Types of Business Loans: A Quick Overview

November 10, 2021 EC Funding

Small businesses contribute to our economy.

They help the unemployed find jobs and help make dreams come true. If you’re a small business owner, congratulations! You’re on the journey to the exciting experience of entrepreneurship.

Is it coming to the point where you need to take out a loan?

Whether you’re running low on finances, loans help businesses get to their feet while revenue increases. There are so many types of business loans — which one is right for you?

This guide explains all types of business loans so you know which one is right for you.

SBA Loan

A small business administration (SBA) loan is the most common and most popular types of business loans. An SBA loan helps you take a lot of money.

Since the only requirements fall within the ‘small business’ category, almost any small business owner can take an SBA loan.

This flexibility helps you use your loan for a variety of reasons: purchase updated company equipment, pay off debt, acquire other new products for your business, and even use it as your working capital.

The average amount a business can receive is about $5 million.

You also receive a lot of time to pay it off — anywhere between 7-25 years. SBA loans also come with low-interest rates, so they’re affordable.

Keep in mind it’s hard to qualify for an SBA loan. You need collateral, good credit, and you need to provide your business plan. You also need to submit a lengthy application and provide a myriad of documents.

Equipment Financing

Are you having difficulties paying for business equipment out of pocket? Just finance your equipment. An equipment financing plan will help cover necessary expenses.

These include specialized computers and other equipment that’s necessary to your business.

Depending on the lender, they can offer a loan based on the full price of the equipment you’re purchasing. Your rates also depend on the strength of your business.

If your business is successful and your credit is good, you’ll receive an even better rate.

However, be prepared for a down payment.

The issue with these loans is your equipment may become outdated. You’ll need better equipment but you’ll have your financing burden. Be sure you take this loan knowing there’s a slim chance your equipment will be outdated.

Short-Term Loan

Do you need money fast? Emergencies come up with every business.

If this is the case, a short-term loan is your best bet. You can get around $150,000 much quicker than you would any other loan. It’s so quick, you can usually get your money in 24 hours.

The reason behind this ‘quick money’ loan is the amount you receive is technically smaller than a traditional loan.

The only downside is you have to quickly pay off the loan. The time period to pay off the loan is between 2 weeks and 12 months. For those you don’t have quick access to 150k, this option may not be the best decision.

Personal Loan for Business

Looking at the dollar amounts on these loans might be intimidating. Maybe you want a simple loan for a small purchase or to ensure you have enough money in the bank. You can take a personal loan but specifically use it for your business.

This is also perfect for business owners who need a loan but don’t have a lot of capital. If your capital is under $35,000 then this is the loan you should take.

Term Loans

With a term loan, you receive a lump sum that you pay back with interest. With a term loan, you receive the cash upfront. This is why term loans are one of the most common types of business loans.

You’re usually given a specific term to pay off this loan. These are easy to acquire from a bank or a lender; however, you’ll get the money faster through a lender — it usually takes a few days or a week to receive your loan.

You can even manage a low-cost loan that you pay off for a longer period.

Term loans are flexible and you receive cash immediately. This loan works for small businesses and businesses that need some extra cash. You’ll get your cash immediately and if you have good credit, the stakes are low.

Business Line of Credit

This loan works within your credit limit. You receive a loan worth your maximum credit line. You only pay interest on the money you’ve drawn. This makes this loan affordable, especially for new business owners.

You also have flexibility when paying your loan off. Like a credit card, you can pay in full or make small monthly payments. Another reason why this loan is perfect for small business owners is it’s unsecured. This means no collateral is required.

Keep in mind additional fees may be required, such as maintenance fees and draw fees.

You also need great credit and a decent revenue stream. If your business doesn’t have much revenue coming in, it might be an issue getting approved unless you use your personal finances.

This is still a great option for small businesses or those who have unexpected expenses.

Now You Know the Different Types of Business Loans

When deciding which business loan to take, there are multiple factors to consider. The loan you take depends on your revenue, how fast you need money, what you’re using it for, and your credit.

The sanctity of your business relies on available funding. Fortunately, you have a lot of loan options. Many of these business loans have flexible paying options and terms. Some even work with your line of credit.

You should have no problem finding a business loan that works for your needs.


If you have any questions on how Working Capital can help your cash flow or to learn more, please give us a call at 888-513-9937.