Types of Small Business Loans: Which One Fits Your Goal?

Start with the job the money has to do

Match the product to the purpose. One-time purchases suit fixed-term loans. Ongoing, uneven expenses suit revolving credit. Equipment suits financing secured by that equipment.

Owners often compare rates first. A better first question is what the funding will produce. A new oven, a month of payroll while a client pays late and a second location are three different jobs. They call for three different products.

Write down the purpose, the amount, and the date you need the money. Then estimate what it will earn or save. That number tells you how much cost the funding can carry. Our guide on reasons to get a business loan helps you sort the purpose, and how to calculate small business loan ROI shows the math.

Term loans and SBA loans: lump sum, fixed payments

A term loan gives you a lump sum repaid in fixed installments. SBA loans are term loans partly guaranteed by the government, with lower cost but a slower process.

With a term loan, you borrow a set amount and repay it on a schedule. Payments are predictable, which makes budgeting simple. Through ROI Funder, term loans typically fund in 1 to 5 days.

An SBA loan is made by a participating lender with a government guarantee. It often carries the lowest cost and longest terms available to small businesses. The tradeoff is time and paperwork. Expect more documents and a longer wait than with other products. Programs and limits change, so check with the SBA for current rules.

Best for: expansion, major purchases, refinancing, buying a business. Not ideal for: urgent needs measured in days.

Lines of credit and working capital: flexible cash

A business line of credit lets you draw, repay and draw again up to a limit. Working capital funding is a lump sum for day-to-day needs like inventory, payroll or a slow season.

A business line of credit works like a revolving tab. You draw only what you need and pay interest on what you use. Funding usually takes 24 to 72 hours. It fits owners with recurring, uneven costs.

Working capital is a one-time infusion, often repaid from a share of daily or weekly sales or in short fixed payments. It is built for speed, with money available the same business day on approved, complete files.

Best for: smoothing cash flow, inventory, seasonal gaps, urgent opportunities. Compare the two in term loan vs. line of credit.

Equipment financing: the asset is the collateral

Equipment financing pays for machinery, vehicles or tools, and the equipment itself secures the deal. That often makes it easier to qualify for than an unsecured loan.

Because the lender can claim the equipment if payments stop, equipment financing can be available to businesses that might struggle with other products. Funding commonly takes 2 to 7 days.

Match the repayment term to the equipment's useful life. Financing a laptop over seven years makes no sense, while a commercial oven that will run for a decade can support a longer term. Our equipment payback period calculator shows how fast a machine earns back its cost.

Not a fit when: you need cash for payroll, rent or inventory. The money is tied to the equipment purchase.

Revenue-based financing: payments that follow sales

With revenue-based financing, repayment rises and falls with your sales. Slow weeks mean smaller payments, strong weeks pay it down faster.

Revenue-based financing suits businesses with card sales or steady deposits that vary month to month, such as restaurants, retailers and seasonal service companies. The repayment amount is tied to revenue rather than a rigid calendar.

The cost is usually expressed as a factor rate instead of an annual interest rate, so it can be hard to compare against a bank loan. Convert the total repayment into a monthly equivalent and an effective cost before choosing. Our explainer on factor rates shows how to do that.

Comparing the options side by side

Speed, cost, payment pattern and purpose are the four differences that matter. Compare total repayment, not just the headline rate.

Faster generally costs more. Slower generally costs less. Decide how much the time is worth to your business.

How ROI Funder helps you choose

ROI Funder matches your file to the funders in our network that fit it, then shows true cost, payback period and monthly-equivalent payments before you sign.

You complete one online application in a few minutes. It uses a soft credit pull, so applying does not affect your credit score, and you have no obligation to accept an offer. ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ in monthly revenue, with amounts from $5,000 to $5,000,000 in all 50 states.

If your file is complete (the application plus 3 months of business bank statements) and approved, money can reach your account the same business day. Not sure which product fits? Read which funding fits your business or go straight to the application.