Compare $5,000 to $10,000 business loans financing options for small businesses

Sometimes a $5,000 to $10,000 business loan is all you need to make an equipment purchase, cover a cash flow gap, or seize a new business opportunity. Borrowing only what you need is smart, but not all lenders offer small loans. In fact, a loan may not be what your business needs at all.

Let’s take a look at 10 financing options for 5K to 10K business loans, including qualification requirements and how much they’ll cost you.

Compare 10 financing options for $5,000 to $10,000 business loans

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Term loans from $5K to $10K

A business term loan is a lump sum of money you borrow from a bank or other lender and pay back over a preset time period, usually in monthly installments. To qualify, you’ll typically need to have one to two years in business and a credit score of:

• 680+ if going with a bank
• 600+ with an online lender

Interest rates typically range from 6% to 30% APR for term loans, depending on lender type — bank loans tend to have lower rates. Banks may offer interest rates as low as 5% to 11% while online lenders charge upwards of 14% APR.

Some business term loans have variable interest rates, meaning your APR can change with the market, while others are fixed at signing. If you take a variable loan, make sure you know how much your monthly payment might change.

As far as that preset time period, options include short-term, intermediate-term, and long-term loans. For small funding amounts, the best option is likely a short-term loan.

Short-term loans from $5K to $10K

Short-term loans can be funded in one to three business days from some online lenders and are generally easier to qualify for than long-term loans. Typically, you’ll choose a repayment term of three to 18 months.

You’ll pay interest on a short-term loan, and the loan may charge an interest rate or a factor rate. A factor rate is similar to an interest rate but is expressed as a decimal point rather than a percentage. To find the total amount the loan will cost you, including interest, multiply the amount you’re borrowing by the factor rate.

For example, say you borrow $5,000 at a factor rate of 1.2. 

$5,000 x 1.2 = $6,000

You’ll pay $6,000 total to take out this loan. Bear in mind that it’s often quicker to get funds in your bank account from an alternative lender, but you may pay more to borrow.

Secured vs. unsecured loans from $5K to $10K

Any business loan you get will either be secured or unsecured, depending on the loan, the lender, and your credit. Secured loans require you to list collateral, such as vehicles, real estate, or your business inventory. Typically the collateral must be at least the value of the loan and can be seized if you fail to pay it back.

Unsecured loans don’t require collateral, but often require a personal guarantee that you’ll pay the loan if your business can’t. Unsecured loans also require good to excellent personal credit (and potentially business credit), depending on the loan. Because they don’t require named collateral, interest rates on unsecured loans are often higher than on secured loans.

SBA microloans for small business financing

The U.S. Small Business Administration (SBA) funds lenders to provide loans with great interest rates and terms to small businesses. The application process for an SBA loan is known to be lengthy — you’ll need a detailed business plan and good credit in most cases.

Microloans, capped at $50,000, may be easier to qualify for than other SBA loans, making them good for startups and businesses with limited credit history. The average SBA microloan is just $13,000, with typical interest rates of 8% to 13% and terms of up to seven years.

You can find an SBA intermediary lender using the searchable list on the SBA website. Intermediary lenders set their own rates for the loans and tend to be nonprofit community-based organizations. 

Equipment financing from $5K to $10K

Equipment financing is when you borrow money to pay for equipment, machinery, or supplies for your business. Construction businesses often use equipment financing to get necessary machinery, but you can also use this type of loan to equip an office with other high-ticket items like computers and printers. 

It’s common to need a down payment of around 20% and a personal credit score of 650+. The equipment itself serves as collateral, making approval easier. Interest rates tend to range from 3% to 30% APR.

Restaurants, auto repair shops and medical offices can all require expensive equipment to run smoothly, so this a good option if you can’t afford to make a large (but necessary) purchase.

Invoice financing from $5K to $10K

Invoice financing is a way to borrow money and secure it with unpaid business-to-business invoices. Invoice factoring is a similar concept, except you sell the invoices to a factoring company at a discount rather than using them as collateral. 

Typically you’re given an advance of 80% to 90% of the invoice value upfront, and the rest is released, minus a fee, when your customer pays the invoice. Usually that fee is about 1% to 5% of the invoice value per month. Depending on how long it takes to repay, that can result in an effective interest rate of 15% to 35%.

Invoice financing rates and qualification depend on your customers’ creditworthiness. This makes it best suited to companies with customers who are slow-paying but reliable businesses.

Business lines of credit from $5K to $10K

A business line of credit is a flexible option for securing $5,000 and $10,000 as you need it. With a line of credit, your business can withdraw any amount from a pool of money up to your credit limit. You pay a draw fee around 1% to 3% each time you take out money and pay interest only on the amount you withdraw. Typical rates range from 7% to 36%, depending on your credit, the bank or lender, and the credit terms.

Generally, you’ll need a 600+ credit score and minimum annual revenue, of around $100,000 to qualify.

Similar to business loans, lines of credit can be secured or unsecured, depending on your credit and business income. Unsecured credit relies on your qualifications alone, and interest rates are typically higher with lower credit limits. Secured business lines of credit have lower interest rates and typically higher limits, but you’ll need collateral.

Lines of credit can help immensely with business cash flow problems, and it can be useful to secure a line of credit before you need it so it’s available immediately.

Merchant cash advances from $5K to $10K

Not technically a business loan, a merchant cash advance (MCA) is an advance against future credit card sales. Because of that, qualifying depends not on your credit but on card sales, which typically need to be above $10K or more per month. Repayment works through a holdback, where the MCA provider automatically takes a percentage of your daily card sales, typically 10% to 20%.

MCA providers generally use a factor rate to calculate how much you’ll pay. These typically sit between 1.1 and 1.5, meaning you’d pay a total of 150% of what you borrow back to the MCA provider.

For example, say you borrow $10K at a factor rate of 1.5. 

$10,000 x 1.5 = $15,000

This means that no matter how fast you can pay it off, the advance will cost you $5,000 more than the amount you borrow. Depending on repayment terms, some MCAs effectively charge 350% APR.

Business credit cards for small financing needs

Often easier to qualify for than a loan, business credit cards can start at limits from $3,000 to $25,000. Even if you’re approved for a smaller limit than you asked for, you may get a credit limit increase after a year of responsible use. Additionally, many business credit cards offer rewards like cash back or other rewards, making them a money-saver when used responsibly.

You could potentially use an intro 0% offer on a business credit card to avoid paying any interest on your short-term needs. Since many offers include a low intro offer for 12 to 18 months or more, you could use the card for expenses now and pay back the balance in small amounts before the introductory period ends.

After that intro period APRs can vary, typically between 18% to 26%, so it’s in your best interest to pay the balance off in full every month once the 0% interest period is over. 

How to qualify for a $5,000 to $10,000 business loan

Securing a business loan generally comes down to three factors: Credit, revenue, and time in business.

Credit score

Lenders look at both your personal credit and your business credit when you apply for a business loan. For smaller business loans, your personal credit is likely to be more heavily weighed than your business credit.

Revenue

Your business revenue is evaluated to determine whether you can comfortably cover loan payments. Common minimums for loans of $10,000 can run around $100,000 to $120,000 in annual revenue.

Time in business

Every business has to start somewhere, but having a longer business track record may indicate stability to a lender. Banks often want to see two or more years in business, while online lenders typically require a year or more. 

If your business is very young, lenders are likely going to consider your personal factors more heavily. If you’ve been in business less than a year, the most realistic funding options for $5K to $10K are personal loans, SBA microloans, and business credit cards.

How to choose the right financing option

With so many $5,000 to $10,000 business funding options, knowing which is best can be tough. Here’s a quick guide to the different scenarios.

Alternative funding options under $10,000

For business needs under $10K, going to a bank or online lender may not be your only options.

Personal loans for business

A personal loan uses just your own credit and income factors to underwrite a loan. You can use it for business, but you’re personally on the hook for repayment — not the business. This can make it a great option for brand-new businesses with no credit or revenue, but it can interfere with future attempts to use your own personal credit.

Crowdfunding

Instead of borrowing from a lender, you have a couple options for crowdfunding, but it works best if you have a base you can rally. Platforms charge fees for their services and payment processing, but no interest. Here are the two main options:

• Rewards-based crowdfunding is where you pre-sell a perk or product your business offers on a platform like Kickstarter. 
• Equity crowdfunding shares stakes in your business to investors. 

Grants for small businesses

Though not typically a quick source of funding, grants have the best repayment terms: None. They’re competitive and time-intensive to apply to, typically offered to businesses that do research and development. But if you’re researching funding options you might as well head to grants.gov to see if you might qualify for any free money.

Friends and family loans

If you’re lucky enough to have friends or family in a position to help, a loan from someone you know can be a business lifesaver. That said, you’ll want to take some steps to ensure the relationship isn’t in danger of souring. To protect everyone involved, be sure to formalize the agreement in writing with an interest rate and repayment schedule and sign with a witness present.

Frequently asked questions