What are The Different Types of Business Loans?

types-of-personal-loans

Running a business takes vision, hustle and money. Whether you're launching a startup, expanding operations, or managing day-to-day expenses, business loans can be a lifeline. But with so many options out there, how do you know which loan is right for your business?

In this guide, we’ll walk you through the different types of business loans in 2025, how they work, and when to use them. Whether you’re a solo entrepreneur or managing a growing team, understanding your financing options is key to success.

1. Term Loans

Best for: Long-term investments like equipment, real estate, or major upgrades

Term loans are the most traditional form of business financing. You borrow a lump sum from a lender and repay it over a fixed period typically with monthly payments and interest.

Pros:

  • Predictable repayment schedule

  • Good for long-term growth

  • Fixed or variable interest rates available

Cons:

  • May require collateral

  • Often requires strong credit and solid financials

Where to get it: Banks, credit unions, online lenders

2. SBA Loans

Best for: Businesses that qualify for low-interest government-backed financing

SBA loans are partially guaranteed by the U.S. Small Business Administration. They include several programs like the SBA 7(a) for general use and the SBA 504 for real estate and equipment.

Pros:

  • Low interest rates

  • Long repayment terms (up to 25 years)

  • Lower down payments than traditional loans

Cons:

  • Lengthy application process

  • Strict qualification requirements

Where to get it: SBA-approved lenders and banks

3. Business Lines of Credit

Best for: Flexible access to funds for managing cash flow

A business line of credit lets you draw funds up to a set limit and only pay interest on what you use. It’s great for handling seasonal expenses, payroll, or inventory.

Pros:

  • Only pay interest on what you borrow

  • Reusable as you repay

  • Fast approval with online lenders

Cons:

  • May have annual or maintenance fees

  • Credit limits can be lower than other loans

Where to get it: Banks, fintech lenders, credit unions

4. Equipment Financing

Best for: Purchasing new or used machinery, vehicles, or technology

With equipment loans, the equipment itself serves as collateral. These loans are tailored to help businesses acquire the tools they need to operate and grow.

Pros:

  • Doesn’t require additional collateral

  • Fixed interest rates and payments

  • Tax benefits through Section 179 deductions

Cons:

  • Only for equipment purchases

  • May require a down payment

Where to get it: Equipment vendors, banks, specialty lenders

5. Invoice Financing (or Factoring)

Best for: Businesses with unpaid invoices and cash flow gaps

If your business struggles with late-paying customers, invoice financing lets you borrow against your outstanding invoices. The lender pays you a percentage upfront and collects from the customer later.

Pros:

  • Fast access to working capital

  • No need for strong credit (invoices act as collateral)

Cons:

  • Fees can be high

  • You may lose control of customer relationships (factoring)

Where to get it: Online invoice financing platforms

6. Merchant Cash Advances

Best for: Businesses with high credit card sales and urgent capital needs

A merchant cash advance (MCA) gives you a lump sum in exchange for a portion of your future credit card sales. It’s a quick fix for cash-strapped businesses.

Pros:

  • Super fast funding (often same day)

  • Repayment tied to revenue, not fixed payments

Cons:

  • Extremely high APRs (can exceed 70%)

  • Not ideal for long-term use

Where to get it: Alternative lenders and MCA providers

7. Microloans

Best for: Startups, small businesses, and underserved entrepreneurs

Microloans are small, short-term loans (typically under $50,000) designed to help new or small businesses that may not qualify for traditional financing.

Pros:

  • Easier to qualify for

  • Ideal for startups and community-based businesses

Cons:

  • Small loan amounts

  • May come with mentoring requirements

Where to get it: Nonprofits, CDFIs, SBA microlenders

8. Startup Loans

Best for: New businesses with no revenue history

Startup loans are designed for businesses in the idea or early launch phase. These may require a business plan and personal guarantee.

Pros:

  • Tailored for new businesses

  • Some lenders don’t require revenue history

Cons:

  • High risk means higher rates

  • May rely heavily on personal credit

Where to get it: Online lenders, microloan programs, peer-to-peer lending

Choosing the Right Business Loan

Before you apply for any loan, ask yourself:

  • What’s the purpose of the loan?

  • How quickly do I need the funds?

  • What can I realistically repay?

  • Do I have collateral or strong financials?

Matching the right loan to your business needs ensures you borrow smart and grow strong.

Final Thoughts

Choosing the right funding option can significantly impact the success and growth of your company. With so many types of business loans available—from term loans and SBA loans to lines of credit and equipment financing—it’s important to evaluate your unique needs, financial health, and long-term goals. By understanding the strengths and limitations of each loan type, you can make an informed decision that supports your business’s future. Take the time to research, compare lenders, and consult with a financial advisor if needed—your business deserves the best possible start or expansion path.
Location: United States

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