6 Common Small Business Financing Types

The six most common small business financing types are SBA loans, conventional term loans, business lines of credit, revenue-based financing (including merchant cash advances), equipment financing, and invoice factoring. They split along two lines that matter more than the label: how a lender decides you qualify (credit and collateral versus cash flow and revenue) and how fast money actually reaches your account (weeks for bank and SBA products, 24 to 48 hours for revenue-based options). The right choice is rarely "the cheapest rate" in isolation — it is the product whose repayment shape, funding speed, and approval criteria match the job the money has to do. Below, we break down all six from an underwriter's chair, then give you a decision framework and an example comparison so you can match the tool to the situation.

How to read these six options (two questions that decide everything)

Before comparing products, sort them by the only two questions that consistently predict which one you'll get and whether it will help.

1. What does the lender underwrite? Bank term loans and SBA loans underwrite you — personal credit, time in business, tax returns, collateral, and debt-service coverage. Revenue-based financing, factoring, and most equipment deals underwrite the business's cash flow and assets — bank deposits, monthly revenue, invoices, or the equipment itself. If your personal FICO or your book of financials is thin, cash-flow underwriting is often the only door that opens.

2. How does repayment behave against your cash flow? A fixed monthly term payment is predictable but unforgiving in a slow month. A line of credit only costs you when you draw. Revenue-based repayment flexes with daily or weekly receipts, so it breathes with your sales. Factoring isn't a payment at all — it's an advance against money customers already owe you. Match the repayment rhythm to how your revenue actually arrives, and most financing mistakes disappear.

Keep those two questions in mind as you read each type below. For the bigger picture on matching funding to a business stage, see our complete small business funding guide.

1. SBA loans (7(a) and 504) — lowest cost, slowest to close

SBA loans are bank loans partially guaranteed by the US Small Business Administration, which lowers the bank's risk and lets it offer longer terms and competitive rates. The 7(a) program covers working capital, expansion, and acquisitions; the 504 program funds real estate and major equipment.

What it costs: Among the lowest available to small businesses, because the government guarantee absorbs part of the lender's downside. Terms commonly run up to 10 years for working capital and up to 25 years for real estate.

What underwriting wants: Strong personal credit, typically two or more years in business, tax returns, a business plan or use-of-funds, and often collateral and a personal guarantee.

Speed: Weeks, sometimes a couple of months, from application to funding. Documentation is heavy.

Works best when you have time, clean financials, and a large, long-horizon need — buying a building, acquiring a competitor, refinancing expensive debt. Avoid when you need money this week or your credit and paperwork won't survive full bank scrutiny.

2. Conventional term loans — a lump sum on a fixed schedule

A term loan is the product most people picture: a fixed amount up front, repaid in regular installments over a set period with interest. It's offered by banks, credit unions, and online lenders, with the online tier trading higher cost for looser criteria and faster decisions.

What it costs: Bank term loans price near the low end for well-qualified borrowers; online term loans sit higher to compensate for speed and broader approval.

What underwriting wants: Bank versions expect solid credit, time in business, and profitability. Online versions relax those in exchange for higher pricing.

Speed: Banks take one to several weeks; online term lenders can fund in a few business days.

Works best when you have a specific, one-time investment with a predictable payoff — a renovation, an expansion, a defined marketing push — and your cash flow comfortably covers a fixed monthly payment. Avoid when your need is recurring or unpredictable (a line of credit fits better) or when a fixed payment would strain you during seasonal dips.

3. Business line of credit — flexible, only pay for what you use

A line of credit gives you a revolving limit you can draw against, repay, and draw again. Interest accrues only on the outstanding balance, which makes it the natural tool for cash-flow smoothing rather than a single big purchase.

What it costs: Interest on drawn amounts, sometimes with a small draw or maintenance fee. Bank lines are cheaper; online lines are faster and easier to qualify for at higher cost.

What underwriting wants: Consistent revenue and reasonable credit. Online providers weigh recent cash flow heavily and can approve businesses banks would decline.

Speed: Bank lines take weeks; online lines can be set up in days, then draws hit your account fast.

Works best when you face recurring or unpredictable gaps — payroll timing, inventory restocks, bridging a slow month — and want a standing buffer you only pay for when used. Avoid when you'll carry a large balance long-term; for a big fixed purchase, a term loan's structure is usually cheaper.

4. Revenue-based financing and merchant cash advances — funded on deposits, not credit

Revenue-based financing advances you a lump sum in exchange for a fixed amount repaid from a percentage of your future sales. A merchant cash advance (MCA) is the card-sales version of the same idea. Repayment is collected daily or weekly as a share of receipts, so it rises when sales are strong and eases when they slow. This is the product built for businesses that live on cash flow, not credit scores.

What it costs: Priced as a factor on the advance rather than an APR, and it sits above bank products — that's the trade for speed and access. The right way to evaluate it is against the return on what the money unlocks and against the daily or weekly cash-flow hit, not against a rate you can't actually qualify for.

What underwriting wants: This is the key difference. Approval leans on bank deposits and revenue over personal credit. Through a revenue-based marketplace, funding typically starts around $10,000, credit as low as roughly FICO 500+ can qualify, and money can land in 24 to 48 hours. No outcome is ever guaranteed — offers depend on your actual deposit history and revenue.

Speed: Fastest of the six. Bank statements in, decision back same day in many cases, funding next.

Works best when you have steady daily or weekly revenue, need money fast, and can't wait on (or won't clear) bank underwriting — covering a time-sensitive opportunity, an urgent repair, a short inventory run before a busy season. Because repayment flexes with sales, it fits businesses with uneven months. Avoid when your margins are razor-thin, your revenue is lumpy with long dry spells, or you're tempted to stack multiple advances — that's where cash flow gets squeezed. Used deliberately, on a need that pays for itself quickly, it's the tool that gets capital working while slower options are still reading your tax returns.

5. Equipment financing — the asset secures the loan

Equipment financing funds a specific machine, vehicle, or piece of gear, and the equipment itself serves as collateral. Because the lender can repossess the asset, approval is often easier than for unsecured borrowing, and the loan term is typically matched to the equipment's useful life.

What it costs: Moderate and usually reasonable, since the collateral lowers lender risk. Many deals finance most or all of the purchase price, though a down payment may apply.

What underwriting wants: A quote or invoice for the equipment, plus credit and revenue review — but the asset does a lot of the work, so criteria are friendlier than for a general term loan.

Speed: Often a few days, since the collateral is well-defined.

Works best when the need is a physical asset that generates or supports revenue — a delivery van, an oven, a CNC machine. Avoid when you need general working capital; you can't finance payroll or marketing this way, and financing gear you'll outgrow quickly can leave you paying for a depreciated asset.

6. Invoice factoring — turn unpaid invoices into cash now

Invoice factoring sells your outstanding B2B invoices to a factor at a discount in exchange for most of the cash immediately, with the remainder (minus a fee) released when your customer pays. It isn't a loan — it's an advance against money you're already owed, so it doesn't add a fixed monthly payment.

What it costs: A factoring fee scaled to how long the invoice takes to get paid. Cost is driven less by your credit than by your customers' creditworthiness.

What underwriting wants: Creditworthy business customers and clean, verifiable invoices. Your own credit matters less than who owes you.

Speed: Fast — often a day or two once the facility is set up.

Works best when you invoice other businesses on net-30/60/90 terms and the gap between doing the work and getting paid is choking your cash flow. Avoid when you sell to consumers, invoice volume is small, or you don't want a factor interacting with your customers on collections.

Decision framework: match the financing type to the job

Underwriters don't ask "what's the best loan?" They ask "what's the job, how fast, and what can this business qualify for?" Run your situation through these:

• Need it in 24-48 hours and get approved on revenue, not credit? Revenue-based financing / MCA marketplace. Fits FICO 500+, from ~$10,000, funded on bank deposits.
• Big, long-horizon purchase and you have time + clean books? SBA loan or bank term loan.
• Recurring or unpredictable gaps? Line of credit — pay only for what you draw.
• Buying a specific machine or vehicle? Equipment financing, secured by the asset.
• Cash tied up in unpaid B2B invoices? Invoice factoring.
• One-time defined project with predictable payoff? Term loan.

Choose slow-and-cheap (SBA, bank term) if you can wait weeks, your credit and financials are strong, and the need is large and long-term. Choose fast-and-flexible (revenue-based, line of credit, factoring) if speed decides the outcome, approval has to come from cash flow rather than a credit file, or repayment needs to breathe with uneven sales. The most expensive financing is the one you couldn't get in time — or couldn't qualify for at all.

Example comparison (illustrative)

The scenario below uses for-example figures to show how the six types differ in shape, not exact quotes. Your actual terms depend on your revenue, credit, and lender.

Notice the pattern: the products that underwrite you are cheaper and slower; the products that underwrite your cash flow or assets are faster and more accessible. Neither column is "better" — they solve different problems.