Types of Business Loans

Dec 18, 2025

Types of Business Loans

Business loans are financing tools that provide businesses with the capital they need to cover expenses. Whether it’s purchasing equipment, expanding into a new location or bridging seasonal income gaps, loans help businesses access money upfront and repay it over time.

In this article, we’ll break down the main types of business loans and highlight what you should consider before applying.

Term loans

One of the most common financing options for businesses is the term loan. With this type of loan, a lender provides a lump sum of money that is repaid over a fixed period, usually in monthly installments. Interest on term loans is usually fixed, providing predictable payments.

Term loans may be used for significant purchases or long-term investments, such as expanding operations or making large capital improvements. Because they generally involve higher amounts and longer repayment periods, lenders typically require strong credit and a solid business plan.

Business lines of credit

A business line of credit functions differently than a traditional loan. Rather than receiving a lump sum, businesses are approved for a maximum borrowing limit and can draw funds as needed. Interest is paid only on the amount borrowed, not the entire line.

This flexibility makes lines of credit particularly useful for managing cash flow or dealing with seasonal fluctuations. When payments are made and the account remains in good standing, businesses can continue to draw and repay funds as needed.

SBA loans

Small Business Administration (SBA) loans are designed to give businesses access to favorable financing terms. Because the SBA partially guarantees these loans, lenders are often more willing to extend credit to businesses that may not otherwise qualify for traditional bank financing.

SBA loans generally feature longer repayment terms and access to financing that would otherwise not be met through conventional means. For real estate or complex borrowing needs, the SBA application process can be extensive, requiring detailed documentation and approval steps that may take weeks or months. SBA Express loans are great options requiring slightly more documentation but typically faster financing needed for business lines of credit and term loans.

Commercial real estate loans

Businesses looking to purchase, build or refinance property often turn to commercial real estate loans. These loans can cover the cost of office buildings, warehouses, retail spaces or other business facilities.

Similar to residential mortgages, they are repaid over long terms and may carry either fixed or variable interest rates. Because of the high dollar amounts involved, lenders usually require a down payment and may also consider the value of the property as collateral.

There are SBA varieties of commercial real estate loans that offer lower down payment options or longer repayment terms.

How to choose the right type of business loan

Selecting the right loan begins with clearly defining your business’ purpose for borrowing. A long-term investment, such as buying real estate or major equipment, may be best suited to a term loan, SBA loan or commercial real estate loan. If the need is more short-term, such as bridging cash flow gaps or covering seasonal expenses, a line of credit might be a better fit.

It’s also important to evaluate repayment ability and cash flow projections. Businesses should compare interest rates, collateral requirements and lender terms carefully since costs and obligations vary widely.

Finally, the timeline for funding matters: while some loans, such as SBA loans, may provide favorable terms, the application process can take longer than options like lines of credit. By weighing purpose, cost and repayment capacity, businesses can choose the type of loan that best supports both their immediate needs and long-term growth.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional

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