Types of Business Loans: Every Option Explained for 2027

By American Business Center | Updated January 2027 | Business Loans

The business lending market in 2027 offers more options than ever before — which makes choosing the right one harder. This guide explains every major type of business loan, what each one actually costs, who qualifies, and when each one is the right choice.

SBA loans

What they are: Government-guaranteed loans made by approved banks and lenders. The SBA guarantees 75%–85% of the loan, which lets lenders offer better terms to businesses that might not qualify for conventional bank loans.

Best for: Established businesses (2+ years) needing $50,000–$5 million for virtually any business purpose.

Rates: 10%–15% APR (variable, tied to prime rate)

Terms: Up to 10 years (working capital/equipment), up to 25 years (real estate)

Requirements: 680+ personal credit, 2+ years in business, documented cash flow, no federal delinquencies

Limitations: Slow (30–90 days), significant documentation required

Term loans

What they are: A lump sum of money repaid with fixed payments over a set term. The simplest loan structure.

Best for: Specific one-time investments: equipment, renovations, acquisitions, inventory buildup.

Rates: 7%–20% (bank), 15%–60%+ (online lender)

Terms: 1–10 years (varies widely by lender)

Business lines of credit

What they are: A revolving credit facility with a maximum limit. Draw when needed, repay, and the available credit replenishes. Only pay interest on what you have drawn.

Best for: Ongoing working capital needs, seasonal cash flow management, covering gaps between invoicing and payment.

Rates: 8%–14% (bank), 10%–78%+ (online)

Terms: Revolving (renews annually typically)

Equipment financing

What they are: Loans or leases specifically for equipment purchases, secured by the equipment itself.

Best for: Any equipment purchase: vehicles, machinery, technology, medical devices.

Rates: 5%–25% depending on credit, equipment type, and age

Key advantage: Equipment collateralizes the loan, making approval more accessible than unsecured products

Merchant cash advances (MCAs)

What they are: Not a loan — a purchase of future revenue at a discount. The MCA provider advances a lump sum in exchange for a percentage of future daily credit card or bank deposits until the total amount (advance + fee) is repaid.

Best for: High-volume retail or food service with consistent daily revenue, genuine emergencies only.

Rates: 50%–200%+ APR equivalent (quoted as factor rates, e.g., 1.20–1.50)

Warning: MCAs are unregulated, do not require APR disclosure, and are the most expensive common business financing product. Use only as a last resort.

Invoice financing and factoring

Invoice financing: Borrow against outstanding invoices (80%–90% advance). You retain the customer relationship and collect payments.

Invoice factoring: Sell your invoices to a factoring company at a discount. The factor collects directly from your customers. Faster access but you lose control of customer relationships.

Best for: B2B businesses with slow-paying customers (net-30 to net-90 terms).

Rates: 1%–5% per 30 days (effectively 12%–60%+ annualized)

Revenue-based financing

What it is: An advance repaid as a fixed percentage of monthly revenue until the total repayment amount is reached. Payments flex with revenue — lower in slow months, higher in good months.

Best for: SaaS and recurring-revenue businesses, e-commerce.

Rates: 6%–15% flat fee on amount advanced (Clearco, Capchase)

Microloans

What they are: Small loans (up to $50,000) through SBA microloan program and nonprofit CDFI lenders, designed for very small businesses and startups.

Best for: Businesses too small for traditional bank loans, underserved entrepreneurs.

Rates: 8%–13% typically

Choosing the right loan type

Your Situation	Right Loan Type
Need equipment or vehicles	Equipment financing
Buy commercial real estate	SBA 504 or commercial mortgage
Smooth ongoing cash flow	Business line of credit
One-time growth investment	SBA 7(a) or bank term loan
B2B, slow-paying customers	Invoice financing or factoring
SaaS or subscription business	Revenue-based financing
Very small amount (<$50K)	SBA microloan or CDFI
Last resort, need money today	MCA (expensive, use sparingly)

Bottom line

The best business loan is the cheapest one you can qualify for that fits your specific need. Start with SBA and bank options if you qualify and can wait. Use online lenders when you need speed. Only use MCAs in genuine emergencies when no better option is available. Matching the loan type to the purpose is as important as finding the lowest rate.