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8 types of business loans

And how to choose the right one for your business's needs.

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The term business loan might bring to mind money that your company borrows and repays plus interest and fees over several years. But in reality, there are several types of business loans and financing. Which option is best for you depends on your business and its needs.

8 types of business loans

8 types of business loans

Loan typeBest for …How it worksTypical loan amountTypical cost
Term loanCovering a large, one-time expenseBorrow a lump sum and pay it back plus interest and fees in fixed installments, usually between 5 and 20 years.$5,000 to $5 million4% to 99% APR
Line of creditWorking capitalGet access to a specific amount of funds, which your business draws from as needed.$5,000 to $5 million8% to 80% APRRead more
SBA loanLarge amounts of funding for nontraditional businesses and startupsApply for a term loan, line of credit, commercial loan and more, partly backed by the Small Business Administration (SBA).$5,000 to $5 millionUp to 10.25% APRRead more
Equipment financingBuying new equipmentBorrow up to 100% of your equipment cost and pay it back in installments, plus interest and fees. Your equipment is often used as collateral.85% to 100% of the equipment’s value8% to 30% APRRead more
Vehicle financingBuying a car, truck or other type of vehicleTake out a fixed-term loan to cover the cost of new vehicles for business use, usually using the vehicles as collateral.80% to 100% of the vehicle’s value8% to 30% APRRead more
Invoice factoringGetting an advance on unpaid invoicesSell your business’s unpaid invoices to a third party at a discount.80% to 95% of your invoices’ value up frontDiscount rate of 0.5% to 6% of your invoices’ valueRead more
Invoice financingBorrowing against unpaid invoicesTake out a term loan backed by your business’s unpaid invoices.80% of your invoices’ valueFee of 2% to 5% of your invoices’ valueRead more
Merchant cash advanceAccessing future revenue from consumer salesGet an advance on your future sales and pay it back plus a fee with a percentage of your daily revenue.$2,500 to $1 millionFee of 1.1 to 3 times your advance amountRead more

How can I choose the right type of business loan?

Ask yourself the following questions if you’re not sure what type of business loan is right for you:

Why does my business need a loan?

First, identify what your business needs to fund. Do you want to buy or lease real estate to make room for new hires? Do you need more equipment to up production? Are you looking for working capital to cover overhead costs? Use this to rule out lenders that don’t offer financing for that particular need.

How much do I need to borrow?

Calculate the total amount you need to borrow and use this to rule out types of loans with a typical range that doesn’t accommodate your needs. For example, if you just need a few thousand dollars, you might want to consider some term loans and microloans rather than an SBA loan.

Can’t predict the cost? You might want to consider a line of credit.

What type of loan can my business qualify for?

Some types of business loans are easier to qualify for than others. For example, merchant cash advances have a much higher approval rate than a traditional term loan. Some are also designed for specific industries. You likely won’t be able to qualify for invoice factoring if you’re in retail, since you likely don’t have a backlog of unpaid invoices from government organizations or other businesses.

What are my priorities?

Do you need money right away? Do you have the time and resources for a lengthy application? Is cost your top concern? List your top three priorities and use that criteria to pick your business loan type and start comparing lenders.

Compare business loans

Data indicated here is updated regularly
Name Product Filter Values Loan amount APR Requirements
First Down Funding business loans
$4,000 – $300,000
5.49% to 22.79%
At least 1 year in business, an annual revenue of $100,000+, and a minimum credit score of 300
Alternative financing up to $300K with highly competitive rates.
Lendio business loans
$500 – $5,000,000
Starting at 6%
Operate business in US or Canada, have a business bank account, 560+ personal credit score
Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
Fundera business loans
$2,500 – $5,000,000
7% to 30%
$300,000+ of annual revenue, 680+ personal credit score, in business for 3+ years
Get connected with short-term funding, SBA loans, lines of credit and more.
Kickpay e-commerce business loans
$20,000 – $1,000,000
Not applicable
At least $250,000 in the past 12 months of revenue, e-commerce business, use a 3rd party fulfillment center for storing and shipping inventory, at least one US location.
Get a loan for your e-commerce business based on your sales history.
Credibly business loans
$5,000 – $250,000
6+ months in business, $180K annual business revenue, 500+ credit $15K+ in monthly deposits
Funding to cover business expenses with daily or weekly repayments.
SmartBiz business loans
$30,000 – $5,000,000
4.75% to 7.00%
650+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years
Get funding for your small business with a government-backed loan and extended repayment terms.
LendingClub business loans
$5,000 – $500,000
9.77% to 35.98%
12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better
With loan terms that vary from 1 to 5 years, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
Monevo business loans
$500 – $100,000
3.99% to 35.99%
Credit score of 500+, legal US resident and ages 18+.
Use this connection service to get paired with a loan you can use for business.
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Bottom line

Term loans and lines of credit might be the most popular types of business financing. But they might not be the right option for your business. Considering your priorities and what you need to use the funds for can help you find the right type of financing for your business.

You can learn more about how it all works by reading our guide to business loans.

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