefits, like:

• Lower interest rates—SBA loans often offer rates several points below traditional loans or merchant cash advances
• Extended repayment terms—Spread payments over 10 to 25 years to improve cash flow for expansion or other operating costs
• Single, simplified payments—Consolidate multiple debts into one predictable monthly payment
• Improved credit profile—Consistent, on-time payments can help rebuild business credit

Take a restaurant owner who has the following business debts:

• $50,000 installment loan with an 18% interest rate, five-year term, and $1,189 monthly payment
• $30,000 equipment loan with a 15% interest rate, three-year term, and $1,040 monthly payment
• $40,000 installment loan with a 14% interest rate, four-year term, and $1,093 monthly payment

The total monthly payment is $3,322.

If the restaurant owner takes out a $120,000 SBA loan with a 12% interest rate and a five-year term, they could use it to consolidate all three debts and reduce their monthly payment to $2,669.

Eligibility and requirements for SBA loan refinancing.

For an SBA loan refinance, you’ll typically need:

• To be operating a U.S.-based, for-profit business
• A business in good standing with reasonable credit history (personal and business)
• To meet the SBA’s size requirements
• A demonstrated ability to repay the loan

For refinancing, the existing debt must have been used for business purposes and originally structured on reasonable terms. Both the SBA and the lender will review your financials, tax returns, and business debt schedules.

Here’s a tip: Organize your documents early to speed up approval and demonstrate responsible financial management.

How to start the SBA loan refinance process.

Thinking about refinancing with an SBA loan? These are the general steps:

1. Review all current debts, rates, and balances.
2. Calculate potential savings from lower rates and longer terms.
3. Work with a marketplace like Lendio to compare SBA lenders and programs.
4. Make sure your business (and debts) meet any specific qualifications to refinance.
5. Prepare documentation (financial statements, tax returns, debt schedules).
6. Apply and wait for a decision.

Ready to get started? Find the refinancing you need on Lendio’s marketplace today.

Finding funding for a small business often requires balancing opportunity with risk. One example of this type of tradeoff often happens when you apply for a business line of credit and encounter a requirement for a personal guarantee.

Lenders frequently use personal guarantees as a safety net when extending unsecured lines of credit or small business loans. When you sign one, you agree to personally repay a debt if your company falls behind on its financial commitment. 

It’s important to understand the responsibility that a personal guarantee involves and what could happen to your personal assets if anything goes wrong. Read on to learn how personal guarantees work, why lenders require them, and whether it’s possible to secure a business line of credit without one.

Reasons a lender might require a personal guarantee for a business line of credit.

Lenders use personal guarantees to reduce their risk when they issue business lines of credit or business loans (especially to startups or smaller businesses). A personal guarantee helps reassure the lender that someone will take responsibility for the debt if the business defaults. 

Here are a few situations where lenders typically ask for a personal guarantee on a business line of credit.

1. The business lacks established credit history.

Newer companies often lack well-established business credit. So, it can be harder to qualify for startup business lines of credit (though not necessarily impossible). When your business credit profile is thin or nonexistent, lenders may rely on your personal credit as a backup (also known as a compensating factor). A personal guarantee may also give lenders added confidence that you’re invested in repaying the money your business borrows.

2. The business credit line is unsecured.

If you apply for an unsecured business line of credit, it means you won’t provide the lender with any collateral such as real estate, equipment, or inventory to back the funds your company borrows. As a result, the lender carries more risk than it would if you applied for a secured business line of credit. To offset this added risk, the lender may ask for a personal guarantee to help protect its financial interests against the possibility of default.

3. The lender has strict guidelines.

Banks and credit unions often have tighter borrowing requirements compared to online lenders when you apply for a business line of credit or other financing. Even if your business shows solid revenue, traditional lenders might still require a personal guarantee until your company builds a lengthier credit history, stronger financial records, or more collateral.

What is a personal guarantee and how does it apply to business credit?

A personal guarantee is a legal promise that a business owner (or owners) will repay a financial obligation if their company fails to do so. When you sign a personal guarantee, you’re essentially co-signing a business debt. It’s a legal commitment that lets a lender pursue your personal assets (e.g., savings accounts, property, etc.) if your business defaults. 

Personal guarantee requirements are more common with unsecured lines of credit. With this type of financing, the guarantee often serves as the lender’s only protection against nonpayment. In some cases, lenders may still request a personal guarantee for secured business credit lines even though the collateral already reduces the lender’s risk.

As a business owner, the key takeaway is that signing a personal guarantee ties your personal and business finances together. It can open doors to funding you might not be able to access otherwise, but it exposes your personal wealth to potential loss if your business struggles.

Key factors that influence lender requirements.

Personal guarantees are common with business lines of credit, but not universal. Still, the higher a lender perceives your risk to be, the more likely you are to see a personal guarantee requirement, higher interest rates, lower credit limits, or all three.

Below are some common factors lenders consider when setting borrowing terms.

Time in business

Lenders are typically more comfortable extending credit to businesses that have operated for at least two years. In general, startups and newer businesses have higher risk profiles, and that could increase the likelihood of a personal guarantee requirement.

Business revenue and cash flow

A healthy, consistent cash flow may demonstrate strong repayment ability. Stronger revenue and positive cash flow might make some businesses eligible for lower interest rates, higher credit limits, or a smaller personal guarantee.

Credit scores (business and personal)

Higher business credit and personal credit scores may reduce perceived risk. But if your credit history shows missed payments or high debt, a lender may require a personal guarantee or charge a higher interest rate on your credit line.

Lender type and risk tolerance

Where you apply for a business line of credit also influences the borrowing requirements you encounter. Online lenders with more flexible criteria may offer business credit lines with lower documentation requirements (and, occasionally, limited or no guarantees). Banks and credit unions, however, often insist on personal guarantees—even for well-established businesses.

How personal guarantees affect borrowers and business owners.

Personal guarantees can help small business owners access the funding they need, but they also raise the stakes. It’s important to understand the tradeoffs upfront. 

If you sign a personal guarantee

You’ll likely enjoy easier approval odds and possibly a lower interest rate, since you’re reducing the lender’s risk. At the same time, you take on full personal liability if your business defaults. Your personal assets (e.g., bank accounts, investments, property, etc.) could be on the line to repay the debt. 

If you don’t sign a personal guarantee

Without a personal guarantee, lenders must rely solely on your business’ creditworthiness and any collateral you provide. As a tradeoff, you may face stricter eligibility requirements, smaller credit limits, or higher interest rates. Some lenders might decline your application altogether if the business appears too risky.  

Options for securing a business line of credit without a personal guarantee.

A personal guarantee requirement is common when you apply for a new business credit line. Still, you can sometimes find financing options with a reduced guarantee or, in rare cases, no guarantee. Below are a few solutions to consider.

Secured business line of credit

With a secured credit line, the business pledges collateral like equipment, receivables, or real estate to back the money it borrows. Because the lender can claim those assets if the business doesn’t repay, the lender may sometimes reduce or remove personal guarantee requirements.

You accept the risk of losing business assets. However, you may protect your personal finances and credit in the process. 

Alternative financing solutions

Some funding products give you access to capital without (or with less) personal guarantee exposure. They’re not always cheaper, but they shift your risk exposure. 

• Revenue-based financing: Some alternative funders advance cash in exchange for a portion of future sales or bank deposits. These options usually cost more than traditional credit lines, and repayment terms may be daily or weekly. But they might not require a full personal guarantee, especially for businesses with strong incoming revenue.
  
  
• Invoice financing: With invoice financing (also called accounts receivable financing), you use unpaid invoices as collateral. The financing company advances you a portion of your outstanding invoices now, then collects repayment (plus fees) when your customers pay. The invoices act as repayment security, so you may not face a full personal guarantee requirement like you typically see with an unsecured revolving credit line.
• Grants: Business grants (including some SBA grants and local development grants) don’t require repayment or a personal guarantee. Yet although these funding solutions are attractive, they can be competitive, slow, and restricted to specific industries or uses.

Some business lines of credit and business loans almost always require a personal guarantee, especially from small businesses and startups. For example, many SBA loans require personal guarantees from any owner with a significant stake in the company. Even though SBA programs support small business owners, lenders still want a path to recovery if the business fails to repay its debt.

Eligibility requirements and application considerations.

Every lender is different. Yet before you can qualify for a business line of credit, you’ll typically need to meet some basic lender requirements. 

• Credit history and score (business and personal): Lenders consider both business and personal credit. A minimum personal credit score of 600 or higher is a common requirement, and many lenders also want to see on-time payment history and well-managed debt levels.
• Annual revenue and monthly cash flow: Lenders review your deposits and cash flow to confirm the business has the capacity to repay. Consistent monthly revenue (often around $8,000 or more) may improve approval odds or help you qualify for better pricing.
• Time in business: More time in operation can reduce lender risk. Companies with two years or more in business tend to face fewer personal guarantee requirements than brand-new startups.‍
• Collateral: If you can secure a credit line with collateral, you may have more negotiating room where a personal guarantee is concerned.

If you want to improve your chances of qualifying for a credit line (or a competitive offer), make sure your company’s financial statements are organized and up to date. A strong credit profile also helps, and an existing lender relationship might come in handy in certain situations. 

How to strengthen your profile to reduce or avoid personal guarantee requirements.

Personal guarantees are common with business credit lines, especially for smaller businesses. Yet if your goal is to reduce or avoid this requirement, the following tips may help. 

1. Build strong business credit

Establishing good business credit scores is a smart move for many reasons. You can start building business credit by opening accounts under your company’s name (e.g., vendor credit lines, business credit cards, etc.) and paying them on time or, better yet, early.

2. Improve financial stability

Lenders want proof that your company is financially capable of repaying its debts. As a result, maintaining positive cash flow, managing debt responsibly, and reinvesting in your company’s growth are three practices that can work in your company’s favor and support long-term business health. 

3. Strengthen financial documentation

Make a habit of maintaining detailed financial statements, cash flow projections, a business plan, and proof of consistent revenue. The stronger your business financial statements look, the better your chances of qualifying for funding when you need it.

4. Offer collateral

A secured credit line uses assets like equipment or real estate as security in place of (or alongside) a personal guarantee. With this arrangement, you still risk losing business property in a default, but personal assets stay more protected.

5. Negotiate terms

If avoiding a personal guarantee (or reducing a guarantee requirement) matters to you, you might be able to negotiate financing terms with the lender. Consider improving your borrower profile to put yourself in a better position first. Next, shop around for multiple financing offers. From there, you can make specific requests about the terms you’d like to change (personal guarantee or otherwise) to see if the lender is willing to adjust the offer.

When to consider a co-signer or collateral.

If a lender insists on a personal guarantee for a business line of credit and you don’t want full personal liability, you still have options. Below are a few to consider. 

Bring in a co-signer or additional guarantor

A co-signer with strong personal credit can help spread the lender’s risk across more than one person. This structure might help you qualify when you might otherwise struggle on your own.

Bringing in a co-signer or additional guarantor could also help disperse the burden of liability if your business defaults on its debt. If something goes wrong, the lender has multiple guarantors to seek repayment from instead of the full repayment responsibility falling on a single owner. 

Offer collateral instead of (or in addition to) a guarantee

Depending on the lender and the financing offer, you can sometimes negotiate a smaller personal guarantee if you secure the credit line with business collateral. In this scenario, the collateral becomes the lender’s first path to recovery if a default occurs. From there, your personal guarantee (if applicable) backs up any remaining shortfall. This setup can help protect personal assets while still moving the approval process forward. 

Final thoughts: Balancing risk and access

For small business owners, a personal guarantee may unlock access to critical financing opportunities your company needs to thrive and grow. Signing a personal guarantee could help you qualify for a business line of credit before your company has a lengthy credit history, strong assets, or years of financial statements under its belt.

But a personal guarantee also exposes you as a business owner. You take on personal liability for business debt. You accept risk to your personal assets and credit if the business fails to repay its debt as promised.

That doesn’t mean you should never sign a personal guarantee. But you should treat the commitment like any other high-impact financial decision. Understand the obligation, know what the lender can require if your business defaults, and build a plan to move away from personal guarantees as your business becomes more established.You can explore secured and unsecured business line of credit options, along with other business funding solutions, through the Lendio marketplace. Research to find which financing solutions make the most sense for your business goals.

What’s a business owner to do when their equipment breaks down or becomes obsolete? You could spend money on costly repairs or take this opportunity to invest in machinery that meets your changing business needs.

There’s no denying how expensive new equipment can be, and that’s where equipment financing can really save the day. Today’s business equipment loans not only help you stay on track, but they can position you to invest in strategic upgrades without draining your cash reserves.

Why equipment upgrades drive growth.

Businesses face increasing challenges due to rising materials costs and customer demand for bigger and better experiences. If your equipment can’t keep up, you may disappoint buyers.

A coffee house, for example, could continue ordering parts for a 10-year-old espresso machine.

However, just one day waiting for that part could reduce sales during the busy holiday season, and doesn’t guarantee that another part won’t break soon after. It may even be difficult to find someone to fix older machines, and they often lack the intuitive technology that churns out better brews in less time for a more discerning modern customer base.

Compare that to getting a new, energy-efficient espresso machine with more brewing varieties. Not only does it churn out drinks during your busiest days, but it can keep employees happy as they use equipment that actually makes their jobs easier (and fun!) Parts are likely readily available and may be covered under new equipment warranties and repair plans.

How equipment financing works.

The basic idea of equipment financing can be similar to a traditional term loan in that the borrower applies for a loan to purchase the equipment and begin using it right away. This loan, however, only applies to the purchase of equipment or machinery; funds can’t be used to cover payroll or pay off bad debts, for example.

The equipment becomes the collateral. It secures the loan and ensures the borrower repays the debt. If the borrower gets behind on payments or defaults, the lender can use the equipment to recoup costs. This collateral is a mechanism to reduce lender risk and make more borrowers eligible for financing.

Because the loan is only for equipment, it may require a smaller down payment and often comes with predictable monthly payments that small businesses can easily plan into their budget. There are no surprise balloon payments, and businesses know how many payments they have left to make at any time.

Each lender has its own equipment financing options, which may include:

• Equipment leasing, where a borrower can choose to keep or upgrade their equipment at the end of the repayment term
• Standard term loan, where the borrower owns the title to the equipment while they pay, but the lender has an interest in the equipment
• Line of credit, which can be used in amounts as big or small as needed to keep equipment maintained over time
• SBA loans, which may be larger and cover more expensive machinery upgrades

Equipment financing can be used for new or used equipment, software, and machinery, depending on each lender’s requirements.

When to consider a business equipment loan.

If your equipment is so outdated that a breakdown is imminent, it may make sense to be proactive and purchase newer equipment before you lose even a day of business. Other scenarios could include:

• When repairs cost more than new equipment, in either replacement parts or specialized labor
• When outdated technology no longer meets your changing business needs or can’t remain compliant with new industry rules or regulations
• When your business growth requires expansion in size, number, or scope of your machines
• When equipment allows you to beat your competitors to a new market or capitalize on demonstrated interest from your existing customer base

Evaluating ROI on equipment upgrades.

Try to avoid the “sunk cost fallacy” with regard to your machines. This is a way of thinking where you may be reluctant to abandon old machinery because you’ve already spent so much to keep it running (even if you could easily save money by switching to new equipment).

Instead, calculate the ROI when possible:

1. Estimate how much you’ll save and any new earnings from the new machinery.
2. Compare it to the total loan cost, including interest and fees.‍
3. Calculate how long it will take for you to pay back the equipment loan before you achieve profitability.

This ROI can tell you if you’re better off buying new equipment now or later. Don’t forget to include any tax benefits, such as Section 179 deductions for writing off the full purchase price of qualifying equipment. Financed equipment still counts for this benefit, even with depreciation. (Consult a qualified tax professional for personalized guidance and to maximize savings for your unique loan situation.)

Choosing and applying for the right equipment financing.

Consider these questions to help you pick the right financing:

• Do you need only financing for machinery and tech? You may be right for a standard equipment loan.
• Will you need to borrow again and again? A line of credit could suit you well.
• Do you favor long terms, lower rates, and larger amounts? An SBA loan may cover what you need.
  

Applying for any of these options can be as easy as following these steps:

1. Get quotes for the equipment that will best help you grow and stay competitive.
2. Gather financial statements that demonstrate your creditworthiness, including tax returns, profit and loss statements, and forecast reports.
3. Visit Lendio and submit one easy application in minutes.
4. Compare offers from 75+ vendors to find the best fit for your needs.
5. Select the right option and secure funding in weeks (not months).
6. Buy the equipment you need to boost your business!

While your equipment needs may be complicated, securing funding doesn’t have to be. Lendio simplifies financing to keep you running at peak capacity, any time of year.

SBA loan rates are tied to a base rate that changes with the market. Lenders can charge borrowers a rate that falls somewhere between the base rate and the maximum set by the government.

Current SBA rate maximums range from 10.00% to 15.00%.

Explore the most popular SBA loan programs and their rate structures to find out which one is the best fit for your company. 

Before we dive in, get familiar with the basics in our SBA loans overview- a great place to start if you're exploring funding options.

How SBA loan interest rates work.

SBA loan rates are regulated by the U.S. Small Business Administration. Private lenders negotiate their own rates with each individual borrower. But the offered loan rate cannot exceed the maximum set by the SBA for each loan program. 

The maximum is tied to a base rate, which can be one of the following:

• Prime rate: The most commonly used rate, currently at 7.00%
• Optional peg rate: Updated quarterly by the SBA based on market conditions, currently 4.75%

The borrower is then charged a markup (a percentage over that base rate). That varies based on:

• Loan amount
• Type of SBA loan
• Loan maturity date

Current SBA loan rates (November 2025).

Here is how each SBA interest rate breaks down, based on the loan program and other details. 

SBA 7(a) loan rates

SBA 7(a) loans can be used for general working capital needs and have interest rates that can either be variable or fixed. Fixed rates have a higher premium but never change, even if the base rate increases over time.

SBA 7(a) rates range from 3% to 8% above the base rate. Use the following table to compare rates for different loan sizes and term lengths. The current (November 2025) Wall Street Journal Prime Rate is 7.00%.

Historical Prime rates

SBA 504 loan rates

SBA 504 loans are designed to purchase assets that help with job creation or business growth, such as new facilities, machinery, or renovating an existing property. These loans are available through certified development companies (CDCs) and offer fixed interest rates.

You can apply for either a 10-year or a 20-year repayment period. The SBA 504 rates are incrementally pegged above the current rates for 5-year and 10-year U.S. Treasury issues. The rate typically totals 3% of the loan amount. 

Historical U.S. Treasury rates

SBA Microloan loan rates

Microloans from the SBA help newer small businesses with startup or expansion costs. Borrowers can get approved for up to $50,000, although the average loan size is $13,000. The maximum repayment term is six years.

Microloan rates are based on the lender’s cost of funds.

Loans over $10,000: 7.75% over cost of funds

Loans of $10,000 or less: 8.5% over cost of funds

Expect SBA microloan rates to range from 8% to 13%. 

SBA Express loan rates

SBA Express loans allow for a shorter approval time, so you can get faster access to capital. In fact, you'll get an initial response within 36 hours. The maximum loan amount is capped at $500,000 and rate maximums are the same as SBA 7(a) loans.

SBA Community Advantage loan rates

The SBA Community Advantage loan program was created to help businesses in underserved markets. These loans were capped at $350,000. Interest rates were negotiated by the lender but were subject to the SBA's maximums. This program was sunsetted in October 2023.

Lenders under this program are now licensed as Community Advantage Small Business Lending Companies in the 7(a) loan program and will continue to provide access to financing to underserved communities.

Typical SBA loan fees

In addition to paying interest on SBA loans, borrowers may also pay an upfront SBA Guaranty Fee.

Upfront fee on SBA 7(a) loans

This fee is based on the approved loan amount, including both the guaranteed and the unguaranteed portions.

To calculate monthly payments for your SBA loan, visit our SBA loan calculator. Need help finding the best interest rate for your SBA loan or other business term loan?

Apply with Lendio today!

Because small businesses are so critical to the country’s success, the federal government launched the Small Business Administration (SBA) to help foster American small businesses. 

The most popular way the SBA furthers its mission is through SBA 7(a) loans—if your business qualifies, you can get funding backed by the government that can help take your enterprise to the next level.

What is an SBA 7(a) loan?      

An SBA 7(a) loan is a form of financing that is partially guaranteed by the U.S. Small Business Administration. These loans are named after Article 7(a) of the Small Business Act of 1953, which launched the SBA and tasked the agency with supporting American small businesses through lending.

SBA 7(a) loans are popular for financing real estate purchases, working capital, and purchasing furniture and supplies. They’re also commonly sought for refinancing existing business debt.

Are all SBA loans 7(a) loans?

SBA 7(a) loans are the most popular type of loans offered by the SBA, so many people refer to them as “SBA loans”. Keep in mind that 7(a) loans are a specific loan program offered by the SBA, and there are several types of 7(a) loans. In addition, the SBA offers other types of loan programs, such as the 504 loan program, that don’t fall under this umbrella.

What can an SBA 7(a) loan be used for?        

Proceeds from a 7(a) loan may be used for:

• Working capital
• Equipment purchases and or/ installation
• Acquiring, refinancing, or making improvements to Real estate
• New-building construction
• Renovation or expansion
• Starting a new business
• Purchasing an existing business
• Refinancing current business debt
• Purchasing furniture, fixtures and supplies
• Multiple purpose loans
• Changes of ownership

Loan proceeds may not be used to:

• Pay off an existing business loan
• Buy out a partner
• Pay delinquent state or federal withholding taxes
• Anything else that wouldn’t be considered a sound business purpose as determined by the SBA

Types of SBA 7(a) loans

The SBA has a suite of different financing products under its 7(a) distinction, and each one is meant to fill a different need in the small business ecosystem.

When considering your options, think about how large of a loan your business needs, your intended use of the funds, and how quickly you need the money.

SBA loans require a fair amount of information and paperwork, so researching 7(a) loan types will save you time later.

Standard 7(a) loan

The standard 7(a) loan is the most common and most popular type of 7(a) loan backed by the SBA. The purpose of these loans is to allow small businesses to expand by funding working capital or the purchase of equipment, supplies, and real estate. 

A standard 7(a) loan is available in amounts of $350,000 to $5 million. The maximum SBA guarantee is 85% for loans up to $150,000 and 75% for loans greater than $150,000. The SBA requires lenders to collateralize all standard 7(a) loans. 

For standard 7(a) loans, while it is the lender's responsibility to perform credit analysis, loan structure and verify that the applicant meets SBA eligibility requirements, the SBA makes the final approval decision before providing a loan number. 

7(a) small loan

The 7(a) small loan is similar in many ways to the standard 7(a) loans, but it’s meant for businesses that need smaller amounts of funding to get off the ground or expand. 

The maximum loan amount is $350,000. Their turnaround time and eligibility decision process are the same as standard 7(a) loans. The SBA guarantees 85% of loans up to $150,000 and 75% of loans over that amount. Collateral is not required for loans under $50,000. The lender follows its collateral policy for loans greater than $50,000.

Applicants can usually expect a decision in two to 10 business days.     

SBA Express loan

The SBA express loan is built for speed—sometimes, entrepreneurs need funding ASAP.

The maximum amount for an express loan is $500,000, and an application will be responded to in 36 hours or less. These loans are 50% guaranteed by the SBA. Only lenders with SBA Express authority can issue these loans, and the lender makes all eligibility, collateral, and credit decisions under delegated authority.

7(a) Export Trade Finance

The SBA has 3 core 7(a) international trade finance programs geared towards helping small businesses be competitive in export markets.

Export express loan

The export express loan was specifically created as a streamlined option for businesses in the export industry or those looking to develop an export operation. It has many similar features to an SBA Express loan, but provides a higher guarantee to mitigate international credit risk.

The loans, with a maximum amount of $500,000, have a breakneck turnaround time of just 24 hours or less. Similar to SBA Express, lLenders make all eligibility and collateral decisions through delegated authority. The SBA guarantee is 90% for loans of $350,000 or less and 75% for larger loans. This funding can take the form of a term loan, or a revolving line of credit that can last up to seven years.

Export working capital loan

Also tailored for exporters, the export working capital loan is meant to fund working capital for businesses that generate export sales.

These loans can range up to $5 million, and the SBA guarantee is 90%. Eligibility decisions are made by the SBA or lenders who have delegated EWCP authority. Unlike other 7(a) loans, there is no maximum interest limit imposed by the SBA for export working capital loans. The decision turnaround time is five to 10 business days. 

Collateral is required, usually in the form of export inventory and personal guarantees from a business’ owners. This loan can take the form of a term loan, or a revolving line of credit for three years or less.

International trade loan

International trade loans are SBA 7(a) loans aimed at businesses that want to grow their export side or need to modernize their operation to handle foreign competition.

The maximum loan amount is $5 million, and the eligibility decisions, turnaround time, and SBA guarantee are the same as for export working capital loans. For international trade loans, the loan maturity is set at 10 years for permanent working capital.

Equipment and machinery, loans mature up to 10 years or at the useful life of the equipment (not to surpass 15 years). Real estate loans mature at 25 years.    

7(a) CAPLines

CAPLines of credit are a form of a standard SBA 7(a) loan that works as a line of credit instead of a loan.

Remember, a business line of credit is a form of financing that allows businesses to access money as expenses arise, similar to a credit card. With a business loan, on the other hand, a full amount is disbursed upon approval, and repayments are made based on the approved amount.

The loan maximums, terms, and decision process of CAPLines of credit are the same as for standard 7(a) loans. The SBA offers four types of CAPLines:

Working Capital CAPLine

A line of credit for businesses that are unable to meet credit standards for other long-term financing, typically businesses that provide credit to other businesses, and in which repayment is based on assets.

To be eligible for a Working Capital CAPLine, your business must generate accounts receivable (not notes receivable), and/or have inventory.

Contract CAPLine

A line of credit aimed at financing businesses that work on a contract basis. Rather than permanent working capital, this specific type of working capital is meant to be used for working capital for one or more specific projects.

Builders CAPLine

A line of credit for small general contractors or builders that construct or renovate residential or commercial buildings. To be eligible for the Builders CAPline, you must be a construction contractor or a homebuilder with demonstrated experience in profitable construction or renovation.

Seasonal CAPLine

The Seasonal CAPLine is a line of credit meant for businesses that operate on a seasonal basis to help provide working capital for the busy season. To be eligible, your business must have been in operation for at least one year, and be able to demonstrate a pattern of seasonal activity. You can’t use this working capital to weather downturn or slow seasons, and must use it to finance increases in accounts receivable, inventory, and associated labor costs.

7(a) Working Capital Pilot (WCP) Program

Launched on August 1, the WCP pilot program offers monitored lines of credit to businesses through the SBA 7(a) loan program. 

Through the pilot program, eligible businesses can receive a line of credit up to $5 million. In order to qualify, businesses must operate in industries like manufacturing, wholesale, or professional services and have at least one year of operating history.

Businesses applying must be able to provide financial statements, accounts receivable, and accounts payable, as well as regular inventory reports.

The loan guarantee is the same as regular SBA (7a) loans.

Eligibility requirements for SBA 7(a) loans

Most U.S. small businesses can qualify for an SBA 7(a) loan, but there are a few exceptions such as nonprofits and certain restricted membership organizations. The SBA also requires that business owners meet basic criteria around location, profit status, size, citizenship and access to other financing.

For a full breakdown of eligibility rules - including disqualifiers, credit considerations, and ineligible businesses, read our guide to SBA loan eligibility requirements.

SBA 7(a) loan terms

SBA loans are meant to support long-term small business growth.

SBA loan maturity terms, as a result, are based on the ability to repay, the purpose of the loan, and the life of assets financed by the loan. Loan maturity refers to how long it takes for a borrower to repay the loan. At the end of your loan maturity term, you’ll make the final repayment. 

The maximum maturities for SBA 7(a) loans are as follows.

• The maximum maturity for real estate is 25 years.
• The maximum maturity for equipment is 10 years.
• The maximum maturity for working capital or inventory is 10 years.

SBA 7(a) loans used to buy fixed assets, like real estate or equipment, carry a maturity limited to the economic life of those assets, not to exceed 25 years. Fixed assets, which also include commercial property or furniture, are assets meant for long-term use that cannot be quickly converted to cash.

SBA 7(a) loan rates

With SBA 7(a) loans, the interest rate is set by the lender. In most cases, the lender will determine a rate based on creditworthiness, loan amount and repayment terms, and the applicant either accepts or rejects that rate. In many cases, you might be able to further negotiate the rate with your lender.

Current SBA loan interest rates are tied to the prime rate, which can be fixed or variable. As of November 3, 2025 the prime rate is 7.00%. The SBA allows lenders to add a markup, but caps how high the rate can go.

Want to see exact SBA rate ranges for the current month, caps, and how your rate is calculated?

See our guide to SBA Loan Interest Rates for current figures and the full breakdown.

SBA 7(a) fees                            

Along with interest rates, you should expect to pay a guarantee fee to the lender for SBA 7(a) loans. This fee will be based on the size of the loan and the type of 7(a) loan you apply for. Guarantee fees for 7(a) loans for fiscal year 2025 range between 2% and 3.5%. 

For a full table and breakdown of guarantee fees on 7(a) loans, read our guide to SBA guarantee fees.

Notably, the SBA expressly prohibits lenders from charging most other fees, including processing, origination, application, renewal, and brokerage fees.

Lenders are, however, allowed to charge a flat fee of $2,500 per loan.

Curious what you might pay on an SBA 7(a) loan? Use our SBA Loan Calculator to estimate your payments!

How to apply for an SBA 7(a) loan                     

While hundreds of different lenders offer 7(a) loans, the process is fairly standardized by the SBA.

The SBA 7(a) loan application process involves three main steps: choosing the right loan, gathering financial documents, and submitting your application to a qualified lender. Depending on the loan type, approval timelines can range from a few days to several weeks.

For a detailed checklist of required documents, step-by-step guidance, and tips to speed up the process, explore “How to Apply for an SBA Loan: Complete Steps and Requirements.”

Alternatives to SBA 7(a) loans

The requirements for SBA 7(a) Loans can be stringent. Maybe you feel it isn’t right for your business at this time! Here are some potential alternatives to SBA 7(a) loans to explore:

• SBA Microloans- These loans are smaller, and geared to newer businesses, but come with less strict borrower requirements.
• SBA Express Loan - These loans don’t require SBA review, which means you could work with a lender who can provide you funds you need quickly, with slightly less requirements than an SBA 7(a) loan.
• Lendio - While you can apply for an SBA loan with Lendio’s quick application, we can also connect you with online lenders to offer other flexible financing options that work for your business.

Ready to apply for an SBA 7(a) loan?

Apply for an SBA loan with Lendio’s quick application. We’ll connect you with the right lender for your situation, and can, on average, get you funded with a 7(a) small loan in less than 30 days.