Types of Business Funding Explained

Term loan

A lump sum repaid on a fixed schedule over a defined period. Predictable and well suited to a one-time investment such as a build-out, a hire-and-ramp plan or a defined expansion project.

Business line of credit

A revolving limit you draw from as needed, paying on what you draw. Useful for recurring working capital gaps, payroll smoothing and inventory cycles rather than one large purchase.

SBA-backed loans

Loans issued by participating lenders with a partial federal guarantee under programs run by the U.S. Small Business Administration. They are generally documentation-heavy and slower, but the terms are often the most favorable available to qualifying businesses. Program details and eligibility are published on SBA.gov.

Equipment financing

Financing tied to a specific asset, where the equipment itself typically serves as collateral. Common in construction, transportation, manufacturing, medical and food service.

Invoice factoring and receivable financing

Converts unpaid B2B invoices into working capital before the customer pays. Pricing depends heavily on the credit quality of your customers rather than only your own profile.

Revenue-based funding and merchant cash advances

Repayment is tied to sales or card volume rather than a fixed monthly amount. Access is often faster and requirements can be lighter, but cost is usually expressed as a factor rate rather than an APR — so always convert it to a total dollar cost before comparing.

How to choose

Match the structure to the shape of the need, not the other way around:

• One-time project with a known cost → term loan
• Recurring or unpredictable gaps → line of credit
• Buying a specific asset → equipment financing
• Slow-paying B2B customers → invoice financing
• Best available long-term pricing and time to wait → SBA-backed