Types of Small Business Loans and How to Choose One

The main types of small business loans are SBA loans, bank and online term loans, business lines of credit, equipment financing, invoice financing or factoring, commercial real estate loans, and revenue-based funding (including merchant cash advances) — and the right one is decided less by interest rate than by how fast you need the money, what you're spending it on, and whether your credit or your cash flow is your stronger qualifier. As a rule that holds up in underwriting: slow, cheap capital (SBA and bank loans) rewards strong credit and patience; fast, flexible capital (lines of credit and revenue-based funding) rewards strong, steady deposits. Below we walk through each product the way a funder evaluates it, show a side-by-side example table, and give you a decision framework — including when each option works best and when to avoid it.

The two questions that decide almost everything

Before comparing products, answer two questions honestly. They narrow the field faster than any rate table.

1. What is the money for, and does the spend outlive the loan? Financing a delivery van or a build-out (assets that produce revenue for years) can support a longer-term, amortizing loan. Covering a seasonal inventory buy, a payroll gap, or a same-week opportunity is short-term by nature and should be matched to a short-term product you can repay out of the sales it generates.

2. Is your file stronger on credit or on cash flow? Banks and the SBA lead with credit history, time in business, collateral, and tax returns. Revenue-based and cash-flow lenders lead with your bank deposits and monthly revenue. A business with a 640 FICO but $60,000 in clean monthly deposits will often get further, faster, with a cash-flow lender than a bank — and vice versa. Knowing which door you qualify at saves weeks of dead-end applications.

Everything below maps back to these two questions. For a deeper walkthrough of how lenders read a file, see our complete business funding guide.

SBA loans — the lowest cost, the longest wait

SBA loans (chiefly the 7(a) and 504 programs) are bank loans partially guaranteed by the U.S. Small Business Administration, which is why they carry some of the lowest rates and longest terms available to small businesses — often multi-year repayment on working capital and even longer on real estate. That government backing is also why they're the slowest and most paperwork-heavy option: expect tax returns, financial statements, a business plan or use-of-funds, personal guarantees, and frequently collateral.

Works best when: you have solid credit (generally 650+), at least two years in business, clean books, and a spend that justifies a large, long-term loan — buying real estate, a major expansion, or a business acquisition — and you can wait weeks to a couple of months to close.

Avoid when: you need money this week, your books are messy, or the amount is small enough that the paperwork burden isn't worth it. An urgent opportunity does not survive an SBA timeline.

Term loans and business lines of credit — the everyday workhorses

A term loan is a lump sum repaid over a set schedule — the classic "borrow $X, pay it back over Y months." Bank term loans are cheaper and stricter; online term loans are faster and more forgiving on credit but priced for that speed. Term loans fit one-time, defined expenses: a renovation, a bulk equipment purchase, a marketing push with a clear payback.

A business line of credit is a revolving limit you draw from as needed and only pay for what you use — like a credit card without the card. It's the single most flexible tool for managing timing gaps: cover payroll before receivables land, buy inventory ahead of a busy season, then pay it down and reuse it. Lines reward businesses with steady, provable revenue.

Works best when: term loans for a known, one-time cost with a clear return; lines of credit for recurring, unpredictable cash-flow gaps where you want capital on standby.

Avoid when: you'd use a term loan to plug a chronic shortfall (that's a revenue problem, not a financing one), or you'd treat a line of credit as permanent working capital and never pay it down.

Equipment financing and invoice financing — purpose-built products

Equipment financing uses the equipment itself as collateral, so approval leans on the asset's value rather than only your credit — often making it easier to qualify for than an unsecured loan. If the machine, vehicle, or oven is a revenue-producing asset, financing it and paying it off out of the income it generates is textbook matching of the loan to the spend.

Invoice financing and factoring turn unpaid B2B invoices into cash now. In financing, you borrow against the invoices; in factoring, you sell them at a discount and the factor collects. Either way it solves the specific pain of long net-30/60/90 terms strangling a profitable business. It only exists if you invoice other businesses — it does nothing for a cash-and-card retailer.

Works best when: equipment financing for a durable asset you'll use for years; invoice products for a B2B business whose cash is trapped in receivables.

Avoid when: the equipment will be obsolete before it's paid off, or (for factoring) your margins are too thin to absorb the discount and your customers' credit is shaky.

Revenue-based funding and merchant cash advances — speed on cash flow, not credit

Revenue-based funding advances you working capital that you repay as a fixed small percentage of your daily or weekly sales, or as a set periodic remittance tied to revenue. A merchant cash advance (MCA) is the card-sales version of the same idea. The defining trait is that approval is driven by your bank deposits and revenue, not your credit score — which is why it reaches businesses banks turn away and why funding can land in as little as 24 to 48 hours.

Through a revenue-based marketplace like ours, a single application is matched against multiple funders who underwrite on your actual deposit activity. Typical parameters we work with: a minimum around $10,000, FICO 500+ accepted, and 24 to 48 hour turnaround once bank statements are in. Because repayment flexes with sales, it breathes with a seasonal or uneven business in a way a fixed bank payment does not. Nothing here is ever guaranteed — every file is underwritten on its own deposits — but the bar is set at cash flow, not credit history.

The trade-off is honest and worth stating plainly: this is faster and more accessible capital, and it is priced for that speed and access. It is short-term working capital, not a cheap long-term loan, and it should be used where speed or approval — not the lowest possible rate — is the deciding factor.

Works best when: you have strong, steady deposits but imperfect credit; you need funds in days, not weeks; the use is a fast-return move (inventory for a confirmed order, a time-boxed opportunity, an urgent repair); and repayment that scales with sales protects your cash flow. See how it stacks up against alternatives in our funding guide.

Avoid when: your margins are too thin to comfortably carry a revenue-share remittance, your deposits are erratic or heavily seasonal to the point of drying up, or you're trying to finance a long-lived asset that really belongs on a multi-year term or equipment loan.

Side-by-side: matching the product to the situation

The figures below are illustrative for example ranges to show relative fit and speed — not quotes. Actual terms depend entirely on your file.

A decision framework you can run in five minutes

Walk down this list in order and stop at the first honest "yes."

1. Buying real estate or acquiring a business, and you can wait? Start with an SBA or commercial real estate loan — the lowest cost fits the largest, longest spend.
2. Buying a specific piece of equipment? Use equipment financing so the asset secures the loan and pays for itself.
3. B2B with cash stuck in unpaid invoices? Invoice financing or factoring frees exactly that cash.
4. Strong credit, clean books, a defined one-time cost, and a few weeks to spare? A bank or online term loan is your cheapest fit.
5. Recurring, unpredictable timing gaps and steady revenue? A line of credit gives you flexible capital on standby.
6. Imperfect credit but strong, steady deposits, and you need money in days? Revenue-based funding or an MCA qualifies you on cash flow and funds fastest.

Two guardrails on top of the framework. First, match the term to the spend: don't finance a five-year asset with a 60-day product, and don't tie up long-term capital in a quick-turn inventory buy. Second, never borrow to cover a hole that a healthier month wouldn't also cover — if the business can't service the payment out of the revenue the loan helps produce, the answer isn't a different loan, it's a different plan.