Factoring vs an SBA loan: long-term money from a bank, or cash from your invoices.
An SBA 7(a) loan is long-term money from a bank, partly guaranteed by the SBA: up to $5 million, paid back monthly, as a rule over up to 10 years (up to 25 for real estate). Factoring is cash from invoices you already issued, paid back when your customers pay. They solve different problems, and you can have both: the $350K deal I closed for a Texas trucking fleet put factoring in second position behind its SBA 7(a) loan.
Daniel Chirino · Business Development Officer, 1st Commercial Credit
Updated: October 29, 2026
Side by side
| Topic | SBA 7(a) loan | Invoice factoring |
|---|---|---|
| What it is | A bank loan with an SBA guarantee. You apply and work with the lender, not with the SBA. | The sale of your invoices to a factoring company. |
| How much | Up to $5 million. | It grows with what you invoice. At 1st Commercial Credit, from about $10,000 a month in sales up to $10 million. |
| What it's for | Real estate, equipment, working capital, refinancing debt or buying a business. | Working capital tied to your invoices: payroll, materials, suppliers. |
| How it's paid back | Monthly payments of principal and interest, out of your cash flow. | Your customers pay the invoices. No monthly payments. |
| Term | Up to 10 years as a rule; up to 25 for real estate. | Each invoice, until your customer pays. The account keeps running as you invoice. |
| What gets reviewed | That you're a small business, that you're creditworthy and can repay, and that you can't get that credit on reasonable terms elsewhere. | Mainly your customers' credit. |
| Collateral | Not required up to $50,000. Above that, the lender applies its own collateral policies. | The invoices you sell. |
| Cost | Interest negotiated with the lender, under SBA maximums, plus a guaranty fee the lender can pass on to you. | A fee on each invoice that grows with the days your customer takes to pay. 1st Commercial Credit publishes rates from 0.69% to 1.59%, depending on your volume, how fast your customers pay and their credit, and says its average client pays about 2.25%, depending on how many days the invoices take to be paid. |
| Paperwork and speed | The application changes with the size of the loan and the lender's process. | Setup in 3 to 5 days, then funding within 24 hours of verifying each invoice. |
When each one fits
An SBA 7(a) loan, if
- You're buying a building, equipment or a business.
- You want to spread the cost over several years.
- You have the financial statements a lender asks for, and you can wait for its approval.
- The lowest cost per year matters more than speed.
Factoring, if
- Your customers pay in 30 to 90 days and you need the cash now.
- You're growing faster than a fixed loan amount allows.
- Your company is young, but your customers have strong credit.
- You already have an SBA term loan and need working capital on top of it.
From the credit side: before 1st Commercial Credit, I worked on SBA, ABL and factoring deals at AmeriFactors. The first question isn't which product is better. It's what the money is for: a building is an SBA question; payroll while your customers take 60 days to pay is a factoring question.
Both at once: factoring behind an SBA loan
If you already have a bank or SBA term loan, factoring can work behind it. In second position factoring, your lender keeps its loan and its first lien, and 1st Commercial Credit buys your invoices in second position. It works behind a term loan, not behind a line of credit.
SBA EIDL loans have been subordinated in its deals, and 1st Commercial Credit starts funding before the SBA's subordination process is complete. With a 7(a), it depends on the details: the $350K Texas fleet deal was done behind one.
The SBA's working capital lines
The SBA also guarantees lines of credit. Its 7(a) Working Capital Pilot offers monitored lines of up to $5 million for businesses with at least a year of history that can produce timely financial statements, receivables and payables agings and inventory reports.
If your company can keep up with that reporting and you're not in a hurry, ask your bank about it. If you need the cash this month, or your company is too new for that, factoring gets there first.
Questions owners ask me
Can I factor if I already have an SBA loan?
Often, yes, if it's a term loan: second position factoring works behind it, without refinancing. It doesn't work behind a line of credit.
Is factoring more expensive than an SBA loan?
Usually, per dollar and per year. If you qualify for an SBA loan for that need, take it. Factoring makes sense when the need is tied to your invoices, or when the SBA loan isn't available or isn't enough.
Can an SBA loan be used for working capital?
Yes. A 7(a) can be used for short- and long-term working capital, and the SBA also guarantees working capital lines.
Do I deal with the SBA directly?
No. You apply through a lender and work with that lender. The SBA guarantees part of the loan.
What is the money for?
Tell me what you need it for, what loans you already have and who your customers are. I'll tell you whether it's an SBA question, a factoring question or both.
Also read: second position factoring · factoring vs a bank line of credit · all guides