How 10 Types of Business Loans Compare: Selecting What’s Best

Small business owners have a variety of loan options available to them, depending on their needs and qualifications. This can make the process of securing funding for their businesses confusing and overwhelming. 

In this guide, we will compare 10 different types of business loans, so that business owners can better understand which option is best for them. Keep in mind that while one type of loan may be a good fit for one business, it may not be the right choice for another business. So, do your research and consult with an experienced lending professional to find the best option for you.

What is a Business Loan?

A business loan is a type of loan that can be used to finance a wide variety of business needs, including working capital, inventory, real estate, and equipment.

The types of business loans available vary in terms of their purpose, interest rates, repayment schedules, and other features. It’s important to understand the different types of loans available and compare them to find the one that best suits your needs.

Benefits of Small Businesses Loans

To grow and succeed, businesses of all sizes need capital. Business loans are especially important for small ventures, which might not have access to other types of financing. A loan can give your business the boost it needs to get off the ground or grow larger.

The benefits of a business loan for small businesses include:

1. Increased cash flow: A business loan can help you to increase your cash flow, which is essential for your growth and improvement.
2. Easy access to capital: Business loans are a quick and easy way to get the capital you need to finance anything that your venture needs. Loan providers like LendThrive, for example, can approve applications in as fast as 15 minutes and release funds within 24 hours.
3. Flexible repayment terms: Business loans typically have flexible repayment terms, which can help you to better manage your cash flow.
4. Improved credit rating: A good credit rating is essential for success. A business loan can help you to improve your credit rating and make it easier to access other (and larger) types of financing in the future.
5. Increased buying power: With a business loan, you can buy the things you need to grow your business and accomplish your goals.

Although there are many types of business loans available, not all types are right for every small or medium-sized business. Each type has benefits and drawbacks that should be considered before you apply for a loan so that you get the most out of your investment.

Types of Business Loans Available To Small Businesses

There are many types of loans that small business owners can take advantage of. Here are some types of business loans you might want to consider:

1. Term Loan

A term loan is a loan that is repaid over a fixed period of time, typically within three to five years. It is ideal for businesses that need a large sum of money upfront and have a predictable cash flow. The interest rate on a term loan is usually fixed, so you’ll know exactly what your payments will be each month.

2. Line of Credit

A line of credit is a revolving loan that allows businesses to borrow against their future sales. This type of business loan is ideal for those that have a lot of seasonal sales or need access to capital quickly.

3. Merchant Cash Advance

A merchant cash advance is a type of loan that is repaid through a percentage of your future sales. This type of loan is ideal for businesses that have unpredictable cash flow. The interest rate on a merchant cash advance also varies depending on the provider itself and market conditions in your industry.

4. SBA Loan

A Small Business Administration (SBA) loan is a government-backed loan that is offered through participating banks. This is ideal for businesses that need financing for equipment purchases, real estate, or working capital. The interest rate on an SBA loan is usually fixed, and it is this predictability that makes it attractive to small business owners.

5. Equipment Lease

An equipment lease is a type of financing plan that allows businesses to use equipment and other types of assets for a predetermined period of time without purchasing it outright. It is recommended for businesses that need access to capital and have expensive equipment needs. Interest rates on equipment leases are usually fixed over the life of the lease. At the end of the lease period, borrowers have the option to buy the equipment at lower cost or return it to take another lease on a newer model.

6. Holiday Loan

A holiday loan is a short-term loan that lasts between one and five years with staggered repayment dates throughout the year, as opposed to just at the beginning or end of the loan. This is suitable for businesses that have a predictable cash flow and need a short-term loan to cover seasonal expenses. The interest rate on a holiday loan varies as well.

7. Business Credit Card

A business credit card allows companies to make purchases using a line of credit and then pay it back after they receive payment from their clients. Most business cards come with lower interest rates than traditional personal cards because the issuer views the business as more stable and likely to pay off any debt accumulated by making purchases on the card. This type of loan is ideal for businesses that need to make a large purchase quickly and want the flexibility to pay it back over time.

8. Invoice Financing

Invoice financing is a type of loan that allows businesses to sell their unpaid invoices at a discount so they can get cash quickly. It is recommended for businesses that have a lot of unpaid invoices and need access to capital quickly.

9. Asset-Based Lending

An asset-based loan is a type of secured loan that allows businesses to use their assets as collateral with the lender and receive money based on those assets. This type of loan is ideal for businesses that have expensive equipment needs and want financing without having to put up other types of collateral or pay high interest rates.

10. Working Capital Loan

A working capital loan is a type of loan that gives businesses access to money that can be used for any purpose. This type of loan is ideal for businesses that need financing for any type of expense, including inventory, marketing, and employee salaries. The interest rate on a working capital loan is usually variable, so it can go up or down depending on market conditions.

Not Sure Which Business Loan Is For You? LendThrive Can Help

Each of these types of loans has its own set of pros and cons, so it’s important to do your research before you decide which one is best for your business. If you’re not sure which types of business loans are right for you, consider getting in touch with LendThrive to discuss your needs.

LendThrive can provide you with the guidance and assistance to find the types of business loans that will best suit your business. Our mission is to help business owners from various industries realize and grow their dreams. This is why we offer rewards to customers who make payments on time by also reducing interest rates. In this way, you’ll have more money to put back into your savings for whatever growth purpose your venture needs.

Contact LendThrive today to find the best business loan for you.