Below are common small business financing options, including core benefits, typical uses, and considerations. Review which structure best aligns with your working capital needs, equipment purchases, or longer-term growth investments.
Term Loans
Term loans provide a fixed lump sum repaid over a set schedule. They can be short-term (typically 6–24 months) or long-term (2–10 years+). Short-term loans can be faster but often carry higher costs; long-term loans offer lower payments and rates but may take longer to fund.
- Use cases: Equipment purchases, renovations, marketing, hiring, refinancing higher-cost debt.
- Benefits: Predictable payments, clear payoff date, potentially lower APRs than revolving products.
- Considerations: Prepayment policies, origination fees, and the impact of borrowing on cash flow.
Learn more: Term Loan and the detailed guide term loan for small business.
SBA Loans
SBA loans are partially guaranteed by the U.S. Small Business Administration and offered through participating lenders. Popular programs include SBA 7(a), 504, and Express. SBA loans often feature competitive rates and longer terms, which can help improve monthly affordability.
- Use cases: Working capital, equipment, real estate, business acquisition, refinancing eligible debt.
- Benefits: Longer terms, competitive rates, flexibility in use of funds.
- Considerations: More documentation, collateral and personal guarantee often required, longer timelines.
Explore: SBA loan and SBA Express loan. For disaster scenarios, see SBA disaster loan.
Business Line of Credit
A business line of credit is revolving: draw funds up to a limit, repay, and draw again. You only pay interest on what you use, making it a flexible tool for cash flow gaps, seasonality, or projects with unknown costs.
- Use cases: Inventory purchases, managing receivables, short-term cash needs.
- Benefits: Pay interest only on what you draw; reusable credit; works well for uneven cash flow.
- Considerations: Variable rates, annual or draw fees may apply, potential for overuse if not managed carefully.
Learn more: Business Line of Credit and our guides on business line of credit and flexible funding guide.
Equipment Financing and Leasing
Equipment financing uses the equipment itself as collateral. Terms align with the useful life of the asset, helping preserve working capital while obtaining essential tools and machinery.
- Use cases: Vehicles, machinery, commercial kitchen equipment, technology, medical devices.
- Benefits: Potentially lower rates due to collateral; matches payments to asset life.
- Considerations: Down payment may be required; review fair market value vs. $1 buyout options for leases.
Explore options: Equipment Financing and our 2025 overview of equipment financing.
Invoice Financing and Factoring
Invoice factoring or accounts receivable financing advances cash against outstanding invoices. It’s common in B2B sectors with long payment cycles.
- Use cases: Covering payroll and operating expenses while awaiting invoice payments.
- Benefits: Approval often focuses on customer credit quality and invoice history; speed.
- Considerations: Fees vary by risk and invoice aging; consider customer perception if factoring includes notice of assignment.
Deep dives: Accounts Receivable Financing and the guide to invoice factoring.
Merchant Cash Advance (MCA)
An MCA provides a lump sum repaid via a percentage of daily sales or fixed daily withdrawals. It is not a loan but a purchase of future receivables. MCAs can be fast but typically cost more.
- Use cases: Short-lived opportunities, urgent repairs, or bridging short-term gaps.
- Benefits: Speed, revenue-based payments can align with sales.
- Considerations: Higher effective costs; frequent repayments; evaluate impact on cash flow.
Read more: merchant cash advance.
Revenue-Based Financing
Revenue-based financing ties repayments to a percentage of monthly revenue until an agreed total is paid, offering flexibility when sales fluctuate.
- Use cases: Subscription or eCommerce businesses with repeatable revenue.
- Benefits: Repayments flex with revenue; often no fixed term.
- Considerations: Factor rates can vary; total cost depends on performance.
Learn more: Revenue-Based Financing.
Startup Loans
Startup loans can help new businesses without long operating histories. Underwriting may focus more on personal credit, collateral, and a detailed business plan.
- Use cases: Launch costs, initial inventory, early hiring, marketing.
- Benefits: Access to capital when conventional options are limited.
- Considerations: Personal guarantees common; rates can be higher due to risk.
Explore: Startup Loan.
