Types of Small Business Loans
The small business lending market has several distinct product types. Picking the wrong one leaves you paying more than necessary, or shut out of capital when you need it. Knowing the categories tells you which financing structure fits your real situation.
Term loans give you a lump sum that you repay over a fixed period, usually two to ten years. They work well for capital investments like equipment, buildouts, or expansion projects where the return shows up over time. Traditional bank term loans and SBA loans are the most common forms.
Business lines of credit work like a credit card for your business. You draw down when you need it, repay what you use, and the available balance restores. Lines of credit are best for managing cash flow swings, bridging accounts receivable gaps, or handling seasonal inventory.
Equipment financing uses the equipment itself as collateral, which lets lenders offer better terms than unsecured loans. Lenders will typically finance 80% to 100% of the equipment’s value. Good for businesses that need machinery, vehicles, technology, or commercial kitchen equipment.
Invoice financing and factoring let businesses unlock cash tied up in outstanding invoices. Factoring companies advance 70% to 90% of an invoice’s value right away and collect from your customers directly, keeping a fee. Invoice financing advances against the invoice but leaves collection with your business.
Best Lenders for Small Business Loans
If you qualify, SBA loans through major banks (JPMorgan Chase, Wells Fargo, Live Oak Bank) offer the best terms in the market. Live Oak Bank is consistently one of the highest-volume SBA lenders nationally and has a streamlined process for SBA 7(a) and 504 loans.
For online lending, Bluevine offers business lines of credit up to $250,000 and term loans at competitive rates, with an application that can return a decision in as little as 24 hours. Fundbox and Kabbage (now part of American Express Business) offer smaller lines of credit with faster approval for businesses with at least six months of operating history.
OnDeck Capital writes short-term business loans and lines of credit for businesses with at least one year of operation and $100,000 in annual revenue. Rates run higher than bank products but lower than many alternative lenders, and it is known for fast funding when time is the constraint.
Build Business Credit Before You Apply
Business credit is separate from personal credit. It is tracked by agencies including Dun and Bradstreet (Paydex score), Experian Business, and Equifax Business. Many small business owners ignore their business credit profile, which limits financing options and bumps up rates.
Building business credit starts with registering your business with the appropriate state authority, getting an EIN, opening a business bank account, and setting up trade credit relationships (net-30 accounts) with suppliers who report to business credit bureaus. After six to twelve months of consistent payments on trade credit accounts, your business credit score will be meaningfully established.
Strong business credit opens better loan terms, higher credit limits, and sometimes the ability to borrow without a personal guarantee. That last one matters a lot. Real protection for the owner’s personal assets.