10 Types of Business Loans: Which One Fits Your Needs?

There are many ways to finance your business, and the “right” option depends on your specific needs—whether you’re looking to expand, manage cash flow, purchase equipment, or cover short-term gaps. Business financing options 2025 range from traditional bank loans to more modern, tech-driven solutions, each with unique requirements and benefits. Key considerations include how long you’ve been in business, your creditworthiness, the loan amount you need, and how quickly you want access to funds. Below are ten types of business loans explained in detail, covering secured vs unsecured business loans, short-term or long-term arrangements, and specialized funding methods.

1. Term Loans

A term loan provides a lump sum of cash upfront, which you repay over a fixed period—usually with monthly payments. This arrangement suits established businesses with steady revenue, typically requiring at least six months to two years in operation and a solid credit history. How to choose a business loan often begins with evaluating whether you need a single, large infusion of capital, making a term loan a popular choice. Ideal uses for term loans include funding major projects, expanding locations, or acquiring another business—circumstances where a one-time, significant investment can accelerate growth.

2. SBA Loans

SBA loans are offered by banks and other lenders but come with a partial guarantee from the U.S. Small Business Administration. This reduces lender risk, resulting in lower interest rates and longer terms—some up to 25 years. The SBA 7(a) program is widely used for working capital, expansions, or debt refinancing, while SBA 504 loans focus on real estate and equipment. SBA loans are best for businesses with strong credit that can handle a more extensive, time-consuming application process. They often require detailed financials, a business plan, and sometimes collateral to secure the loan. If you can navigate the rigorous steps involved, SBA loans may offer some of the best business loan interest rates around, making them a prime option for stable ventures aiming to expand or refinance.

3. Business Lines of Credit

A business line of credit is a flexible, revolving credit facility. Like a credit card, it gives you access to funds up to a limit, and you only pay interest on the amount drawn. This structure is especially beneficial for businesses needing to manage seasonal cash flow or unexpected expenses. It can also help handle short-term working capital needs without the hassle of reapplying each time you need funds. For owners focusing on daily operational requirements—like paying suppliers or covering cyclical sale—a line of credit is a go-to solution among best loans for new businesses wanting immediate but controlled access to capital.

4. Microloans

Microloans typically range from a few hundred dollars up to $50,000. They’re often facilitated by nonprofit organizations or alternative lenders who emphasize community development and support for small enterprises. Microloans cater to newer or smaller ventures that don’t need large sums but do require a financial boost for everyday expenses or minor expansions. For startups and small businesses, a microloan can fill funding gaps without imposing the same stringent criteria as larger loans, making it a prime choice for emerging entrepreneurs seeking business growth on a smaller scale.

5. Equipment Loans

An equipment loan finances the purchase or upgrade of machinery, vehicles, or other major assets, using the purchased equipment as collateral. This approach suits companies looking to invest in specialized tools—be it a restaurant upgrading ovens or a construction firm needing heavy machinery. Since the asset serves as collateral, the lender’s risk decreases, sometimes resulting in better terms. Given that many businesses rely heavily on specific hardware or technology, equipment financing can be one of the best business loans for those capital-intensive needs, preserving working capital for other expenses.

6. Invoice Factoring

Invoice factoring involves selling your outstanding invoices to a factoring company at a discount, receiving immediate cash in return. The factoring firm then takes over the collection process, paying you the remaining balance (minus fees) when your client settles the invoice. It’s a practical method for bridging cash flow gaps when your customers pay on longer terms. Invoice factoring is especially attractive if you deal with late-paying clients. It provides immediate working capital that can cover everything from payroll to inventory restocking—key for small businesses in need of flexible finance solutions.

7. Invoice Financing

Close to factoring but slightly different, invoice financing uses unpaid invoices as collateral for a cash advance. Rather than selling the invoices outright, you retain control over your customer relationships. The lender provides funds against your outstanding bills; you repay once clients settle their invoices (plus fees or interest). Invoice financing appeals to businesses wanting quick working capital but preferring to maintain direct contact with clients—ideal for entrepreneurs who value controlling the payment follow-up while capitalizing on outstanding receivables.

8. Merchant Cash Advances (MCA)

A merchant cash advance offers upfront capital in exchange for a portion of future debit or credit card sales. Rather than set monthly payments, lenders automatically take a percentage of daily or weekly transactions until the advance is fully repaid. MCAs can offer a lifeline for businesses with strong card sales but little collateral or credit history. Many retailers, restaurants, or e-commerce operations that experience consistent daily or weekly card transactions find MCAs to be a convenient, though costly, financing solution. How to choose a business loan often involves comparing the cost of an MCA to more traditional lines of credit to see if flexibility outweighs expense.

9. Personal Loans for Business

Sometimes entrepreneurs leverage personal loans for business purposes, particularly if their venture is new and lacks established business credit. These loans hinge on your personal credit score and financial standing, offering smaller amounts but quicker approvals than formal business loans. For early-stage startups, personal loans can provide a springboard to cover initial costs like inventory and marketing, especially if you find it challenging to qualify for more conventional business loan types. However, the personal risk is higher since defaults affect your credit score directly.

10. Business Credit Cards

While not always classified strictly as a “loan,” business credit cards offer a revolving credit line you can tap whenever needed. They’re especially useful for managing day-to-day operational expenses or small, recurring purchases like office supplies or software subscriptions. Many cards also feature rewards programs, which can help business owners offset costs or earn travel points. Best business credit cards are typically most beneficial for entrepreneurs who pay off balances monthly, avoiding accumulated interest. They also help build your business credit profile, an essential factor for qualifying for a business loan from a bank or other lender later on.

Where to Go from Here

‍Choosing among these types of business loans explained requires an honest appraisal of your company’s financial health, timeframe, and the purpose of the funds. For instance, SBA loans vs traditional bank loans might be the right comparison if you need a sizable amount at a lower interest rate and can wait through a lengthy process. On the other hand, solutions like merchant cash advances or invoice factoring may suit you if speed and ease of approval matter more than cost. Ultimately, the right choice depends on balancing the benefits—whether flexible repayment, low interest rates, or significant funding capacity—against any drawbacks, such as higher fees or collateral requirements.

Additional steps to consider include shopping around different lenders, comparing rates and terms, and ensuring you understand the pros and cons of each option. Whether you’re seeking short-term vs long-term business loans, secured or unsecured funding, or niche solutions like equipment financing, ample research and financial planning form the cornerstone of a successful funding strategy. By tailoring a loan to match your business model and goals, you’ll position your venture for sustainable growth and financial stability.