Below are the most common small business financing structures used by Sacramento-area companies, from SBA loans to flexible online options. Use this section to compare how each product typically works and when businesses may consider them.
SBA 7a Loan: Versatile, Long-Term Small Business Financing
The SBA 7a loan is a flagship U.S. Small Business Administration program designed to help eligible businesses access funding with government-backed guarantees. Funds can be used for working capital, equipment, tenant improvements, business acquisitions, and refinancing eligible debt.
- Typical amounts: Up to $5 million
- Common terms: Up to 10 years for working capital and equipment; up to 25 years for commercial real estate
- Rates: Generally variable based on a base rate (such as Prime) plus a spread; rates vary by lender, loan size, and term
- Down payment: Often 10–20% for acquisitions and certain use cases
Learn more about SBA 7a requirements and process:
Who often considers SBA 7a loans?
- Established restaurants investing in build-outs in Midtown or East Sacramento
- Construction companies purchasing heavy equipment
- Service businesses acquiring a competitor’s book of business
Expert tip: Prepare detailed financials and a clear use-of-funds plan. Lenders typically review cash flow coverage, management experience, and industry risk. Solid bookkeeping and tax filings help streamline underwriting.
SBA 504 Loan: Commercial Real Estate and Major Equipment
The SBA 504 program is designed for commercial real estate and large fixed-asset purchases. It often pairs a bank loan with a Certified Development Company (CDC) loan.
- Use cases: Buying a warehouse in Natomas, acquiring a manufacturing facility in Rancho Cordova, or purchasing heavy machinery
- Typical structure: 50% bank loan + 40% CDC + 10% borrower equity
- Potential benefit: Long terms for fixed assets
While this guide focuses on SBA 7a, it’s helpful to compare 504 for real estate-heavy projects. The SBA’s site provides details on 504 structures and CDC involvement.
Term Loan for Small Business
A traditional term loan provides a lump sum with fixed payments over a set period. Terms vary widely—from 1–5 years for many working capital loans to longer for certain secured loans.
- Use cases: Equipment purchases, renovations, marketing campaigns
- Pros: Predictable payments and amortization
- Considerations: May require collateral or UCC filings; underwriting reviews profitability and cash flow
Compare structures and typical features:
Business Line of Credit
A business line of credit offers revolving access to funds up to a set limit, with interest typically charged only on the amount drawn. It can help manage seasonality, inventory buys, and unexpected expenses.
- Use cases: Retail inventory for holiday rush, contractor materials before client payment
- Pros: Flexibility and reusable credit
- Considerations: Annual reviews, draw fees, or maintenance fees may apply depending on the product
Dive deeper:
Short Term Business Loan
A short term business loan generally features a shorter repayment horizon (often 3–24 months). Payments may be daily, weekly, or monthly depending on the structure.
- Use cases: Time-sensitive inventory buys, small remodels, campaign launches
- Pros: Speed and straightforward qualification criteria compared with longer-term options
- Considerations: Higher effective costs; ensure the ROI of funds exceeds the financing expense
Explore mechanics and cost comparisons:
Equipment Financing and Leasing
Equipment financing helps acquire vehicles, kitchen equipment, manufacturing machinery, or technology. The equipment often serves as collateral.
- Use cases: Foodservice equipment for a Midtown cafe, CNC machinery in Rancho Cordova
- Pros: Preserves cash; potential tax benefits depending on structure
- Considerations: Review total cost of ownership and residual values (for leases)
Learn more:
Invoice Factoring and Accounts Receivable Financing
Invoice factoring helps convert unpaid invoices into immediate working capital, which can be useful for B2B firms with slow-paying customers.
- Use cases: Manufacturers, wholesalers, staffing firms, and logistics companies
- Pros: Funding grows with receivables; may rely more on customer credit than your own
- Considerations: Fees vary; understand recourse vs. non-recourse and client notification policies
Compare structures and costs:
Merchant Cash Advance (MCA) and Daily/Weekly Payment Products
MCAs are structured as purchases of future receivables. They typically have factor rates instead of APRs and frequent payments.
- Use cases: Short, urgent cash infusions for inventory or repairs
- Pros: Speed and simplicity
- Considerations: Higher cost; ensure the daily/weekly remittance fits cash flow
Learn the nuances before deciding:
Revenue-Based Financing
Revenue-based financing (RBF) ties repayments to a percentage of monthly revenue until a cap is met. It can be an option for growing companies with recurring or seasonal revenue.
- Use cases: SaaS, eCommerce, and subscription-based businesses with measurable revenue
- Pros: Payment flexes with sales
- Considerations: Understand total repayment cap and how it compares with term loan APRs
Explore fundamentals:
Microloans and CDFI Financing
Community Development Financial Institutions (CDFIs) and microloan programs can support early-stage or underserved businesses with smaller amounts and education resources.
