If you are building a company, access to capital can feel like the difference between momentum and missed opportunities. Yet many founders still treat business finance as a single, generic product. In reality, there are several distinct types of business loans for entrepreneurs, each with its own structure, cost, and level of risk.
Understanding these options does more than help you “get a loan.” It shapes how quickly you can act, how much flexibility you keep, and how much pressure your repayment schedule puts on day-to-day operations. For entrepreneurs, knowing which business loan fits which situation is now part of basic financial literacy.
This guide walks through 10 types of business loans every entrepreneur should know, explains how they work, and offers a simple framework to choose the right one for your next move.
Understanding the Main Types of Business Loans
At its core, a business loan is money you borrow to support your company, with a clear agreement about how and when you will pay it back. The differences come from three levers:
- Structure – lump sum vs revolving credit, fixed vs variable rates
- Security – secured by assets or unsecured
- Purpose and term – short-term working capital vs long-term investments
Most small business loan options you see on comparison sites fall into a common set: term loans, SBA loans, business lines of credit, equipment financing, invoice financing, real estate loans, microloans, merchant cash advances, personal loans used for business, and business credit cards.
When you recognise these structures, it becomes easier to match each product to a specific need instead of accepting whatever is marketed most aggressively.
10 Types of Business Loans Every Entrepreneur Should Know
Entrepreneurs today have access to a wide range of financing tools, each designed to solve a specific business need. From long-term growth capital to short-term cash-flow support, understanding these 10 essential types of business loans helps you choose the right structure and avoid costly borrowing mistakes.
1. Term Loans
A term loan is what most people picture when they think of traditional business loans. The lender provides a lump sum upfront. You repay it over a fixed period, usually with monthly payments that include principal and interest.
Best for:
- Opening a new location
- Funding major equipment or fit-out costs
- Refinancing existing high-interest debt
- General working capital for established businesses
Advantages
- Predictable repayments make planning easier
- Larger loan amounts than many other options
- Can offer competitive interest rates for borrowers with strong credit
Things to watch
- Long-term commitments create fixed costs, even when sales drop
- May require collateral or personal guarantees
- Early repayment fees sometimes apply
For many business loans for entrepreneurs, a term loan becomes the backbone of the funding mix. It suits clear, defined projects with a known budget and payback horizon.
2. SBA Loans
In the United States, SBA loans are backed by the U.S. Small Business Administration. The SBA does not lend directly. Instead, it guarantees a portion of the loan made by approved lenders. That guarantee lets lenders offer longer terms, larger amounts, and often more favourable conditions than they otherwise would.
Typical SBA-backed loans can range from a few thousand dollars up to about $5.5 million, depending on the program. They can fund working capital, real estate, equipment, and even business acquisitions.
Best for:
- Established businesses with strong financials
- Entrepreneurs buying a business or real estate
- Projects where you need long repayment terms to keep cash flow comfortable
Advantages
- Longer tenors (often up to 10–25 years for some uses)
- Lower down payments compared with conventional loans
- Competitive interest rates due to the government guarantee
Things to watch
- Application and approval take time and paperwork
- Eligibility criteria are stricter
- Some programs limit how you can use the funds
For founders who qualify, SBA loans sit near the top of the list when you compare types of business loans by long-term cost.
3. Business Lines of Credit
A business line of credit feels less like a loan and more like a safety net. The lender approves a maximum limit. You draw funds when you need them and pay interest only on the amount you actually use. When you repay, your available limit resets, similar to a credit card, but usually with lower rates.
Best for:
- Managing uneven cash flow
- Covering seasonal dips in revenue
- Bridging short gaps while you wait for customer payments
- Handling small, unpredictable expenses
Advantages
- Flexibility: you control when and how much you borrow
- You pay interest only on the drawn amount
- Can prevent short-term cash crunches without long-term debt
Things to watch
- Interest rates can be higher than some term loans
- Lines may require periodic reviews and renewals
- Some lenders charge draw fees or non-usage fees
For many business loans for entrepreneurs, a line of credit serves as a complement to other products, not a replacement. It keeps day-to-day operations stable while you focus on growth.
4. Equipment Financing
With equipment financing, the loan is tied to specific assets: machinery, vehicles, commercial kitchen appliances, or technology. The equipment often serves as collateral, which means the lender can repossess it if you default.
Best for:
- Manufacturers upgrading production lines
- Restaurants and cafés fitting out new premises
- Logistics businesses purchasing vehicles
- Any company whose revenue depends on physical equipment
Advantages
- The asset itself secures the loan, which can make approval easier
- You can match the loan term to the equipment’s useful life
- Conserves cash for marketing, hiring, or inventory
Things to watch
- You may pay more over time than buying with cash
- Rapidly depreciating or fast-moving technology can outlast its usefulness before the loan ends
- The lender can seize the asset if you miss payments
For hardware-heavy businesses, this remains one of the most practical small business loan options because it links funding to productive assets.
5. Invoice Financing and Factoring
Many B2B firms do the work, send the invoice, and then wait 30–90 days to get paid. Invoice financing and invoice factoring turn those unpaid invoices into immediate cash.
With invoice financing, you borrow against your outstanding invoices. You still manage collections, and your customers usually do not see the lender’s involvement.
With invoice factoring, you sell the invoices to a third party (the factor). The factor advances a percentage upfront and often collects directly from your customers.
Best for:
- B2B companies with long payment terms
- Firms growing faster than their cash flow
- Businesses that experience frequent timing gaps between work and payment
Advantages
- Unlocks cash tied up in receivables
- Approval focuses more on your customers’ credit quality than on your own
- Scales as your invoice volume grows
Things to watch
- Fees can be higher than conventional term loans
- Factoring involves direct contact with your customers, which not every brand wants
- Over-reliance can mask underlying profitability issues
For entrepreneurs whose balance sheet is rich in receivables but poor in cash, invoice-based finance can keep operations moving without seeking equity.
6. Commercial Real Estate Loans
Commercial real estate loans fund the purchase, construction, or renovation of property used for business. These loans can support owner-occupied premises or investment properties, depending on the lender’s policies.
Best for:
- Buying a building for your office, warehouse, or retail store
- Refurbishing a property to improve efficiency or customer experience
- Long-term expansion plans where owning beats renting
Advantages
- Long repayment terms, often 10–25 years
- Potential to build equity as you repay
- Fixed-rate options can bring predictability
Things to watch
- Large down payments are common
- Property values and interest rates can move in opposite directions
- Vacancies or location shifts can affect your exit options
Among the types of business loans, real estate finance is the most closely tied to long-term strategy, not short-term cash. It makes sense only when you have a clear plan for how the property supports growth.
7. Microloans
Microloans are smaller business loans, often capped at around $50,000, offered by community lenders, non-profits, and development organisations. Programs such as SBA microloans in the U.S. target startups and entrepreneurs who struggle to qualify for traditional bank loans.
Best for:
- Very small or early-stage businesses
- Solo entrepreneurs and micro-enterprises
- Founders from underserved communities
Advantages
- Lower borrowing amounts reduce risk
- Lenders may offer training, mentoring, or technical support
- More flexible in assessing credit history and collateral
Things to watch
- Not suitable for large capital projects
- Interest rates can be higher than mainstream bank loans, though still often reasonable
- Application processes vary widely by organization
For many first-time founders, microloans are the first formal business loans for entrepreneurs they encounter. They can be a bridge between bootstrapping and more mainstream finance.
8. Merchant Cash Advances (MCAs)
A merchant cash advance is not a loan in the strict sense. Instead, the provider gives you a lump sum in exchange for a share of future card-based sales. Repayment happens daily or weekly through a fixed percentage of your merchant account receipts.
Best for:
- Businesses with strong card sales but weak credit profiles
- Urgent, one-off cash needs when other options are not available
Advantages
- Fast approval and funding
- Payments adjust with sales volume: when you earn less, your payment falls
Things to watch
- Effective costs are often much higher than regular loans
- Daily or weekly deductions can squeeze already-thin margins
- Overuse can trap a business in a cycle of expensive short-term funding
When you compare types of business loans, MCAs usually sit at the expensive end of the spectrum. They may solve an immediate cash crunch, but they can also signal deeper financial stress.
9. Personal Loans for Business Use
Some founders use personal loans for business—especially at the idea or pre-revenue stage, when the company itself has no track record. Conventional lenders often restrict this, but many online lenders allow it if you meet their personal credit criteria.
Best for:
- Very early-stage ventures with limited business history
- Small projects where you do not yet want to formalise a business loan
Advantages
- Approval focuses on personal credit rather than business financials
- Simpler application process than formal commercial loans
Things to watch
- You are personally liable, regardless of how the business performs
- High utilisation of personal credit can affect your personal credit score
- Mixing personal and business finances complicates bookkeeping and risk management
Personal loans may play a temporary role in types of business loans for entrepreneurs, but most advisors recommend migrating to dedicated business credit as soon as possible.
10. Business Credit Cards
Business credit cards are widely available and often double as both payment tools and short-term financing. They work best when you clear the balance every month. Used this way, they help manage day-to-day expenses—subscriptions, travel, small purchases—and can provide rewards or cash back.
Best for:
- Everyday operational expenses
- Online tools, software, supplies, and travel
- Building a business credit profile
Advantages
- Fast and simple to obtain, relative to many loans
- Interest-free period if you pay in full each cycle
- Rewards, points, or cash-back benefits
Things to watch
- Interest rates are high if you carry a balance
- Easy access can encourage overspending
- Some cards require personal guarantees
Business credit cards are useful tools, but they are not a substitute for structured small business loan options when you need serious capital.
How to Choose the Right Type of Business Loan
With so many types of business loans, entrepreneurs can feel overwhelmed. A simple way to narrow your choices is to ask four questions:
What exactly do you need the money for?
- Working capital and cash-flow gaps often suit a line of credit or invoice financing.
- Long-term assets, like equipment or property, align better with term loans, equipment finance, or real estate loans.
How long will this investment take to pay for itself?
- Match the loan term to the payback period. Do not fund a three-month marketing campaign with a ten-year loan.
How much risk can you carry on the balance sheet?
- If your cash flow is unpredictable, avoid high fixed payments.
- If your margins are thin, be wary of expensive products like merchant cash advances.
What does your credit profile look like?
- Strong credit and a solid track record open doors to SBA loans and bank term loans.
- Younger businesses might rely more on microloans, equipment finance, or invoice-based solutions.
By starting with purpose, timeline, risk, and credit, you turn a crowded market into a short list of realistic small business loan options.
Practical Checklist Before You Apply for Any Business Loan
Regardless of which loan type you choose, preparation shapes your negotiating power. Before you submit any application, work through this checklist:
Clarify the amount and purpose
- Prepare a simple budget showing how you will use the funds.
- Tie each cost to a clear outcome—revenue growth, cost savings, or risk reduction.
Update your financial statements
- Profit and loss statement
- Balance sheet
- Cash-flow statement. Lenders rely on these to assess your ability to repay. Many providers of business loans for entrepreneurs now request digital access to accounting systems as well.
Know your key metrics
- Revenue trends and gross margins
- Debt-service coverage ratio (DSCR)
- Personal and business credit scores
Gather supporting documents
- Business registration and licences
- Tax returns for the last 1–3 years
- Bank statements and major contracts
Compare more than the headline rate
When you compare types of business loans, look beyond interest rates:
- Total cost of capital (including fees and charges)
- Repayment frequency and flexibility
- Early repayment terms
- Security and guarantee requirements
Stress-test your cash flow
- Model your cash flow with and without the loan.
- Check whether your business can handle slower-than-expected sales.
By doing this work upfront, you reduce delays, strengthen your application, and give yourself room to negotiate better terms.
Final Thoughts on Business Loans for Entrepreneurs
Debt is not a badge of honour, but it is also not something to fear. Used thoughtfully, the right types of business loans can help entrepreneurs invest earlier, scale faster, and smooth out the volatility that comes with growth.
The key is alignment. Match each financing tool to a specific purpose. Use term loans and SBA loans for long-term investments. Keep revolving products—lines of credit and credit cards—for short-term needs. Turn invoices and equipment into collateral when it makes strategic sense, not simply because it is easy.
Most of all, treat borrowing as a strategic decision, not a last-minute reaction. When you understand the main business loans for entrepreneurs, you can sit across from any lender with clarity about what you want, why you want it, and how it fits into your long-term plan for the business.
