Business Loan Types: Compare Financing Options

Compare business loan types, startup eligibility and repayment terms, from equipment financing and credit lines to bank and SBA loans.

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Compare business loans and other financing

Term loans provide a lump sum; credit lines let you draw as needed. Equipment financing pays for a specific asset. Factoring sells invoices, while a merchant cash advance sells future receivables. Savings and grants are also shown below, but they are not loans.

Rates and minimums are left out of this table because they differ by lender and change often. Each type links to its details below.

Choose your business stage

Already know what the money is for, like equipment, payroll or a second crew? Our small business funding guide is organized by what the money pays for and helps you work out how much you need. This guide compares financing types and then explains how business stage affects your options.

By what you need the money for:

• A truck, van, mower or oven: equipment financing. For large, long-life equipment, also SBA 7(a) or SBA 504.
• Waiting on business customers to pay invoices: invoice factoring or a line of credit.
• Buying a business someone else built: acquisition financing, most often SBA 7(a).
• Buying or building your own space: SBA 504 or SBA 7(a).
• Adding a crew, a location or a second truck: expanding a business you already run.

How repayment works, in plain words

Three things change what a loan really costs you. Ask about all three before you sign.

• APR versus factor rate. An APR is a yearly cost that includes interest and many fees. A factor rate is a multiplier: borrow $10,000 at a factor rate of 1.2 and you owe $12,000. Paying early does not lower that total unless your contract gives an early-payoff discount. Some do: Fora Financial’s FAQ says its early payback provisions can bring its rate down to as little as 1.05. Fees, like an origination fee, can be charged on top, so ask for the total payback, all fees and the payoff terms in writing. The Federal Reserve says a factor rate is not comparable to an APR. It cites one analysis where a factor rate of 1.15 worked out to an estimated APR of about 70 percent.
• How often payments come out. Bank and SBA loans are usually paid monthly. Some other products take money out of your bank account every business day or every week. Make sure your slow weeks can cover it.
• Who is on the hook. Many business loans and most business credit cards ask for a personal guarantee. That means you personally owe the debt if the business cannot pay.

Federal truth-in-lending disclosure rules for consumer loans do not apply to small business credit, according to the Federal Reserve, so offers can quote prices in different ways. Our funding guide has a short list of what to get in writing before you accept an offer.

Stage 1: Not open yet, or no sales yet

A lender cannot look at sales you do not have yet, so it looks at you instead. The SBA says loan eligibility for a new business is typically based on the owner’s personal credit score. Have a simple plan ready: what you will sell, what it costs to open, and what you expect to bring in each month.

An SBA 7(a) loan is possible before you open, because the SBA lists starting a business as an allowed use. A bank or other SBA lender makes the decision, and many want a track record, so a startup may need to ask more than one lender. The SBA’s free Lender Match tool can connect you with lenders that make SBA loans.

Your own savings, or friends and family

• What it is: Money from your own savings, or a loan or gift from people you know. The SBA calls this self-funding.
• Who can use it: Anyone. There is no credit check, and you keep full control. You also carry all the risk.
• How repayment works: Whatever you agree to. Put a family loan in writing: the amount, the payments, and what happens if the business closes.
• Bad fit when: It would use money you need for rent, food or retirement. The SBA warns that taking money out of a retirement account early can mean fees and penalties.

SBA microloan

• What it is: A loan of up to $50,000 from a nonprofit community lender that gets its funds from the SBA. The SBA says the average microloan is about $13,000.
• Who usually qualifies: A small, for-profit U.S. business that is not an ineligible type. Each lender makes its own decision and sets its own terms, so ask directly whether it lends to businesses that have not opened yet. Many of these lenders also offer business coaching.
• How repayment works: Regular payments over a set term. The SBA lists a maximum term of seven years, with interest rates generally between 8% and 13%.
• Bad fit when: You need more than $50,000, or you want to pay off old debts or buy real estate. Microloan money cannot be used for either.

Find a lender on the SBA’s list of microloan lenders by state.

CDFI loan (community lender)

• What it is: CDFIs are community lenders certified by the U.S. Treasury’s CDFI Fund. They include loan funds, community banks and credit unions, and there are certified CDFIs in all 50 states.
• Who usually qualifies: It depends on the lender. The Federal Reserve notes that some CDFIs lend to small businesses that may not qualify at a bank or credit union. In its 2023 survey, only 6% of businesses that applied for credit went to a CDFI, and 88% of those got at least some of what they asked for.
• How repayment works: Each CDFI sets its own rate, term and payment schedule. Ask for all three in writing.
• Bad fit when: You are outside the area or the group the lender serves. Some CDFIs only serve their own city or town, while others cover a whole state.

Search the Minneapolis Fed’s CDFI finder by ZIP code, or the CDFI Fund’s list of certified CDFIs.

Equipment financing

• What it is: A loan or lease to buy one specific thing, like a food truck, a work van, a commercial mower or an oven.
• Who usually qualifies: The OCC, a federal bank regulator, says equipment financing is open to start-ups as well as established businesses because the equipment itself secures the loan. Your credit and the item still matter.
• How repayment works: Set payments over a set term. Ask whether it is a loan (you own the item) or a lease (you may have to return it or buy it at the end).
• Bad fit when: The item will not earn money soon. Payments start on schedule whether the truck is busy or not, and the lender can take the equipment back if you stop paying.

See our startup guides for food trucks, HVAC and landscaping for typical equipment lists.

Business credit card

• What it is: A credit card for everyday business costs like supplies, fuel and software.
• Who usually qualifies: A 2010 Federal Reserve report to Congress says small business cards typically carry a personal guarantee. When the business has little history, the card company relies mostly on your personal credit.
• How repayment works: A monthly bill, with interest on any balance you carry. The same report says most of the Truth in Lending Act protections for personal cards do not apply to business cards. Protections against cards you never asked for and unauthorized use still apply.
• Bad fit when: You plan to pay off a large purchase slowly over many months. Interest on a balance you carry adds up.

Grants (only the real ones)

• What it is: Money you do not pay back. Real grants are rare and tied to a specific purpose.
• Who usually qualifies: The SBA says plainly that it does not provide grants for starting and expanding a business. Its grants go to research and development work (the SBIR and STTR programs), to exporting through state programs, and to groups that train owners.
• How repayment works: None, but you must follow the grant’s rules and report how you spent it.
• Bad fit when: Your opening date depends on winning one. The FTC warns that offers of free money from government grants are scams. It says no government agency will contact you to demand a fee for a grant, and real grants require an application.

Search real federal grants on Grants.gov. Child care providers should also check state subsidy and provider funding, which we track in our child care subsidy funding tracker by state.

State and local programs

• What it is: Loans, loan guarantees and similar help run by your state, county or city. The U.S. Treasury’s State Small Business Credit Initiative is a nearly $10 billion program that funds state, territory and Tribal programs, including loan guarantees, loan participation, collateral support and capital access programs.
• Who usually qualifies: It varies by program. Many work through local banks and community lenders, so you may apply at a lender rather than at a state office.
• How repayment works: Usually like a normal loan from the participating lender.
• Bad fit when: The program serves a different industry, area or business size than yours. Read the eligibility page first.

Treasury publishes a list of each state’s programs and contacts. For state programs, SBA offices and local lenders, see our guides to Texas business loans and Florida business loans. For the other steps of opening, start with your state’s business guide on our site, for example Texas or Florida.

Stage 2: Open less than 6 months, or sales are still small

You now have a little history: a business bank account, a few customers, maybe a few months of deposits. That helps. But the faster loan types in Stage 3 are paid back out of your sales, so those lenders want a steady record first. For now, these fit best.

Still a good fit from Stage 1

• Business credit card for small, regular costs you pay off each month.
• Equipment financing for a specific item that will help you earn.
• SBA microloan for up to $50,000, or a CDFI loan with limits set by the lender. A few months of sales can help demonstrate repayment ability.

Invoice factoring (if you bill other businesses)

• What it is: You sell your unpaid invoices to a factoring company. The OCC says it usually pays 70% to 90% of the invoice total up front.
• Who usually qualifies: Businesses that send invoices to other businesses, like a cleaning company with an office contract. The Federal Reserve notes the invoices are typically owed by another business.
• How repayment works: The factoring company collects from your customer, keeps its fee and sends you the rest. You may still owe money: the OCC says invoices can be bought with or without recourse. With recourse, you must pay the factoring company back if your customer does not pay. Ask which kind you are signing. The Fed says the cost is usually not shown as an APR.
• Bad fit when: Your customers pay you at the time of sale, or you do not want a finance company contacting your customers about payment.

Taking on a large contract? Work out the cash you need first with our guide to cash needed before taking a commercial contract.

Start a business credit file

The SBA suggests getting a Dun & Bradstreet D-U-N-S Number early, as one of the first steps toward business credit. A business credit file can help later when you ask suppliers for payment terms or apply for a loan in the business’s name. Getting a D-U-N-S Number is free, according to Dun & Bradstreet.

Stage 3: Open 6 months or more, with steady sales

Six months of business bank statements opens more doors. The products in this section are usually faster than a bank loan, and many cost more. The Federal Reserve’s 2023 survey found online lender applicants were the least satisfied of any lender type, with high interest rates the top complaint. Read how repayment works before you sign.

Revenue-based advance or merchant cash advance (MCA)

• What it is: Money now in exchange for a share of your future sales. The FTC describes it as a product styled as a purchase of a business’s future receivables, rather than as a loan.
• Who usually qualifies: A business with steady card sales or bank deposits. The Federal Reserve says these are offered by nonbank providers, typically in amounts under $100,000.
• How repayment works: Automatic withdrawals, usually daily or weekly, as a percent of sales or a fixed amount. The cost is a factor rate, not an APR. The FTC says the fee is often 20% to 50% of the amount advanced, and these are typically paid back within a few months to a year.
• Bad fit when: Your profit margin is thin, a slow season is coming, or you already owe another advance. In one FTC case, a provider kept withdrawing money after businesses had paid in full. Get a written payoff amount and watch your account.

Short-term loan or working capital loan

• What it is: A lump sum you pay back over months rather than years, often from an online lender. The Federal Reserve says online lenders often lend in amounts under $100,000.
• Who usually qualifies: Usually 6 months or more in business with steady revenue, though each lender sets its own minimums. Fora Financial’s FAQ, for example, lists 6 months in business, $17,000 a month in gross sales and a 570 credit score for its Small Business Loan, while its product pages say about $240,000 a year (checked October 4, 2026).
• How repayment works: Fixed payments that may come out daily, weekly or monthly. Ask for the APR. The Fed warns that some lenders show an interest rate without an APR, so fees are left out.
• Bad fit when: You would use it to cover a loss that keeps coming back every month. New debt does not fix a business that is not making money.

Business line of credit

• What it is: A set credit limit you draw from when you need it, pay back, and use again. The SBA notes that interest is only charged when the line is in use.
• Who usually qualifies: Rules vary widely. Banks offer secured lines, where you pledge business or personal assets, and unsecured lines, according to the OCC.
• How repayment works: Usually a monthly payment on what you have drawn. Ask whether the line must be renewed each year and what fees apply even when you do not draw.
• Bad fit when: You need money for a long-term purchase like a building. Use a term loan or SBA loan for that.

Stage 4: Open 1 to 2 years or more

With a year or two of tax returns and steady deposits, bank and SBA loans get easier to qualify for. They are not off-limits before then: the SBA does not set a minimum time in business for 7(a) loans, and its lender guidance lists starting a business as an allowed use. Many lenders still want a track record. The SBA’s business plan guide says an established business asking for financing should include income statements, balance sheets and cash flow statements for recent years. Get your books in order before you apply.

Term loan (bank, credit union or online lender)

• What it is: A lump sum with a fixed, longer repayment term, usually more than 12 months, and a set payment.
• Who usually qualifies: A business with a track record and clean financial records. Each lender sets its own bar.
• How repayment works: Usually monthly. The rate can be fixed or can change with the market. Ask about early payoff fees.
• Bad fit when: The need is short, like a slow month. A line of credit fits that better.

SBA 7(a) loan

• What it is: A loan from a bank or other lender that the SBA partly guarantees. The maximum is $5 million. It can pay for working capital, equipment, real estate, refinancing some debt, and buying all or part of a business.
• Who usually qualifies: A small, for-profit U.S. business that is creditworthy and can show it can repay. The SBA also requires that you cannot get the same credit on reasonable terms elsewhere. Collateral rules depend on the loan size, according to the SBA’s lender guidance. For 7(a) loans of $50,000 or less, the SBA does not require collateral. For 7(a) Small loans up to $350,000 and SBA Express loans up to $500,000, lenders use their own collateral policies, and a loan is not supposed to be turned down only for lack of collateral. Larger standard 7(a) loans are expected to be secured by the assets the loan pays for and other available business assets, up to the loan amount.
• How repayment works: Most are paid monthly, principal plus interest. Terms are 10 years or less for most uses and up to 25 years for real estate. On loans of 15 years or longer, paying off 25% or more in the first three years brings a fee of 5%, 3% or 1% of the amount, depending on the year.
• Bad fit when: You need money in a few days, or a bank will already lend to you on good terms without the SBA guarantee.

Use the SBA’s free Lender Match tool to reach lenders that make SBA loans. Our SBA loan statistics by state show how many 7(a) loans are approved and their average size, and our SBA lenders and jobs by state page shows which lenders are most active where you live.

SBA 504 loan

• What it is: A long-term, fixed-rate loan for buildings, land and long-life equipment, made through nonprofit Certified Development Companies. The SBA’s 504 page lists a maximum of $5.5 million.
• Who usually qualifies: A small, for-profit U.S. business with qualified management, a workable business plan and the ability to repay. In a typical deal, a private lender covers up to 50% of the project, the CDC up to 40%, and you put in at least 10%.
• How repayment works: 10, 20 or 25-year terms, usually paid by monthly automatic draft.
• Bad fit when: You need working capital or inventory, or you want to buy rental property as an investment. A 504 loan cannot be used for those.

SBA lines of credit

The SBA also backs revolving lines of credit through some lenders. SBA Express loans go up to $500,000. The SBA’s 7(a) Working Capital Pilot line requires at least 12 months of operating history and current financial statements. Ask an SBA lender which one fits.

Growing, buying a business, or buying a building

Expanding a business you already run

Match the loan to the job and to how fast the new spending will pay you back.

• A second truck, van or machine: equipment financing, or SBA 7(a) for a bigger package.
• Payroll for a new crew before the contract pays: a line of credit. For cleaning jobs, try our cleaning hiring cash calculator.
• A new location or build-out: a term loan or SBA 7(a).
• A child care center adding rooms: the SBA microloan program can also lend to certain nonprofit child care centers. See our daycare guides for licensing steps.

Our small business funding guide walks through equipment, working capital and expansion costs in more detail.

Buying an existing business

The SBA 7(a) program can finance changes of ownership, complete or partial, which is what lenders call buying a business. The SBA suggests hiring an attorney and an accountant and reviewing the seller’s financial statements, tax returns, contracts and leases before you buy. If it is a franchise, the brand must be listed in the SBA Franchise Directory to get SBA financing.

Not every lender funds a purchase. Fora Financial, for example, says it only funds a business you already own. Short-term advances are a poor match for a purchase price you will pay off over years.

Buying or building your own space

For a building you will use for your own business, look at an SBA 504 loan (fixed rate, terms up to 25 years, at least 10% down in a typical deal) or an SBA 7(a) loan (terms up to 25 years for real estate). A 504 loan cannot be used for rental property you buy as an investment.

Before you apply: compare the offer and gather your records

Choose the amount and purpose first. Then ask the lender for its document checklist; requirements depend on the product and your business.

• Purpose and amount: list the purchase, project or cash gap you need to fund.
• Repayment evidence: gather recent business bank statements, available tax returns and financial statements. A startup may need a business plan and projections instead of operating history.
• Existing obligations: list current loans, payment amounts and any collateral already pledged.
• Written terms: compare cash received after fees, total repayment, payment frequency, term, collateral, personal guarantee and early-payoff conditions.

The SBA explains that application documents vary by lender and loan size. Comparing options on a marketplace does not mean a lender has approved you.

Warning signs to walk away from

• Someone asks for an up-front fee to get you a “government grant.” The FTC says these are scams.
• The offer shows a factor rate or a monthly fee but will not show the total you will pay back.
• The money deposited is less than the amount on the contract, and no one explained the fees. The FTC has taken action over this.
• Payments come out every day, and your slowest weeks could not cover them.
• You would sign a personal guarantee on a debt you could not repay from your own savings if the business closed.

Common questions

Can I get a business loan with no revenue?

Sometimes. SBA microloans, CDFI loans, equipment financing and business credit cards are the usual options before you have sales. The SBA says a new business is typically judged on the owner’s personal credit score, so check your credit and have a simple plan ready.

What credit score do I need for a business loan?

There is no single number. Each lender sets its own minimum, and it can differ by product even at the same lender. Ask the lender for its minimum before you apply.

What is the difference between a factor rate and an APR?

A factor rate is a multiplier on the amount you get. A factor rate of 1.2 on $10,000 means you owe $12,000, and paying early only lowers that if the contract gives a payoff discount. An APR is a yearly cost that includes interest and many fees. The Federal Reserve says the two are not comparable, and it cites one case where a factor rate of 1.15 worked out to an estimated APR of about 70%.

Are there government grants to start a small business?

Rarely. The SBA says it does not provide grants for starting or expanding a business. Real federal grants are listed on Grants.gov and are tied to specific purposes like research. The FTC warns that offers of free government grant money are scams, and that no government agency will contact you demanding a fee to get a grant.

Can I use an SBA loan to buy an existing business?

Yes. The SBA 7(a) program can be used for complete or partial changes of ownership. You still need to qualify with the lender, and franchise purchases need the brand to be in the SBA Franchise Directory.

How long do I need to be in business to get an SBA loan?

The SBA does not set one minimum for 7(a) loans, and its lender guide lists starting a business as an allowed use. Lenders set their own bar. Some SBA products do have one: the 7(a) Working Capital Pilot line requires 12 months of operating history.

Is a merchant cash advance the same as a business loan?

No. A merchant cash advance is generally structured as a purchase of future business receivables. A loan is debt repaid under a loan agreement. Compare the actual contract, total cost and withdrawal schedule; the product label alone does not tell you whether payments fit your cash flow.

Where to go next on this site

About this guide

Published by StartBusinessByState.com. This guide explains financing options and links to lender and government requirements. We do not make credit decisions. Affiliate links are labeled; government and community resources are included alongside commercial providers.

Eligibility and terms come from the linked program or lender pages. Confirm them directly before applying. This is a comparison guide, not a personalized recommendation or a ranking of every available lender.

Reviewed October 4, 2026. Program limits and lender minimums change, so confirm current terms with the SBA or the lender before you apply. StartBusinessByState.com does not make loans or credit decisions.

Reviewed October 4, 2026 · Sources: SBA, Federal Reserve, FTC, OCC, U.S. Treasury and lender websites · General information, not financial advice