Small business loans are designed to meet specific needs. From long-term commercial real estate loans to short-term ways to cover dips in cash flow, there’s likely a loan for your situation.

According to data from the Federal Reserve, small business loans can range anywhere from $13,000 to $1.2 million. The amount your business qualifies for depends on the types of business loans you look into — along with other important factors like the age of your business and your revenue. Loan terms and total cost also depend on your business’s status and the lender you choose to work with.

1. Commercial real estate loan

For businesses that want to invest in a brick-and-mortar location, commercial real estate loans are the solution. Most are available through banks, and your business can use funding to either purchase property outright or lease a space. While it depends on your business’s needs and location, you may be able to borrow up to $5 million.

Commercial real estate loans are similar to mortgages and have repayment terms to match. Expect to pay back your loan over 10 to 20 years, and interest rates tend to be low because the real estate acts as the loan’s collateral. You can also explore SBA 504 loans, which are backed by the Small Business Administration and come with competitive interest rates.

Pros

  • Typically low interest rates
  • Long repayment terms for large loans

Cons

  • Meant for established businesses with high revenue
  • May have a more involved application process and property inspection

Who this is best for

A loan for commercial real estate allows you to purchase or lease property. If your business isn’t at this stage but needs funding, you can explore equipment loans and term loans secured by property.

2. Equipment financing

Equipment financing runs the gamut from funding inexpensive point-of-sale systems to earthmoving equipment. They are widely available and secured by the property you buy — similar to auto loans or commercial mortgages.

The amount you can borrow depends on what you need to finance. Most banks and online lenders are flexible, so you should be able to get financing that covers the full cost of equipment. Equipment loans are typically repaid in fixed monthly installments — though some lenders may offer quarterly or weekly payments.

Interest rates are based on your business’s finances and revenue and your personal credit history. The equipment you buy also plays a role. Since these loans are secured, interest rates tend to be lower.

Pros

  • Competitive interest rates
  • Repayment terms and loan amounts based on equipment

Cons

  • Larger loan amounts mean higher monthly payments
  • Equipment may need to be inspected by lender

Who this is best for

Because equipment loans are secured by the property you finance, they tend to have lower rates than their unsecured counterparts. This makes them a good option for big purchases your business needs to operate.

3. Invoice financing and factoring

Invoice financing and invoice factoring are similar options. Your business uses the amount due from your customers as collateral to cover small gaps in cash flow. These short-term options offered by online lenders tend to be pricey — especially since they don’t use interest rates like more traditional forms of credit.

There are a few important differences between the two, however.

  • Invoice financing. You use your accounts receivables — unpaid money owed to you by clients — as collateral for an advance. The lender advances you up to 85 percent of the total amount. Once the invoice is paid by your client, you will repay your lender the amount advanced plus fees.
  • Invoice factoring. Similar to invoice financing, but you will sell your invoices directly to the lender for a lump sum. You may receive up to 85 percent of the total invoice amount. Once the invoice is paid, the lender will send you the remaining amount minus fees.

The fees you pay are significant, but it may be worth it if your invoices aren’t due for 60 or 90 days and you need money to cover expenses in the meantime.

Pros

  • Quick turnaround for unexpected gaps in cash flow
  • Fees may depend on amount advanced

Cons

  • High fees based on when your client repays
  • Advances are typically for 85 percent of invoice or less

Who this is best for

Invoice financing and invoice factoring are best for businesses that do not qualify for traditional business loans. Because they are convenient and quick, you will pay a significant fee when you use an invoice financing or an invoice factoring company.

4. Line of credit

Lines of credit are similar to business credit cards but are meant for larger expenses than you can cover with the typical credit card. A business line of credit will likely have a higher funding limit than a card, which makes them ideal for midsize expenses.

With a line of credit, you will have a set credit limit and a draw period — a period during which you can borrow money. Until the draw period is over, you can borrow, repay and borrow again for as long as you need. With some lenders, only interest payments are due during the draw period. After, you will be required to pay back what you owe. 

Lines of credit are available from banks and online lenders and are a common way to cover expenses. And while they don’t have fixed repayment terms like a term loan, the ability to continually borrow makes them a solid choice for businesses that need to make frequent purchases.

Pros

  • Line of credit resets as you repay
  • Flexible repayments based on how much you spend

Cons

  • Lack business credit card rewards
  • Draw period limits time to spend funds

Who this is best for

Businesses that have regular, variable expenses can take advantage of lines of credit. They are more flexible than term loans and may offer better rates than business credit cards.

5. Merchant cash advance

A merchant cash advance (MCA) is a short-term funding option offered by online lenders. The amount you receive is based on your credit card sales rather than your business’s credit score or total revenue. Like invoice factoring and invoice financing, you receive a lump sum to cover issues with cash flow. Then, you repay it with a percentage of daily credit card sales.

A merchant cash advance company charges a factor rate instead of interest, and the fees are significant. MCAs are easy to access, have short terms and are designed for businesses that lack other funding options. But the high fees mean you may take on more debt than your business can handle. Before you borrow, exhaust all other funding options.

Pros

  • Quick funding based on credit card sales
  • Lump sum covers small gaps in cash flow

Cons

  • High fees 
  • Repayment terms may be less than one year

Who this is best for

Merchant cash advances are expensive, so they should only be used if your business needs quick access to working capital and does a significant amount of its sales through credit cards.

6. Microloan

Microloans are designed for newer businesses just starting to grow. The average microloan is around $13,000, according to the SBA, although amounts range up to $50,000. They are repaid within a few years and function as working capital. 

The SBA runs one popular microloan program, although several online lenders and some banks also offer microloans. Microloans have low rates — between 8 to 13 percent for an SBA microloan.

Pros

  • Designed for working capital and small expenses
  • Most backed by the SBA

Cons

  • Funding limited to less than $50,000
  • Rates may be higher than larger term loans

Who this is best for

Since microloans are meant to cover small expenses or be used as working capital, they are good for very new businesses that need a boost in funding to get ahead. 

7. SBA loan

SBA loans — loans backed by the Small Business Administration — are some of the most sought-after loans. These three programs meet different business needs:

  • 7(a) loans. These are good for businesses looking for working capital up to $5 million. Depending on the loan amount and the lender, 7(a) loans may be secured or unsecured.
  • 504 loans. Meant for major purchases, 504 loans are secured by property — either commercial real estate or equipment.
  • Microloans. Your business can borrow up to $50,000 for costs associated with expansion and growth. 

You can use the SBA Lender Match Tool to compare options and find a lender that will fit your business. With each loan option, you will have fixed interest rates and generous terms to help your business pay back what it needs while it continues to grow.

Pros

  • Backed by the SBA and run by lenders across the nation
  • Competitive rates for each loan program

Cons

  • Difficult to qualify for
  • Lengthy application process
  • Takes longer to receive funds

Who this is best for

SBA loans have an involved application process. Even so, they are a good option for working capital, big expenses or growth opportunities. Most business owners will likely benefit from applying. And since many banks are registered as SBA lenders, there is little difference between an SBA 7(a) loan and a traditional bank loan.

8. Term loan

Term loans are the standard option for both established businesses and startups. They meet individual expenses and are repaid over time — usually five or more years. You can use a term loan for many costs, such as buying new equipment or expanding your business. They may be secured or unsecured.

Most banks and online lenders offer business term loans. The amount you can borrow depends on your industry, the purpose of the loan and your business’s financial status. And because it is such a common loan option, there is likely a term loan with rates and terms to fit your business’s needs.

Pros

  • Widely available from banks and online lenders
  • Loans to cover various business expenses

Cons

  • Most lenders require high revenue and a personal guarantee
  • May have higher interest rates for startups and newer businesses 

Who this is best for

Term loans are best for businesses with large, one-time expenses to cover. 

The bottom line

The best loan option depends entirely on how your business will use its financing. However, some convenient options come at a high cost. Consider traditional options like SBA loans, term loans and equipment loans before turning to short-term funding. If your business already has an account with a bank, see what it offers. An established relationship may give you access to lower rates and more competitive terms.