Small business financing comes in many shapes: term loans, lines of credit, SBA loans, equipment financing and revenue-based advances. The right choice depends on what the money is for and how quickly you can repay it.
Match the product to the purpose
- Equipment or vehicles: equipment financing, where the asset itself secures the loan.
- Seasonal cash gaps: a business line of credit you draw and repay.
- Expansion or acquisition: a term loan or SBA loan with a longer repayment period.
- Unpaid invoices: invoice financing or factoring.
Compare total cost, not the headline number
Some lenders quote an APR. Others quote a factor rate, such as 1.25, meaning you repay $1.25 for every dollar borrowed regardless of how quickly you pay. A short-term product with a modest factor rate can work out to a very high APR. Ask every lender for the total repayment amount, the payment frequency and the term, then compare.
Know what lenders look for
Expect questions about time in business, monthly revenue, personal and business credit, and existing debt. Have recent bank statements, tax returns and a simple use-of-funds explanation ready.
Read the guarantee
Most small business loans require a personal guarantee. Some also file a UCC lien on business assets. Understand what you are pledging before you sign.
Check the payment schedule against your cash flow
Daily or weekly debits are common with online lenders. Model them against your slowest month, not your best one.
Compare financing options for your business.
Compare business loansThis guide is general information, not financial, legal, tax or insurance advice. Terms vary by provider and state.