Key takeaways
- Commercial loans include term loans, lines of credit, equipment financing, commercial real estate loans and SBA-backed loans; median rates on new variable-rate bank term loans to small businesses were about 6.7% to 7% in mid-2026 (Kansas City Fed survey).
- Lenders judge you on the 5 Cs of credit, and most want a DSCR of at least 1.25x plus a personal guarantee from major owners.
- With prime at 7.00%, SBA 7(a) variable rates are capped at 10% to 13.5%, depending on loan size.
- A $250,000, 10-year loan at 9.75% costs about $3,269 a month and $142,311 in total interest.
A commercial loan is financing a business uses for purposes such as buying equipment, property or inventory, covering working capital, or acquiring another company. Banks, credit unions, online lenders and SBA-approved lenders all make commercial loans, and they decide based on your business’s cash flow, credit, collateral and the owners’ personal guarantees.
This guide explains the main types of commercial loans, how lenders evaluate an application, the documents you’ll need, current rates in late 2026 and a worked payment example so you can judge what you can afford.
Types of commercial loans
Rates and terms checked: Nov. 11, 2026. They change often, so confirm with the provider before you apply. How we review lenders
| Loan type | How it works | Typical term | Common uses |
|---|---|---|---|
| Term loan | Lump sum repaid in fixed installments | 1–10 years | Expansion, renovations, refinancing debt |
| Line of credit | Revolving limit; pay interest on what you draw | 1–2 years, renewable | Payroll, seasonal inventory, cash gaps |
| Equipment loan | Equipment serves as collateral | Often matches useful life, up to about 10 years | Vehicles, machinery, technology |
| Commercial real estate loan | Secured by property; often has a balloon | 5–25 years | Buying or refinancing a building |
| SBA 7(a) loan | Bank loan partly guaranteed by the SBA | Up to 10 years (25 for real estate) | Most business purposes, up to $5 million |
| SBA 504 loan | Bank plus CDC financing for fixed assets | 10, 20 or 25 years | Owner-occupied real estate, major equipment |
Online lenders offer many of the same products with faster approval and much higher costs; see our guide to online business loans. For flexible borrowing, compare options in our lines of credit guide, and for buildings, see commercial real estate financing.
How lenders evaluate a commercial loan
The 5 Cs of credit
- Character: your credit history, experience in the industry and track record with past lenders.
- Capacity: whether the business generates enough cash to make payments, usually measured by DSCR.
- Capital: how much of your own money is invested in the business or the project.
- Collateral: assets the lender can claim if you default, such as real estate, equipment, inventory or receivables.
- Conditions: the loan’s purpose, the economy and your industry’s outlook.
Debt service coverage ratio (DSCR)
DSCR compares the cash your business has available for debt payments with the payments themselves. A common formula is net operating income (or EBITDA, adjusted for owner pay) divided by total annual principal and interest. A DSCR of 1.25x means you have $1.25 for every $1 due. Many banks want at least 1.20x to 1.25x, including the new loan.
Credit scores
For small businesses, lenders pull the owners’ personal credit and often a business credit report from Dun & Bradstreet, Experian or Equifax. There’s no single SBA minimum score; each lender sets its own standard, and banks generally want solid personal credit. If your score needs work, see how to improve your credit score.
Collateral and liens
Secured loans are tied to specific assets. Many lenders also file a UCC-1 blanket lien covering all business assets. Loans without specific collateral exist but cost more; our guide to unsecured business loans explains the trade-offs.
Personal guarantee
Most small-business loans require owners to personally guarantee repayment. For SBA loans, anyone who owns 20% or more of the business must guarantee. That means your house, savings and other assets can be at risk if the business can’t repay.
Tip: Ask whether the guarantee is unlimited or capped, and whether it can be reduced or released after a period of on-time payments. Some lenders will negotiate, especially for strong borrowers.
Documents you’ll need
- Business and personal federal tax returns, usually for the last two to three years
- Year-to-date profit and loss statement and balance sheet
- Business bank statements, often the last three to 12 months
- A debt schedule listing current loans, balances, payments and lenders
- Accounts receivable and payable aging reports, if relevant
- Formation documents (articles of incorporation or organization, operating agreement), EIN and business licenses
- Personal financial statements for each guarantor (SBA lenders use SBA Form 413)
- A business plan and projections for startups, acquisitions or large expansions
- Quotes, invoices or purchase agreements for equipment or property
Current commercial loan rates (late 2026)
Most variable-rate commercial loans are priced as a spread over the prime rate, which is 7.00% (Federal Reserve H.15, Nov. 9, 2026) after the Federal Reserve held its target range at 3.75% to 4.00% on Oct. 28, 2026. Read more in our article on the October Fed decision.
- Bank term loans: median rates on new variable-rate small-business term loans were about 6.7% (rural banks) to 7% (urban banks) in the Federal Reserve Bank of Kansas City’s Small Business Lending Survey for Q2 2026.
- Online term loans: far higher; OnDeck, a large online lender, reports an average APR of 53.2% on term loans made in the first half of 2026.
- SBA 7(a) loans: the SBA caps the rate a lender can charge based on loan size.
| SBA 7(a) loan amount | Maximum variable rate | With prime at 7.00% |
|---|---|---|
| $50,000 or less | Prime + 6.5% | 13.5% |
| $50,001–$250,000 | Prime + 6.0% | 13.0% |
| $250,001–$350,000 | Prime + 4.5% | 11.5% |
| Over $350,000 | Prime + 3.0% | 10.0% |
Fixed-rate 7(a) loans have their own, somewhat higher maximums, which the SBA publishes for lenders; ask your lender for the current cap. Since March 1, 2026, SBA lenders may also peg 7(a) rates to the 5-year or 10-year Treasury or SOFR, but the rate still can’t exceed the prime-based maximum for that loan size. SBA loans also carry an upfront guarantee fee. For fiscal 2027 (Oct. 1, 2026 to Sept. 30, 2027), it’s 2% of the guaranteed portion on loans of $150,000 or less and 3% on loans from $150,001 to $700,000, for terms over 12 months, with waivers for small manufacturers, certain food supply chain businesses and rural businesses on loans of $700,000 or less. Our SBA loans guide covers the full program.
Worked example: what a $250,000 loan costs
Say your bank offers a $250,000 term loan at prime + 2.75% (9.75%). Here’s how the term changes the payment:
| Scenario | Monthly payment | Total interest |
|---|---|---|
| 9.75%, 7 years | $4,118.07 | $95,918.22 |
| 9.75%, 10 years | $3,269.26 | $142,310.73 |
| 13.0%, 10 years (SBA maximum for this size) | $3,732.77 | $197,932.22 |
Can the business afford it? On the 10-year loan, annual payments are about $39,231. If your business has $60,000 a year of cash flow available for debt service, your DSCR is $60,000 ÷ $39,231 = 1.53x, comfortably above a typical 1.25x minimum. On the 7-year option, annual payments rise to about $49,417 and DSCR falls to about 1.21x, which could fail a bank’s test.
If this were an SBA 7(a) loan, the 75% SBA guarantee on a $250,000 loan covers $187,500, so a 3% guarantee fee would be about $5,625. Run your own scenarios with our loan calculator or compare offers side by side with the loan comparison calculator.
Tip: Compare offers on total cost, not just the rate. Include origination fees, guarantee fees, closing costs and prepayment penalties, and make sure the term matches how long the thing you’re financing will produce income.
How to improve your chances of approval
- Clean up your books. Accurate, current financial statements make underwriting faster and build trust.
- Know your DSCR before you apply. If it’s thin, consider a smaller loan, a longer term or paying down other debt first.
- Bring equity. A 10% to 20% down payment on acquisitions, equipment or real estate shows commitment.
- Start with your own bank or credit union. An existing deposit relationship can help on pricing and approval.
- Explain the purpose clearly. Show how the loan will increase revenue or cut costs, and by how much.
- Get multiple offers. Rates, fees and covenants vary widely between lenders.
Frequently asked questions
What credit score do I need for a commercial loan?
There’s no universal minimum. SBA and bank lenders set their own standards and generally want solid personal credit, while online lenders may accept lower scores (OnDeck lists 625 or higher) at much higher rates.
How long does it take to get a commercial loan?
Online lenders can fund in a few days. Bank loans often take a few weeks, and SBA or commercial real estate loans can take 30 to 90 days or longer.
Can a startup get a commercial loan?
It’s harder. Startups often rely on SBA loans with at least 10% down, SBA microloans, equipment financing or personal assets. Expect to provide a detailed business plan and projections.
What is a loan covenant?
A covenant is a condition in the loan agreement, such as keeping DSCR above 1.25x or providing annual financial statements. Breaking one can trigger a default even if payments are current.
Are commercial loan rates fixed or variable?
Both are common. Many bank and SBA 7(a) loans are variable and tied to prime, while equipment loans and some real estate loans offer fixed rates.
Updated November 11, 2026: sources refreshed with provider and official data.
Sources: Federal Reserve Bank of Kansas City, Small Business Lending Survey, Q2 2026 (Sept. 24, 2026); SBA 7(a) terms, conditions and eligibility (maximum variable rates, terms, $5 million limit); SBA Information Notice 5000-881797, FY 2027 7(a) program fees; Federal Register notice on SBA 7(a) alternative base rates (effective March 1, 2026); Federal Reserve H.15 (prime rate 7.00%, Nov. 9, 2026); Federal Reserve FOMC statement (Oct. 28, 2026); OnDeck average APR disclosure (checked Nov. 11, 2026). Calculations by FinInfoBlog. This article is for educational purposes and isn’t financial or legal advice.
Written by Chanchala
Founder & Lead Writer · B.Sc. Mathematics (Honors) · 9 years in banking & lending
Chanchala is the founder and lead writer of FinInfoBlog. She holds a B.Sc. in Mathematics (Honors) and has 9 years of experience in banking and lending. She writes plain-English guides on savings, CDs, loans, credit and personal finance for U.S. readers, and makes sure every example shows the math behind the money decision. How we research and fact-check.