By Jodh Mehmi, Mehmi Financial Group
Business financing comes in several forms, and each is built for a different job. Picking the right type matters as much as the rate, because the structure decides how and when you repay.
Term loans
A lump sum repaid over a set period with regular payments. Term loans suit one-time needs such as expansion, renovation or buying another business. Banks, credit unions and alternative lenders all offer them.
Business lines of credit
A revolving limit you draw on and repay as needed, paying interest only on what you use. Lines of credit suit uneven cash flow and short gaps between paying suppliers and getting paid. See business lines of credit.
Equipment financing and leasing
Loans or leases secured by the equipment itself. Because the asset is collateral, equipment financing is often easier to arrange than unsecured credit. Mehmi arranges equipment financing in Canada and the USA.
Government-backed loans
In the USA, the SBA guarantees loans made by approved lenders; its program comparison lists the 7(a) program (up to $5 million) and the CDC/504 program for land, buildings and equipment. In Canada, the Canada Small Business Financing Program shares risk with lenders on eligible loans, as described in its program guidelines.
Invoice factoring
Selling unpaid invoices to a factoring company for an advance. It turns receivables into cash and is common in trucking and wholesale. See invoice factoring.
Working capital loans
Short-term funding for payroll, inventory and day-to-day costs. See working capital loans.
Commercial real estate loans
Long-term loans to buy or refinance business property, usually with the longest terms available.
Asset-based lending
Credit secured by receivables, inventory or equipment, sized to the value of those assets. See asset-based lending.
How to choose
| Need | Common fit |
|---|---|
| Buy a machine or vehicle | Equipment loan or lease |
| Cover seasonal gaps | Line of credit |
| Waiting on customer payments | Invoice factoring |
| Expand or acquire | Term loan or government-backed loan |
| Buy property | Commercial real estate loan |
Secured vs unsecured business loans
A secured loan is backed by collateral such as equipment, vehicles, receivables or property. If the loan is not repaid, the lender can rely on that collateral. An unsecured loan relies more on cash flow, credit and often a personal guarantee. Secured options usually offer larger amounts and longer terms; unsecured options can be quicker to arrange but are often smaller.
Bank vs non-bank lenders
Banks and credit unions often look for established businesses with strong financial statements. Equipment finance companies focus on the asset being financed. Alternative lenders may weigh recent revenue more heavily. Each group has different criteria, so a decline from one does not mean a decline from all.
Merchant cash advances and revenue-based financing
These are repaid from a share of future sales rather than fixed payments. They can be fast but are often more expensive than term loans, so compare the total repayment carefully before choosing one.
Questions that narrow the choice
- Is the need one-time or recurring?
- Is there an asset that can secure the financing?
- How long will it take for the money to pay for itself?
- How stable is monthly revenue?
- How soon is the money needed?
Documents most lenders ask for
- Recent business bank statements
- Financial statements or tax returns
- A quote or invoice for any asset being financed
- Business registration and ownership details
- Details of existing loans and payments
How Mehmi Financial Group can help
Mehmi Financial Group is a financing brokerage. We compare options from banks, equipment finance companies and alternative lenders for businesses in Canada, the USA, the UK and Australia (equipment financing is available in Canada and the USA). Each lender sets its own approval, rate and terms. You can compare business financing options or equipment financing options.
Frequently asked questions
What are the main types of business loans?
Term loans, lines of credit, equipment financing, government-backed loans, invoice factoring, working capital loans, commercial real estate loans and asset-based lending.
Which type is easiest to get?
Secured options such as equipment financing or invoice factoring are often easier than unsecured loans, but every lender decides on its own criteria.
What is an SBA loan?
A loan made by an approved lender and partly guaranteed by the U.S. Small Business Administration, such as the 7(a) or CDC/504 programs.
Is there a Canadian equivalent to SBA loans?
The Canada Small Business Financing Program shares risk with lenders on eligible small business loans.
Is a line of credit better than a term loan?
Neither is better in general. A line suits recurring short gaps; a term loan suits a one-time purchase.
Can I combine loan types?
Yes. Many businesses use equipment financing for assets and a line of credit for cash flow at the same time.