Starting or growing a business often requires access to funding. Whether it’s for daily operations, purchasing equipment, or expanding, business loans are a critical resource for entrepreneurs. However, with so many loan options in the United States, it’s easy to feel overwhelmed. That’s why understanding the different types of business loans is essential. This article will guide you through 13 common types of business loans, explaining their features, benefits, and how they work.
Types of Business Loans
1. Term Loans
A term loan is a straightforward financing option. You receive a lump sum of money upfront and repay it with interest over a set period.
Key Features:
- Loan amounts: $5,000 to several million dollars.
- Repayment periods: 1 to 25 years.
- Interest rates: Fixed or variable.
Benefits:
- Predictable monthly payments.
- Suitable for large expenses like expansion or equipment.
Considerations:
- May require collateral or a strong credit score.
- Traditional term loans often take time to process.
2. Small Business Administration (SBA) Loans
SBA loans are backed by the U.S. government, making them less risky for lenders and more accessible for small businesses.
Popular SBA Loan Programs:
- 7(a) Loans: General-purpose loans for working capital or expansion.
- 504 Loans: For purchasing real estate or equipment.
- Microloans: Small loans (up to $50,000) for startups and micro-businesses.
Why Choose SBA Loans?
- Competitive interest rates.
- Long repayment terms (up to 25 years).
- Lower down payment requirements.
Challenges:
- Lengthy application process.
- Strict eligibility criteria.
- Fastest funding 1 business day
- Min. time in business 6 months
- Term lengths Up to 60 months
4.8
- Loan amount Up to $500,000
- Min. time in business 6 months
- Min. annual revenue $250,000
4.8
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
3. Business Lines of Credit
A business line of credit works like a credit card. You can borrow up to a set limit, repay, and borrow again. It’s perfect for managing cash flow or unexpected expenses.
Key Features:
- Credit limits: $2,000 to $250,000 or more.
- Interest rates: Variable; charged only on the borrowed amount.
Advantages:
- Flexible access to funds.
- Helps cover short-term financial gaps.
Drawbacks:
- Requires disciplined financial management.
- May include fees for inactivity or maintenance.
4. Equipment Loans
Need to buy machinery, tools, or vehicles for your business? Equipment loans are a targeted solution. The equipment itself often serves as collateral.
Loan Details:
- Loan amount: Up to 100% of the equipment’s value.
- Terms: Usually 3 to 7 years.
- Interest: Fixed rates are common.
Why Use Equipment Loans?
- Preserves cash flow.
- Ownership of the equipment after repayment.
Keep in Mind:
- Equipment may become obsolete before the loan ends.
- A down payment may be required.
5. Invoice Financing
Invoice financing lets you borrow money based on your unpaid invoices. This helps improve cash flow without waiting for customer payments.
How It Works:
- Advance amount: 70% to 90% of invoice value.
- Repayment: Once invoices are paid by your customers.
Perks:
- Quick access to cash.
- No need for collateral beyond invoices.
Considerations:
- Fees can be higher than traditional loans.
- May impact customer relationships if the lender handles collections.
Related: Best Minority Small Business Loans in the USA in 2025
6. Merchant Cash Advances (MCAs)
With an MCA, you receive a lump sum in exchange for a percentage of your future credit card sales.
Quick Facts:
- Advance amount: Based on monthly credit card revenue.
- Repayment: A percentage of daily or weekly sales.
Pros:
- Fast approval process.
- No collateral required.
Cons:
- High factor rates make MCAs expensive.
- Frequent repayments can strain cash flow.
Related: Guide to Get USAA Small Business Loans USA
7. Microloans
Microloans are smaller loans designed for startups and small businesses with limited funding needs.
Key Features:
- Loan amount: Up to $50,000.
- Providers: Often offered by nonprofits or community organizations.
Benefits:
- Accessible to businesses with little credit history.
- Often includes mentorship or business support services.
Limitations:
- Smaller amounts may not cover large expenses.
- Higher interest rates compared to traditional loans.
Related: Small Business Stabilization Grant: A Powerful Lifeline for Companies
8. Commercial Real Estate Loans
Planning to buy, develop, or refinance business property? Commercial real estate loans are your go-to option.
Loan Details:
- Amount: Depends on property value and lender policies.
- Terms: Up to 25 years.
- Interest: Fixed or variable.
Why Choose Them?
- Build equity through property ownership.
- Competitive rates for qualified borrowers.
What to Watch Out For:
- Requires a significant down payment.
- Long-term commitment with potential prepayment penalties.
9. Business Credit Cards
Business credit cards offer a revolving line of credit for everyday expenses. They also come with rewards and incentives.
Perks:
- Earn cash back, points, or travel rewards.
- Easy to manage and track business expenses.
Considerations:
- High-interest rates if balances aren’t paid in full.
- Limits may not be sufficient for large purchases.
10. Startup Loans
Startup loans cater to new businesses without an established track record.
Features:
- Loan amounts: Typically $5,000 to $100,000.
- Terms: Vary depending on the lender.
Why Use Startup Loans?
- Tailored for new ventures.
- Helps cover initial expenses like inventory, hiring, and marketing.
Challenges:
- May require a solid business plan and personal guarantees.
- Higher interest rates due to perceived risk.
11. Franchise Loans
Franchise loans are designed for entrepreneurs looking to buy or expand a franchise.
Uses:
- Franchise fees.
- Equipment and real estate.
- Initial inventory.
Advantages:
- Support from lenders familiar with franchise models.
- Can include specialized financing options.
Things to Consider:
- Franchise restrictions may affect loan terms.
- Franchisees may need a good credit score.
12. Working Capital Loans
These short-term loans are used to cover operational costs like payroll, rent, and utilities.
Quick Facts:
- Loan amounts: Vary widely.
- Repayment: Typically 6 months to 2 years.
Why Consider Them?
- Keep operations running during slow periods.
- Fast approval and funding.
Downsides:
- May have higher interest rates.
- Not ideal for long-term expenses.
13. Bridge Loans
Bridge loans provide temporary funding to “bridge the gap” until long-term financing is secured.
Loan Features:
- Short-term (typically 6 months to 3 years).
- High-interest rates due to their temporary nature.
Best For:
- Covering immediate expenses while waiting for permanent funding.
Drawbacks:
- Expensive compared to other loan options.
- Requires a clear exit strategy to repay the loan.
Comparison Table: Key Features of Business Loans
| Loan Type | Purpose | Loan Amount | Repayment Period | Interest Rates |
|---|---|---|---|---|
| Term Loans | Large expenses | $5,000 to millions | 1–25 years | Fixed or variable |
| SBA Loans | Various purposes | Up to $5.5 million | 7–25 years | Competitive |
| Business Line of Credit | Short-term needs | $2,000 to $250,000+ | Ongoing | Variable |
| Equipment Loans | Equipment purchases | Up to 100% of equipment | 3–7 years | Fixed |
| Invoice Financing | Unpaid invoices | 70%–90% of invoice value | Short-term | Varies |
Understanding the types of business loans available in the USA is the first step toward securing the right funding for your business. Each loan type serves a unique purpose, from long-term investments to short-term cash flow management. By knowing your needs and researching your options, you can find a financing solution that helps your business thrive.
- Fastest funding 1 business day
- Min. time in business 6 months
- Term lengths Up to 60 months
4.8
- Loan amount Up to $500,000
- Min. time in business 6 months
- Min. annual revenue $250,000
4.8
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
