Types of business funding, plainly explained
In this article
Most small-business funding comes down to six shapes: term loans, lines of credit, SBA-backed loans, equipment financing, invoice factoring, and merchant cash advances or revenue-based financing. Every one of them makes the same underlying trade from a different angle: cost, speed, and reach. The cheaper money tends to be slower and harder to get. The faster, easier money tends to cost more. Once you see that trade clearly, the whole menu stops being confusing.
Who's explaining this: Try Business Loan is not a lender and offers none of these products. We don't approve, fund, or set terms. We organize funding requests so independent funding partners can review them. This is general information, not a funding recommendation, offer, approval, or promise.
The short version
- Six shapes cover most of the market: term loans, lines of credit, SBA-backed loans, equipment financing, invoice factoring, and MCAs.
- The pattern underneath: cheaper money is slower and harder to reach; faster money costs more.
- Products differ in what they lean on: credit, revenue, invoices, or the asset you're buying.
- Compare offers by total dollar cost, not by how the price is quoted.
The six shapes#
Term loan
Lump sum repaid on a schedule with interest
- Tends to fit
- Defined one-time purchases
- Leans on
- Credit and history
Line of credit
Reusable capacity; interest typically on what's drawn
- Tends to fit
- Cash-flow swings, seasonality
- Leans on
- Credit and cash flow
SBA-backed loan
A lender's loan, partially guaranteed by the government
- Tends to fit
- Established businesses that can wait for lower cost
- Leans on
- Credit, history, documentation
Equipment financing
Loan or lease where the equipment is the collateral
- Tends to fit
- Vehicles, machines, hardware
- Leans on
- The asset being bought
Invoice factoring
Selling unpaid invoices for cash now, minus a fee
- Tends to fit
- B2B businesses waiting on slow payers
- Leans on
- Your customers' reliability
MCA / revenue-based
Advance against future revenue, repaid by frequent debits
- Tends to fit
- Fast needs, steady revenue, thinner credit
- Leans on
- Recent revenue
General patterns, not offers. Try Business Loan is not a lender and provides none of these products; every funder sets its own criteria and terms.
Term loans and lines of credit are the two classic structures, and the difference between them is shape, not quality: one event versus a standing tool. We compare them properly in line of credit vs. term loan.
SBA-backed loans are ordinary loans made by lenders, with the U.S. Small Business Administration guaranteeing a large share (85 percent of loans of $150,000 or less, 75 percent above that, under the main 7(a) program). The guarantee lets lenders say yes to businesses they might otherwise decline, generally at lower cost and longer terms than alternative products. The family includes 7(a) for general purposes, 504 for major fixed assets like buildings and long-lived equipment (up to $5.5 million, through nonprofit Certified Development Companies), and microloans up to $50,000 through nonprofit community lenders, which can't be used to pay existing debt or buy real estate. The trade: more documentation, more process, more waiting, and personal guarantees are standard, including an unlimited one from anyone who owns 20 percent or more under 7(a) rules.
Equipment financing ties the money to the thing. Because the equipment itself secures the deal, it can be reachable with thinner credit than an unsecured loan. Default and the equipment can be repossessed; that's the honest core of it.
Invoice factoring turns receivables into cash. You sell unpaid invoices at a discount, the factor advances most of the value now, and your customer's reliability matters as much as yours. It fits businesses that invoice other businesses and wait 30 to 90 days to get paid. The fees reduce what you ultimately collect.
Merchant cash advances and revenue-based financing are the fast lane: an advance against future revenue, priced with a factor rate, collected daily or weekly. Reachable with weaker credit, quick to fund, and generally among the most expensive options. We explain the mechanics honestly in how merchant cash advances work and the comparison in MCA vs. business loan.
Cheaper money is generally slower and harder to reach. Faster money generally costs more.
- SBA-backed loansLowest cost, highest bar, longest wait
- Bank term loansStrong profiles, real documentation
- Lines of creditVaries widely by who issues it
- Equipment financingThe asset does some of the work
- Invoice factoringPriced off your customers, not just you
- MCA / revenue-basedFastest and easiest to reach, costs most
A general pattern, not a price list. Where any specific offer lands depends on the funder and your business, so compare real offers on total dollars repaid.
How to think about the menu#
Don't start with the product. Start with three questions: what exactly is the money for, how fast do you genuinely need it, and what does your profile realistically support. That last one is the same short list every funder reads, credit, revenue, time in business, cash flow, existing debt, and we break it down in what lenders typically look at. If credit is the sore spot, business funding with bad credit covers which shapes lean on revenue instead.
Then compare any real offers on one number: total dollars repaid. Interest rates, factor rates, and fee schedules are all just different languages for the same question.
Common mistakes and what to watch for#
- Picking the product before defining the need. The need picks the product more often than people think.
- Comparing quotes in different units. An APR and a factor rate can't be eyeballed against each other. Convert to total dollar cost.
- Ignoring the guarantee. Most small-business products involve a personal guarantee somewhere. Know what you're signing personally.
- Waiting until the need is urgent. Urgency removes your cheapest options and hands pricing power to the fastest ones.
- Believing "guaranteed approval" anywhere on this menu. No legitimate funder guarantees an outcome before reviewing your business.
If you want to see which of these shapes your profile realistically supports, the guided intake takes about two minutes and asks no full SSN to start.
If you submit a request, Try Business Loan may be compensated by funding partners for referred inquiries, accepted referrals, or funded transactions. You do not pay Try Business Loan to submit a request.
Frequently asked questions#
What are the main types of business funding? The ones most small businesses actually encounter: term loans, business lines of credit, SBA-backed loans (7(a), 504, and microloans), equipment financing, invoice factoring, and merchant cash advances or revenue-based financing. Each makes a different trade between cost, speed, and how hard it is to reach.
What's the cheapest type of business funding? As a general pattern, bank and SBA-backed loans tend to carry the lowest costs and the highest bars: stronger credit, more history, more documentation, more time. Faster, easier-to-reach products tend to cost more. There are no universal numbers; the honest move is comparing the total dollar cost of any specific offers you receive.
What funding can a new business get? Newer businesses tend to have fewer options, since most products want operating history. SBA microloans (up to $50,000, through nonprofit community lenders) are designed partly for startups, and some equipment financing and revenue-based products open up earlier than bank loans. It varies by lender, and nothing is guaranteed.
Do I need collateral for business funding? Depends on the product. Equipment financing uses the equipment itself. Bank and SBA loans may want collateral and commonly require personal guarantees; under SBA 7(a) rules, owners of 20 percent or more must provide one. Some products lean on revenue or invoices instead of collateral.
Which of these does Try Business Loan provide? None of them. Try Business Loan is not a lender and does not fund, approve, or set terms for any product. We organize your funding request so independent funding partners can review it. Each partner decides for itself, and funding is never guaranteed.
Related reading#
Dig into the comparisons: line of credit vs. term loan, MCA vs. business loan, and how merchant cash advances work. For the fundamentals of any review, see what lenders typically look at, and if credit is the concern, business funding with bad credit.
To understand exactly what Try Business Loan is and isn't, see our Terms of Use.
Last updated July 28, 2026. Written by the Try Business Loan editorial team. Try Business Loan is not a lender and does not make credit decisions or guarantee funding; with your consent, we may share your request with independent funding partners. This page is general information, not financial advice.
Sources
- U.S. Small Business Administration, loans overview and 7(a) program: https://www.sba.gov/funding-programs/loans
- U.S. Small Business Administration, 504 loans: https://www.sba.gov/funding-programs/loans/504-loans
- U.S. Small Business Administration, microloans: https://www.sba.gov/funding-programs/loans/microloans
- U.S. Small Business Administration, 7(a) terms, conditions, and eligibility (guaranty percentages): https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility
- U.S. Small Business Administration, Form 148, Unconditional Guarantee (20%-or-more owner unlimited personal guaranty requirement): https://www.sba.gov/document/sba-form-148-unconditional-guarantee
How much funding are you looking for?
Pick an amount to begin, and we'll carry it into the guided intake and take it from there. About two minutes, and no full SSN to start.
Try Business Loan is not a lender. Funding is never guaranteed.