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A Brief Guide to Understanding the Different Types of Small Business Loans

Small businesses may be eligible for different loans. Learn about the different types of small business loans in this brief guide.

When it comes to owning and operating a small business, you’ve got to spend money to make money. However, how you go about getting cash to spend can be an area of contention for many small business owners.

What types of small business loans are there and are some better than others? The answers to these questions depend entirely on your business needs and what you’re qualified for. 

Keep reading for more details.

Types of Small Business Loans

What type of business you have will dictate your financial needs. For example, if you work from home and sell another company’s products through dropshipping and affiliate marketing, you’ll have little to no overhead costs. 

However, if you’re running a brick and mortar company, have products on hand, offer services, and use equipment, you’re going to need some financing. Here are some of the most common types of small business loans.

Merchant Cash Business Loans

Merchant Cash business loans can be your best friend. These loans also have capped interest amounts, which make them particularly attractive to small business owners. Benefits for a business:

  • Approval and funds in your account in a day
  • Easy application process
  • No restrictions on drawdown
  • No early repayment penalty
  • No direct debit from your bank account 
  • Instant top-ups – Once you are on board, you can receive rapid funding top ups. 
  • Repayments made back via your card sales.

Business Lines of Credit

Business lines of credit are great options for business owners who don’t know exactly how much financing they need or will use immediately. These are open lines in which you can withdrawal funds, repay them, and withdrawal again. Business lines of credit have limits of course, but they are generally much higher than credit cards and have lower interest rates.

Peer to Peer Lending

Peer to peer lending (also referred to as crowdfunding) is a great option for small business owners who don’t qualify for traditional loans due to their credit or other factors. These types of small business loans rely on individual investors who team together to get you the funding you need. These can work like traditional loans with low interest rates or can be obtained by trading equity in the company.

Equipment Financing

If your business uses equipment, vehicles, or machinery, you probably qualify for equipment financing. These types of small business loans are designated specifically for outfitting your business with the equipment it needs for day-to-day operations. They can be gained through lenders or through the actual company you’re buying from.

Personal Loans

For small business owners who can’t qualify for business loans or don’t require much in terms of funding, personal loans can be used. However, personal loans (especially unsecured personal loans) can come with higher interest rates. You can secure a loan using collateral, such as your home, vehicles, or other assets depending on the value of the loan.

Commercial Real Estate Loans

One of the most common types of small business loans is commercial real estate loans. These are especially important for business owners who need to buy property rather than rent store space. They can also be used to build new property for their business.

Looking for More Business Advice?

If you’re looking for more information on the different types of small business loans or simply need more advice and insight into running a small business, we can help, don’t hesitate to get in touch and one of our account managers will be more than happy to help.

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