10 Types of Business Loans: Compare Financing
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Different types of business loans are designed to meet specific financing needs.
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The most common types of business loans include term loans, SBA loans and business lines of credit.
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The rates and terms you receive will depend on the type of business loan, the lender and your qualifications.
The right type of small-business loan for your business will depend on variables like what you qualify for, when you need the money and what you need it for. Exact loan terms, rates and qualifications will vary by lender.
Here are the 10 most popular types of business loans.
We’ll start with a brief questionnaire to better understand the unique
needs of your business.
Once we uncover your personalized matches, our team will consult you
on the process moving forward.
Best for:
Term loans can be one of the most inexpensive types of small-business loans; however, qualifying for the best rates and terms can be difficult. Banks, which usually offer the lowest rates, usually require at least two years in business, for example, and a good credit score (between 690-719). Online lenders are typically more lenient with their qualifications, but often offer higher rates than banks.
Pros
Get cash upfront to invest in your business.
Fixed monthly payments offer stability to help you improve cash flow and grow your business over time.
May allow you to borrow a higher amount than other types of small-business loans.
Cons
If you want the lowest rates and longest terms, term loans may be difficult to qualify for.
May require a personal guarantee or other collateral.
Costs can vary; term loans from online lenders typically carry higher costs than those from traditional banks.
Best for:
Pros
Loan amounts up to $5 million.
Cons
Long and rigorous application process.
3. Business lines of credit
Best for:
Business lines of credit can provide more flexibility than term loans. They are typically unsecured, but can require good credit and business financials to qualify.
Pros
Revolving access to funds.
Typically unsecured, so no collateral required.
Cons
May carry additional costs, such as maintenance fees and draw fees.
Good credit and revenue may be required.
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Est. APR 14.00-95.00% |
Est. APR 35.00-99.00% |
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Min. credit score 625 |
Min. credit score 625 |
Best for:
Microloans are typically used for working capital to start small businesses or help them grow. They can also be beneficial for borrowers who are having trouble qualifying for bank loans, though rates are usually higher than bank loans.
Pros
Typically offered by small lenders who provide other services, such as consulting and training.
Accessible to borrowers facing credit challenges, or other barriers to bank loans.
Cons
Rates are typically higher than traditional bank loans.
Microlenders can be tricky to find.
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Best for:
Generally, equipment financing can be easier to qualify for than term loans because the equipment itself will serve as collateral to secure the loan. Your exact rates and terms, however, will still be dependent on your business financials and personal credit history.
Pros
Equipment being purchased serves as collateral for the loan.
Equipment lenders may understand nuances of financing large equipment as opposed to traditional small-business lenders.
Cons
Some equipment lenders require a down payment.
Equipment may depreciate faster than the length of your financing.
Best for:
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Businesses with unpaid invoices that need fast cash.
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Businesses with reliable customers on long payment terms (30, 60 or 90 days).
Invoice factoring can be helpful to cover gaps in cash flow for the purchase of inventory or paying for labor; however, it does require you to relinquish control of your invoices, and factoring companies may be required to probe your customers about their personal credit and business financials. Funding is usually fast, but it can be expensive.
Pros
Fast cash for your business.
Easier approval than traditional funding options.
Cons
Costly compared with other options.
You lose control over the collection of your invoices.
Best for:
Pros
You retain control over your invoices and customers (unlike invoice factoring).
Cons
Can trap you in a cycle of borrowing.
8. Merchant cash advances
Best for:
Repayment can be daily, weekly or monthly as either a fixed debit from your business bank account or as a percentage of your sales revenue. With the latter, your payment will fluctuate depending on how much money your business is bringing in.
Approval for an MCA is based on your business’s revenue rather than your personal credit or available collateral; however, it is one of the most expensive forms of business financing, with APRs that can reach triple digits. It is usually recommended to look for other types of small-business loans before turning to an MCA.
Cons
Very expensive type of small-business loan.
Frequent repayments can create cash flow problems.
9. Personal loans for business
Best for:
Depending on your credit history, personal finances and personal assets, personal loans can carry some of the most affordable rates and terms. It may be difficult to qualify for the amount you need, however, as a standard business term loan typically goes higher than a personal one.
Pros
Startups and newer businesses can qualify.
Cons
Small borrowing amounts of up to $50,000.
Failure to repay can hurt your personal credit.
10. Business credit cards
Best for:
Business credit cards are typically unsecured, meaning they do not require collateral, but they can be expensive if you’re not paying the balance off every month. Rewards will vary based on the credit card you get, so make sure you factor that into your decision, especially if you plan on using the card a lot.
Pros
Earn rewards on your purchases.
Revolving access to funds.
Cons
High cost, with a variable rate that may rise.
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