US small businesses have access to a wide range of financing options — but these products differ significantly in their structure, cost, regulation and impact on your business and personal finances. Understanding the key differences before signing any agreement is important. This page is general educational information only — not financial or legal advice.
A term loan provides a fixed lump sum, repaid over a fixed period with regular payments. Interest rates may be fixed or variable. Term loans are regulated as loans and must comply with applicable state lending laws, including interest rate disclosures. Examples include SBA loans, bank term loans and credit union business loans.
A business line of credit gives you a revolving credit limit — you draw down as needed and repay, and the credit becomes available again. Interest typically accrues only on the drawn balance. Lines of credit are regulated as credit products and require standard lending disclosures.
SBA loans are guaranteed by the US Small Business Administration and issued through approved lenders. They often offer lower rates and longer terms than conventional business loans, but involve more documentation. Find approved SBA lenders at sba.gov.
A merchant cash advance (MCA) is technically a purchase of future receivables — the MCA provider gives you a lump sum in exchange for a percentage of your future daily or weekly revenue (typically credit card sales or all sales). MCAs are often not classified as loans and may not be subject to state interest rate caps or standard lending disclosure requirements. They use “factor rates” rather than APR, which can make the true cost harder to compare. Daily or weekly repayments can create significant cash flow pressure. There is no fixed end date — repayment ends when the agreed amount has been collected.
Many business finance products, including SBA loans, business credit cards, equipment finance and MCAs, require a personal guarantee — meaning you, as the business owner, are personally liable if the business defaults. Many also involve a UCC (Uniform Commercial Code) filing, which gives the lender a security interest in your business assets. Understand what you are agreeing to before signing.
Because MCAs may not be regulated as loans in many states, the same consumer and small business protections may not apply. Some states have introduced disclosure requirements specifically for MCAs — but coverage varies. Always compare the total cost of financing, not just the advance amount.
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This page is general educational information only. It is not financial, legal, tax, credit or debt advice. Rules and regulations can change. Always verify current information with official sources before taking any action.