Which Common Business Loans Fit Your Needs?

Top Ten Loans For Businesses

Loan Descriptions

Knowing when your small-business needs financing is easy. Understanding which type of business loans is the best financing option for you can be a challenge, which is where we help as a business broker. There isn’t a one-size-fits-all solution: Terms, rates and qualifications vary by each loan type.

Here is a breakdown of the 10 main types of business loans available to small-business owners to help you find the best fit for your needs.  From startup capital to debt consolidation, and everything in between.


TERM LOANS


A term loan is a common form of business financing. You get a lump sum of cash upfront, which you then repay with interest over a predetermined period.

Online lenders offer term loans with borrowing amounts up to $1 million and can provide faster funding than banks.

Pros:

  • Get cash upfront to invest in your business
  • Typically higher borrowing amounts
  • Fast funding if you use an online lender rather than a traditional bank; typically few days to a week versus up to several months

Cons: 

  • May require a personal guarantee or collateral — an asset such as real estate or business equipment that the lender can sell if you default
  • Costs can vary; term loans from online lenders typically carry higher costs than those from traditional banks

Best for: 

  • Businesses looking to expand
  • Borrowers who have good credit and a strong business and who don’t want to wait long for funding

SBA LOANS


The Small Business Administration guarantees these loans, which are offered by banks and other lenders. Repayment periods on SBA loans depend on how you plan to use the money. They range from seven years for working capital to 10 years for buying equipment and 25 years for real estate purchases.

Pros:

  • Some of the lowest rates on the market
  • High borrowing amounts up to $5 million
  • Long repayment terms

Cons: 

  • Hard to qualify
  • Long and rigorous application process

Best for:

  • Businesses looking to expand or refinance existing debts
  • Strong-credit borrowers who can wait a long time for funding

BUSINESS LINES OF CREDIT


A business line of credit provides access to funds up to your credit limit, and you pay interest only on the money you’ve drawn. It can provide more flexibility than a term loan.

Pros:

  • Flexible way to borrow
  • Typically unsecured, so no collateral required

Cons: 

  • May carry additional costs, such as maintenance fees and draw fees
  • Strong revenue and credit required

Best for:

  • Short-term financing needs, managing cash flow or handling unexpected expenses
  • Seasonal businesses


EQUIPMENT LOANS


Equipment loans help you buy equipment for your business. The loan term typically is matched up with the expected life span of the equipment, and the equipment serves as collateral for the loan. Rates will depend on the value of the equipment and the strength of your business.

Pros:

  • You own the equipment and build equity in it
  • You can get competitive rates if you have strong credit and business finances

Cons: 

  • You may have to come up with a down payment
  • Equipment can become outdated more quickly than the length of your financing

Best for:

  • Businesses that want to own equipment outright

Invoice Factoring


Let’s say your business has unpaid customer invoices, which typically are paid in 60 days. If you can’t wait that long to get paid and need cash now, you can get money for those unpaid invoices through invoice factoring.

You’d sell the invoices to a factoring company, which would be responsible for collecting from the customer when the invoice is due.

Pros:

  • Fast cash for your business
  • Easier approval than traditional funding options

Cons: 

  • Costly compared with other options
  • You lose control over the collection of your invoices

Best for:

  • Businesses with unpaid invoices that need fast cash
  • Businesses with reliable customers on long payment terms (30, 60 or 90 days)

INVOICE FINANCING


This is similar to invoice factoring, but instead of selling your unpaid invoices to a factoring company, you use the invoices as collateral to get a cash advance.

Pros:

  • Fast cash
  • Your customers won’t know their invoice is being financed

Cons: 

  • Costly compared with other options
  • You’re still responsible for collecting the invoice payment

Best for:

  • Businesses looking to turn unpaid invoices into fast cash
  • Businesses that want to maintain control over their invoices

MERCHANT CASH ADVANCES


You get a lump sum of cash upfront that you can use to finance your business.

Instead of making one fixed payment each month from a bank account as you would with a term loan, you make payments on a merchant cash advance either by withholding a percentage of your credit and debit card sales daily, or by fixed daily or weekly withdrawals from a bank account.

Pros:

  • Fast cash
  • Unsecured financing

Cons: 

  • Some of the highest borrowing costs — up to 350% in some cases
  • Frequent repayments can create cash flow problems

Best for:

  • Businesses that have high and consistent credit card sales and can handle frequent repayments
  • Businesses that can’t get financing anywhere else and can’t wait for capital

PERSONAL LOANS


It is possible to use a personal loan for business purposes. It’s an option for startups, as banks typically don’t lend to businesses with no operating history.

Approval for these loans is based solely on your personal credit score, but you’ll need good credit to qualify.

Pros:

  • Startups and newer businesses can qualify
  • Fast funding

Cons:

  • High borrowing costs
  • Small borrowing amounts of up to $50,000
  • Failure to repay can hurt your credit

Best for:

  • Startups and newer businesses with strong personal credit
  • Borrowers willing to risk damaging their credit score

BUSINESS CREDIT CARDS


Business credit cards are revolving lines of credit. You can draw from and repay the card as needed, as long as you make minimum monthly payments and don’t exceed the credit limit.

They are typically best used for financing ongoing expenses, such as travel, office supplies and utilities.

Pros:

  • Earn rewards on your purchases
  • No collateral required

Cons: 

  • High cost, with a variable rate that may rise
  • Extra fees may apply

Best for:

  • Ongoing business expenses

MICRO LOANS


Microloans are small loans — $50,000 or less — offered by nonprofit organizations and mission-based lenders.

These loans typically are available to startups, newer businesses and businesses in disadvantaged communities.

Pros:

  • Low cost
  • Other services may be provided, such as consulting and training

Cons: 

  • Smaller loan amounts
  • You may have to meet stringent eligibility requirements

Best for:

  • Startups and businesses in disadvantaged communities
  • Businesses seeking only a small amount of financing