Small business loans provide capital for growth, operations, and expansion. This guide explores term loans, lines of credit, equipment financing, and alternative funding options to help entrepreneurs choose the right financing.

Small business loans are essential tools for entrepreneurs seeking to launch, grow, or sustain operations. Access to capital enables businesses to purchase inventory, hire staff, invest in equipment, manage cash flow gaps, and expand into new markets. Multiple financing options exist, each designed for different business needs, credit profiles, and repayment capacities. Understanding the distinctions between traditional term loans, revolving credit lines, asset-based financing, and alternative products helps business owners select funding that aligns with their strategic goals and financial situation.

Term loans are the most common form of small business financing, providing a lump sum repaid over a fixed period with regular installments. Traditional banks, credit unions, and online lenders offer term loans ranging from one to ten years, with amounts from $5,000 to several million dollars depending on creditworthiness, revenue, and collateral. Short-term loans provide quick access to working capital with repayment periods under 18 months, often at higher interest rates. Long-term loans support major investments like real estate or significant equipment purchases, offering lower rates but requiring stronger credit and more documentation. Term loans suit businesses with predictable revenue and clear use cases for capital.

Business lines of credit offer flexible access to funds up to a predetermined limit, allowing borrowers to draw and repay as needed. Interest accrues only on outstanding balances, making lines of credit ideal for managing seasonal cash flow fluctuations, covering unexpected expenses, or bridging gaps between receivables and payables. Lenders review business credit, revenue, and time in operation when setting limits and rates. Revolving credit provides financial cushion without the commitment of a full-term loan, though rates may exceed term loan rates for unsecured lines. Equipment financing and leasing allow businesses to acquire machinery, vehicles, or technology with the asset serving as collateral, often resulting in favorable rates and terms.

Alternative financing options include invoice factoring, where businesses sell outstanding invoices at a discount for immediate cash, and merchant cash advances, which provide upfront capital repaid through a percentage of daily credit card sales. These options offer speed and accessibility but typically cost more than traditional loans. Crowdfunding, peer-to-peer lending, and angel investors provide additional paths for startups and businesses unable to qualify for conventional financing. Evaluating interest rates, fees, repayment terms, and total cost of capital ensures businesses secure financing that supports growth without creating unsustainable debt burdens.