Commercial Lending for Small Businesses
Commercial loans come in many shapes and sizes and are offered by a number of different business lenders. This highly saturated marketplace can make it challenging to decide which funding option is best for your business. Use the guide below as a brief overview of five types of the most common commercial lending.
Merchant Cash Advance
A merchant cash advance provider looks at a potential borrower’s daily credit card receipts and determines if the business can pay back the funds in a timely manner. Then, a small business “sells” a portion of future credit card sales to acquire extra capital immediately.
Pros & Cons: These can be a very reliable method for receiving a short-term influx of cash, but beware that factor rates are not equal to interest rates. Depending on the estimated time to deliver the funds, the actual cost can be more or less expensive than any other loan offering.
Technically, invoice factoring is not a loan. Invoice Factoring is a form of business financing, in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount.
Pros & Cons: Invoice factoring can provide immediate working capital to help cover a funding gap, but this service could be expensive.
Traditional Term Loan
Also considered by many as a “medium-term loan,” term loans are the kind you may be most familiar with. Generally issued by a bank, the terms of these loans are generally flexible to a business’s needs and vary as such.
Pros & Cons: Business term loans are good if you have a specific need or goal that requires the loan. They can sometimes be difficult to apply for and obtain, and they only allow you to borrow the initial loan amount unless you reapply.
The SBA is a branch of the government that helps incentivize lenders to loan to small businesses by guaranteeing a portion of those loans. This way, if a business defaults on their SBA loan, the lender doesn’t lose as much money.
Pros & Cons: These loans are just like a commercial loan you’d get from a bank, and generally come with great rates. SBA offers three different types of commercial lending, so they fill a variety of business needs. The downside is that the application process can be very long and difficult, and it can be hard to obtain approval.
Business Line of Credit
A business line of credit is a lot like a business credit card: A lender gives you access to an approved amount of money that can be drawn on whenever necessary. You only pay interest on the funds you take out. As you repay the lender, your available money is again available without having to reapply for the loan.
Pros & Cons: Lines of credit are among the most flexible business loans available, allowing you to withdraw and repay when you want to. Because of the easy nature of drawing funds when you need to, some business owners may draw more than they need — as the temptation of immediate cash combined with a “spend money to make money” mindset can get them in trouble.
Commercial Loans from Headway Capital
Headway Capital offers a business line of credit of up to $100,000. We pride ourselves on a fast and simple process with no extra costs or hidden fees. If approved, you can borrow as much as you need (up to your credit limit), as many times as you need to, without having to reapply. Accessing your line of credit is easy; all you have to do is log in to your online account and request a draw! As you repay, you replenish your available credit, so you can keep your business running at full strength at all times.
Business line of credit
12, 18 or 24 months
No Hidden Fees
See our Rates & Terms for details
Weekly or monthly
Clear payment terms, interest does not compound, no penalty for early payoff
1We always do a soft inquiry unless your credit file is restricted, in which case we would ask you to contact the credit bureau to lift the restriction. Doing so may result in a hard pull.