Term Loans: The Traditional Choice

Term loans give you a big amount of money upfront and require fixed monthly payments over a set time, usually one to ten years. The interest rate can be between 6% and 30%, depending on your credit and collateral.  

Best For: Established businesses with good credit that want money to grow, buy equipment, or make big investments. It’s good when you need a lot of funds and can make regular payments.  

Avoid If: You’re a new business without steady income, need flexible access to money, or have seasonal cash flow that makes fixed payments hard.

SBA Loans: Government-Backed Financing

Small Business Administration (SBA) loans are loans backed by the government, which makes lenders more willing to lend. The popular 7(a) loan can give up to $5 million for general business needs. The 504 loan is for buying real estate or equipment and offers long-term, fixed rates.  

Best For: Businesses that meet SBA rules and can wait 30-90 days for approval. It’s great for startups, buying property, or needing lower down payments and longer repayment periods.  

Avoid If: You need money quickly, don’t qualify for SBA loans, or your business is in restricted industries like gambling or lending.

Equipment Financing: Asset-Backed Solutions

Equipment loans are used to buy machines, vehicles, or technology. The equipment itself acts as collateral, and you can usually finance most of the cost with good interest rates.  

Best For: Businesses that need important equipment that will help make money to pay back the loan. Examples include construction companies purchasing machinery, restaurants purchasing kitchen items, and transportation companies purchasing vehicles.  

Avoid If: You need money for everyday expenses, the equipment loses value quickly, or you want to own the equipment without debt.

Lines of Credit: Flexible Financing

Business lines of credit are like credit cards. They give you access to money up to a set limit. You only pay interest on money that you really spend.   

Best For: Handling cash flow problems, seasonal businesses, unexpected costs, or new opportunities. They are good for businesses whose money needs change often.  

Avoid If: You need a large amount of money at once, might spend too much, or want fixed, predictable payments.

Invoice Financing: Cash Flow Solutions

Invoice financing lets you turn your unpaid customer invoices into cash quickly. You get about 80-90% of the invoice amount upfront, and the rest is paid when customers settle their bills, minus fees.  

Best For: B2B companies with customers who pay slowly, good customer credit, and immediate cash needs. Service businesses, wholesalers, and contractors often use this.  

Avoid If: You mainly sell to consumers, have customers who don’t pay on time, or your invoices are very small, making fees too high to be worth it.

Working Capital Loans: Short-Term Solutions

Short-term loans help with urgent business needs like buying inventory, paying employees, or covering seasonal costs. They usually last from three months to two years and get approved faster than regular loans.  

Best For: Businesses with short-term cash problems, seasonal businesses needing inventory money, or companies with time-sensitive opportunities.  

Avoid If: You need a long-term loan, want to pay less in interest, or have ongoing cash flow problems that last a long time.

Merchant Cash Advances: Quick but Expensive

MCAs give you upfront cash by taking a small percentage of your future credit card sales. They are quick and easy to get, but also one of the most expensive ways to borrow money.  

Best For: Businesses that have steady credit card sales, need quick funding, and can't get traditional loans. Restaurants, retail stores, and service businesses often use MCAs.  

Avoid If: You can get a regular loan, your sales are irregular, or you want to pay less in fees.

Revenue-Based Financing: Performance-Linked Payments

This new option gives you money now and takes a percentage of your future income until you pay back a set amount. Payments vary according to how well your firm does.  

Best For: Growing businesses with steady income, software companies, or those who like paying based on performance instead of fixed payments.  

Avoid If: Your income is unpredictable, you want fixed payments, or your profit margins can't handle percentage-based payments.

Making the Right Choice

Choosing the right loan depends on your business's age, credit, cash flow, and needs. Pick loan terms that match your business cycle—seasonal businesses may need flexible options, while established companies can handle fixed payments. Always look at the total cost, not just the interest rate, and make sure monthly payments are affordable for your cash flow. The right loan should help your business grow without causing financial stress.