Types of Business Loans and Their Pros & Cons

 

 

 

When running a business in the U.S., securing working capital is always a key challenge.  Whether it’s for business expansion, equipment purchases, inventory, or simply to maintain smooth cash flow, financing can often be essential.  Fortunately, there are a variety of business loan programs available in the U.S., and you can choose the one that best suits your business needs and situation. However, with so many options to consider—and with financial products and programs constantly changing—it is important to have the guidance of a trusted financing professional.

 

With years of experience and proven results, we partner with numerous U.S. banks, lenders, private equity firms, and financial institutions. This allows us to present the most suitable loan options based on each client’s circumstances. We also continue working to help clients secure even better financing terms in the future.   Consultations and pre-approvals are free of charge, with no obligations. We provide guidance with honesty and care from start to finish.

 

Let’s take a look at some of the most common business loan programs, along with their pros, cons, and recommended uses. For more detailed information on each program, please visit the links provided.

 

 

 

 

 

🔹SBA Loans

Among U.S. business loans, SBA loans typically offer the lowest interest rates and the longest repayment terms.  The SBA (Small Business Administration) is a federal agency that provides a 70%–85% guarantee to banks, enabling them to offer loans with lower interest rates and extended repayment terms.

 

 

 

✅Pros: 

      • Maximum loan amount: up to $5,000,000

      • Long repayment terms: Business loans up to 10 years / Commercial real estate up to 25 years

      • Low interest rates: Variable Prime + 1%–4% margin

      • Unsecured loans available up to $350,000

 

 

⚠️Cons: 

      • Lengthy and complex application process (2–3 months)

      • Limited to U.S. permanent residents and citizens

      • Requires at least 2 years of tax returns (except for business acquisition)

 

 

👉Recommended: 

      • Business acquisitions (10% down required)

      • Purchase or refinance of commercial real estate (0%–10% down, up to 25-year term)

      • Businesses seeking larger loan amounts relative to their size

      • Stable, established small businesses

🔗 Learn more about SBA Loans
🔗 SBA Real Estate Loans

 

 

 

 

 

 

 

🔹Business Line of Credit

A revolving credit option, similar to a credit card, that allows you to draw funds as needed and reuse them once repaid.

 

 

 

✅Pros: 

      • Only pay interest on the amount you use

      • Reusable once repaid

      • Low monthly payments (interest-only option available)

      • Ability to secure funds in advance

      • Lower rates: Variable Prime + 1%–5% margin

      • Faster than SBA approval (3–5 weeks)

      • Unsecured up to $250,000

      • Can apply with multiple banks for pre-approval

 

 

⚠️Cons: 

      • May convert into a term loan after the revolving period (often with little notice)

      • One-time fee after loan funding

      • Typically limited to $250,000 or less

      • Available only to U.S. permanent residents and citizens

      • One time fee after closing

 

 

👉Recommended: 

      • Businesses seeking to secure funds in advance

      • Those who prefer small monthly payments (interest-only)

🔗 Learn more about Business Lines of Credit

 

 

 

 

 

 

🔹 Bank Term Loan

A Bank Term Loan is a bank loan that does not require SBA approval, which means it can be processed faster than an SBA loan.
However, interest rates are higher than SBA loans, and the repayment term is typically 5 or 10 years.

 

This can be a useful alternative when SBA financing is not available, or when you want to pay off high-interest, short-term MCA loans by consolidating them into a bank term loan.

 

Details on the two Bank Term Loan options:
https://milestonepointinc.com/bank-term-loan/

 

 

1️⃣ 10-Year Bank Term Loan:

          • Maximum Loan Amount: Up to $350,000

          • Processing Time: Approximately 4–5 weeks (fast approval)

          • Interest Rate: 15% – 20% annually

          • Lender Origination Fee: 3% – 5%

          • Fee Structure: One-time fee at closing

          • Can pay off up to 2 MCA loans

 

 

2️⃣ 5-Year MCA Consolidation Term Loan:

 

          • Eligible States: NY, NJ, FL, AZ, MI, OH, IN, CA

          • Loan Amount:

                • Up to 35% of prior year gross revenue

                • Maximum $1,000,000

          • Loan Structure:

                • 5-year term

                • Fully amortized term loan (principal + interest)

          • Repayment: Monthly payments

          • Interest Rate: WSJ Prime + 0% to 3%

          • MCA or existing business loan consolidation

          • Fees: One-time fee at closing

 

 

✅ Pros

      • No SBA approval required → Faster processing

      • MCA payoff possible → Reduces high-interest and daily payment burden

      • Monthly repayment structure → Better cash flow management

      • Bank loan → Much more stable than MCA financing

 

 

⚠️ Cons 

      • Higher interest rates compared to SBA loans

      • Revenue & cash-flow based underwriting → Recent performance is critical

      • One-time fee after loan funding

 

 

👉 Recommended 

      • Businesses that cannot qualify for SBA loans or were declined

      • Owners with multiple MCA loans causing monthly cash-flow pressure

      • Borrowers who want to replace short-term high-interest debt with a bank term loan

      • Operating businesses that need fast access to capital

 

 

 

 

 

 

 

🔹Short-Term Loans & Merchant Cash Advance (MCA)

Ideal for businesses that need funds quickly or are unable to qualify for bank loans. The process is simple, and funds can be available within 1–3 days.

 

 

✅Pros: 

      • Fast and simple approval (1–3 days)

      • Suitable for those who do not qualify for SBA or bank loans

      • Refinancing possible after repaying 40%–50% of the balance

      • Interest paid may be tax-deductible

      • Helps build business credit

      • Available for businesses with less than 2 years in operation

 

 

⚠️Cons: 

      • High interest rates compared to SBA and bank loans (varies by applicant)

      • Short repayment terms lead to higher payments

 

 

👉Recommended 

      • Businesses needing immediate access to funds

      • Owners with low personal credit scores

      • Startups under 2 years old

      • Businesses ineligible for SBA or bank loans

🔗 Learn more about Short-Term Loans & MCA

 

 

 

 

 

 

Terry Kwon

Phone: (631) 624-4480

Email: terry@milestonepointinc.com

 

Funding Director at Milestone Point, Inc.

Licensed Mortgage Originator at Loan Factory

NMLS #2620208

Loan Factory NMLS #320841