Types of Business Loans Explained
There is no single 'best' business loan. The right product depends on how fast you need cash, how you'll use it, and how you want to repay. Here are the main types of business loans and when each one makes sense.
Why product type matters
Choosing the wrong loan type is one of the most expensive mistakes a business owner can make. A line of credit used for long-term growth, or a term loan used for short-term cash flow, both create unnecessary cost and stress.
Below is a plain-English breakdown of the most common business loan types, who they fit, and when to use them.
The main types of business loans
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1
Business Line of Credit
Revolving access to capital you draw from as needed. You only pay interest on what you use. Best for ongoing cash flow management.
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2
Term Loan
A lump sum repaid over a fixed schedule. Best for one-time investments like expansion, equipment, or hiring.
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3
Working Capital Loan
Short-term funding to cover operational expenses like payroll, rent, and inventory.
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4
Equipment Financing
Loan or lease used specifically to acquire equipment. The equipment itself usually serves as collateral.
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5
Revenue-Based Financing
An advance repaid as a percentage of future revenue. Best for revenue-strong businesses with seasonal swings.
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6
SBA Loan
Government-backed loans with low rates and long terms, but slow to approve and document-heavy.
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Line of credit vs. term loan, at a glance
Line of Credit
Term Loan
Frequently asked
Common questions about types of business loans explained
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