12 Types Of Business Loans

Small business owners can choose from several financing options, including term loans, lines of credit, microloans, and crowdfunding.

The right loan depends on your business’s specific funding needs. Below, we break down the most common types of business loans and help you find the best fit. When you’re ready to compare lenders, check out our picks for the best small business loans.

The 12 Types Of Business Loans

Running a small business often requires outside funding to manage cash flow gaps, cover unexpected expenses, or support growth.

While many financing options are available, it’s critical to understand the true cost of a loan and whether it makes sense for your business.

Start by understanding the 12 most common types of business loans:

Business Term Loans

A business term loan (also called an installment loan) provides a lump sum of capital that’s repaid on a fixed schedule, typically with monthly payments. Each payment goes toward both principal and interest.

Term loans are offered by banks, credit unions, and alternative lenders. The most affordable options usually come from traditional lenders and are best suited for established businesses with strong credit, consistent revenue, and at least two years in operation.

Business Lines Of Credit

A business line of credit works similarly to a credit card, allowing you to draw funds as needed up to a set limit. Interest is only charged on the amount you use, and revolving credit lines replenish as you repay what you’ve borrowed.

Lines of credit are often easier to qualify for than term loans, but they may come with higher rates and additional fees. These loans are available from banks, credit unions, and online lenders.

Small Business Administration Loans

The Small Business Administration partners with approved lenders, including banks and nonprofit organizations, to offer government-backed loans with low rates and long repayment terms. SBA loans can be used for a wide range of business needs, from working capital to commercial real estate.

Because the application process is lengthy, SBA loans aren’t ideal for businesses that need fast funding. However, qualified borrowers willing to wait often gain access to lower costs, higher borrowing limits, and extended repayment terms.

Short-Term Business Loans

Short-term business loans provide fast access to capital with repayment terms typically two years or less. Because these loans carry lower risk for lenders, they’re often easier to qualify for than traditional term loans, including for newer businesses and borrowers with weaker credit.

Instead of interest, many short-term lenders charge a fixed fee, which can make borrowing more expensive overall. Payments may be required weekly, but approval and funding can happen quickly — sometimes as soon as the same business day.

Equipment Loans

An equipment loan is used to finance business equipment, such as machinery or vehicles. The equipment can be used immediately while the loan is repaid over a fixed term.

These loans are often easier to qualify for than traditional term loans, making them accessible to startups and borrowers with weaker credit. In most cases, the equipment itself serves as collateral, although some lenders may require a down payment based on the equipment value and the borrower’s credit profile.

Invoice Financing

Invoice financing lets businesses access cash by selling unpaid invoices or using them as collateral. Instead of focusing on credit score or time in business, lenders evaluate the invoices themselves and the likelihood that customers will pay, making this option accessible to startups and borrowers with weaker credit.

Applications are typically quick, and funding can be fast, making invoice financing a practical solution for short-term cash flow gaps.

Merchant Cash Advances

A merchant cash advance (MCA) provides upfront funding in exchange for a percentage of future credit card sales. Repayments are typically collected daily or weekly and fluctuate with sales volume, so payments are lower during slower periods.

MCAs are among the most expensive forms of business financing and generally should be considered only after exploring other options. That said, minimal qualification requirements make them accessible to borrowers with poor credit, newer businesses, or those unable to qualify for traditional loans.

Personal Loans For Business

A personal loan for business uses the borrower’s personal credit and income to qualify, rather than business revenue or credit history. This makes it a viable option for startups, entrepreneurs, and businesses without established financials.

Borrowers with good to excellent credit may qualify for fast funding and competitive rates. However, personal loans typically come with lower borrowing limits, don’t help build business credit, and leave the borrower personally responsible if the loan defaults.

Microloans

A microloan is a small business loan of $50,000 or less, designed for businesses with modest funding needs. Some lenders offer competitive rates and longer repayment terms, with the SBA Microloan program standing out for its lower costs and terms of up to six years.

Because borrowing amounts are limited, microloans are best suited for startups, sole proprietors, and small businesses with lower capital requirements.

Crowdfunding

Crowdfunding allows a business or startup to raise money through an online platform by collecting contributions from a large group of backers. Businesses pitch their idea publicly, and funding is provided by supporters who believe in the product or concept.

Successful crowdfunding campaigns require planning, marketing, and ongoing promotion to attract and engage backers.

Commercial Real Estate Loans

Commercial real estate loans are used to purchase, build, or improve business property, including land, existing buildings, or new construction. These loans typically offer long repayment terms — often 20 to 30 years — along with competitive rates and high borrowing limits.

Because of the size and risk involved, commercial real estate loans have strict qualification requirements. Borrowers usually need strong revenue, good to excellent credit, and at least two years in business, and the application and closing process can take time.

Business Credit Cards

Business credit cards are commonly used to cover everyday expenses and occasional emergencies. As a revolving line of credit, available funds are replenished as balances are paid down.

While business credit cards often carry higher interest rates than traditional loans, the best options offer competitive rates for qualified borrowers along with rewards, signup bonuses, and other cardholder benefits.

The Bottom Line On The Different Types Of Business Loans

There’s no shortage of small business financing options, whether you’re funding growth, purchasing real estate, or covering an unexpected expense. The key is choosing a loan that fits your needs, budget, and timeline.

Before applying, compare loan types and lenders, understand the total cost of borrowing, and confirm that taking on debt makes sense for your business. Preparing in advance — by reviewing your credit, gathering documentation, and estimating what you can afford — can also help streamline the approval process.