What it is
With a term loan, a bank lends a fixed amount you repay in monthly payments over a set term. With a line of credit, it approves a limit you draw on when you need it and pay down when you can, and you pay interest only on what you've drawn. Rates are usually set as the prime rate plus a margin, or fixed.
Term loans fit long-lived projects: a buildout, a vehicle, a second location. Lines fit short swings: inventory before a busy season, or waiting on customers to pay.
What it really costs per year
Banks surveyed by the Kansas City Fed reported a median rate of about 7% on new small-business term loans in the second quarter of 2026. The prime rate was 7.00% in early November 2026, and many loans are priced at prime plus 1 to 4 points, so about 8–11%. Add a one-time origination fee of about 1–3%.
Lines of credit vary more: large banks' lines start around 8–8.5%, and some lenders charge draw fees and annual fees on top. Because you pay interest only on what you've drawn, a line can cost far less in dollars than a loan of the same size.
In the Federal Reserve's 2026 survey of employer firms, about a third of bank borrowers said the cost turned out higher than they expected, so read the fees as well as the rate.
Work out the yearly cost of an offer you have
How fast the money comes
Usually a few weeks, sometimes two months, mostly spent on paperwork: tax returns, financial statements and bank statements. It's faster with a bank that already knows the business.
Who qualifies
- Most banks want about two years in business, steady revenue (often $100K–$300K a year or more) and an owner's credit score around 670 or higher.
- Expect a personal guarantee: among small businesses with debt, 59% had signed one, and 38% had pledged personal assets (Federal Reserve, 2026).
- Approval rises with size and age: 37% of applicants with under $100K in revenue were fully approved, against 61% at $1M–$10M. Small banks approved more applicants (80% at least partly) than large banks (69%).
Where it breaks
- Young or small businesses are often turned down: the most common reasons are strict requirements, existing debt, a low credit score, too little collateral and weak sales.
- A personal guarantee puts your own assets on the line if the business can't pay.
- Loan agreements often limit other borrowing (covenants), which can rule out other money later. Read that section before signing.
- It's slow: not the answer for an emergency next week.
Compare with
- SBA loans: 7(a), 504 and microloans: yearly cost about 7–13.5%, money in 1–3 months.
- Community lenders (CDFIs) and local programs: yearly cost about 7–13%, money in weeks to 2 months.
- Business credit cards and 0% offers: yearly cost about 13–29%, money in days to 2 weeks.