What Types of Small Business Loans are Available?

Small businesses have access to many types of loans including term loans, lines of credit, SBA loans, equipment loans & more. Learn more about each type.

What Types of Small Business Loans are Available?

When it comes to financing a small business, there are a variety of loan options available. From traditional term loans to asset-based loans, such as equipment financing and invoice financing, to government-backed loans, such as SBA loans, there is something for every business. A term loan is a traditional loan that involves borrowing a fixed amount of money up front and repaying it, with interest, according to a specific repayment schedule. Banks and online lenders offer term loans, and they are often the most affordable sources of capital.

Business lines of credit can provide a cushion in the event of a cash flow emergency and are useful when you need money quickly. Banks often offer secured and unsecured lines of credit. For insured lines, you must deposit some assets as collateral. The Small Business Administration (SBA) offers an excellent product for small businesses.

Aside from a traditional bank loan, SBA loans are the most affordable sources of capital. New and established businesses can apply for SBA loans, but there are different SBA loan programs for different business needs. Equipment financing is another popular asset-based loan for businesses. This type of small business loan is a potential option if you're looking for money to purchase new or used equipment.

Instead of paying directly for expensive equipment, you can apply for a lease or loan of the equipment to finance the purchase. Equipment financing is available for established and new businesses, and even business owners with lower credit scores often qualify. Invoice financing is another type of asset-based loan for businesses. With this type of business loan, you use your outstanding bills to get a cash advance from a lender. Unpaid invoices act as a guarantee of the advance.

A lender will advance you a percentage of the total amount of your bill, usually between 85 and 90%, and withholds the remaining percentage. If your company wants to purchase commercial property, such as a retail store, office building, or manufacturing plant, you may want to opt for a commercial real estate loan. Like equipment financing, the underlying property acts as collateral for this type of commercial loan. A microloan can be a good option for those looking to launch a startup and for entrepreneurs with microenterprises (e.g., food trucks, vendors and independent companies). The maximum term of SBA microloans is six years. Interest rates are usually the highest among SBA loans, but they are still relatively low. You can also use a personal loan for business purposes.

Both banks and online lenders offer personal loans. These are based solely on your personal finances and your credit, so your personal credit score is extremely important. Interest rates on personal loans range from 7% to 36%, depending on the lender and their ratings. If you're a homeowner, you may be able to use a home equity loan for business purposes. The benefit of this type of small business loan is that when business is slow, you pay less and when the business is booming, you pay more.

The downside is that cash advances for merchants are the most expensive type of business finance on the market. In areas that have experienced a crisis, such as natural disasters or economic downturns, SBA disaster assistance loans are designed to save small businesses affected by those events. Overall, there are many types of small business loans available to meet the needs of any business owner. It's important to research all your options before deciding which one is right for you.