Best Small Business Loan Choices for Startups, Small Businesses, and Solo Entrepreneurs

Last updated: Jan 24, 2024 at 10:32 pm

Small business loans can provide cash to start, grow, or sustain your business. There are several types of small business loans that meet different needs, like starting a franchise, buying property, or getting cash when you have unpaid invoices.

With so many loan options and business types, there is no one best choice for all. To help find the right loan, we reviewed 5 common types: term loans, equipment loans, commercial real estate loans, microloans and franchise loans.

We looked at key features for each loan: minimum and maximum amounts you can borrow, repayment period, personal credit score required, Better Business Bureau rating, and requirements to qualify.

The loans here are from private lenders – organizations or individuals not tied to a specific bank. Currently, many lenders are focused on Paycheck Protection Program loans, so there are fewer standard loan options available.

What are the different types of small business loans?

There are many loan options for different business needs. Below is an overview of 9 common types of small business loans:

1. Term loans

Term loans are very common small business loans. They provide a lump sum of cash that you repay over a set period of time. The monthly payments are usually fixed amounts that cover interest plus the principal balance.

Term loans offer flexibility to use the money for various needs, like daily expenses and equipment.

2. SBA loans

Small Business Administration (SBA) loans are appealing for their low-cost, government-backed financing. However, they are known for a lengthy application process that postpones receiving the money. Approval and funding can take up to three months. While you don’t get money quickly with SBA loans, if you qualify the lower interest rates and fees can be beneficial. So for business owners who don’t require urgent funding, they are a good option.

3. Business lines of credit

Business lines of credit work similar to credit cards, offering a revolving credit limit that you access through a checking account. You can spend up to your maximum limit, repay the balance, and then withdraw more as needed. 

These are ideal if you’re unsure how much you need since you only pay interest on the amount used, unlike term loans where interest applies to the full amount whether partially or fully drawn. Many business lines don’t require collateral to secure the loan. The flexible “pay as you go” structure helps manage cash flow changes.

4. Equipment loans

Equipment loans help finance large equipment purchases if you lack upfront capital. They are meant for expensive machinery, vehicles, or equipment expected to retain value – computers, furniture, etc. In most cases, the purchased equipment serves as collateral if the loan can’t be repaid. So these loans make it possible to acquire essential items you may otherwise struggle to afford.

5. Invoice factoring and invoice financing

If you’re a business owner having trouble getting paid on time, you might consider invoice factoring or invoice financing (also known as accounts receivable financing). With invoice factoring, you sell your unpaid invoices to a lender and get a portion of the invoice value upfront. Invoice financing allows you to use unpaid invoices as collateral to get an advance on the money you’re owed. The key difference is that with factoring, the company buying your invoices takes charge of collecting payments, whereas with financing, you’re still responsible for collecting payments to repay the borrowed amount.

Scroll to Top