Wondering which types of small business funding exist before you look at any offer? The main ones are grants, loans, revenue-based financing and equity, and each trades cost, control and repayment differently.
This explainer sits within the wider topic of small business funding.
| Item | Value |
|---|---|
| SBA 7(a) loan, maximum limit | $5 million |
| SBA 504 loan, maximum limit | $5.5 million |
| SBA microloan, maximum amount | Up to $50,000 |
| SBA microloan, average size | Around $13,000 |
| Equipment financing, term limit at most lenders | Up to 25 years |
These figures come from the U.S. Chamber of Commerce CO- guide to business loan types. Programme limits and terms can change, so check the source and the lender or agency itself before you rely on them.
How the main types of small business funding differ
Most funding sorts into families by what you give up in return: repayment, a share of your sales, or part of your ownership. A Business Initiative guide, dated Dec 17, 2025, splits the field into four broad groups.
- Grants: described as free money with no repayment required, awarded through a competitive process.
- Loans: borrowed money that must be repaid with interest, with collateral often needed.
- Revenue-based financing: capital repaid as a percentage of revenue.
- Equity financing: investment in exchange for ownership.
Terms vary by provider and by country. Most of the specific figures in this guide describe United States programmes, so a business elsewhere will face different rules and names.
Loans: term, SBA and equipment financing
A term loan, also called a traditional loan, is money borrowed from a bank and repaid over a set period. The U.S. Chamber of Commerce guide says that period can run from a few months to several years. The amount depends on the lender’s requirements, your capital needs, how you plan to use the money, and your industry, size and history.
SBA-backed loans
The guide says the U.S. Small Business Administration (SBA) funds several loans that are guaranteed by the federal government. The three it names are listed below.
- 7(a) loans: the most common SBA loan, with a maximum limit of $5 million and uses ranging from real estate to refinancing debt to working capital.
- 504 loans: a maximum limit of $5.5 million, long-term and fixed-rate, and meant for major fixed assets such as land or new facilities. They cannot be used for working capital or inventory.
- Microloans: up to $50,000, with an average around $13,000. They cannot be used to pay existing debts or buy real estate.
The same guide notes that 504 loans are available through Certified Development Companies, which are the SBA’s community-based nonprofit partners. It also describes a 7(a) Working Capital Pilot, which offers monitored lines of credit up to $5 million within the 7(a) programme.
Equipment financing and lender types
Equipment financing pays for machinery or devices, and the size of the loan is tied to the value of the equipment. The guide says that, unlike other loans, the business must make a down payment first, and that most equipment lenders have term limits of up to 25 years.
The guide also contrasts two kinds of lender. Banks and credit unions generally offer better terms but a slower, more rigorous process, while nonbank lenders usually have more relaxed criteria and faster decisions but higher interest rates. For a closer look at the mechanics, see this explainer on how do small business loans work.
Grants and eligibility-based programmes
A grant is the one type in this guide with no repayment, but the Business Initiative guide stresses that it comes with limits. Awards are competitive, tied to specific purposes, and subject to eligibility requirements.
That guide lists four grant sources: government grants (federal, state and local programmes), foundation grants, corporate grants and specialty grants. It describes the usual path in three steps.
- Research: find opportunities and check whether you meet the requirements.
- Application: prepare materials and submit on time.
- Award: meet the conditions, use the money as intended and report as required.
The Chamber guide describes a related idea in lending, called specialty loans. These are open only to businesses meeting certain requirements, such as the owner’s age, gender or ethnicity, or an industry like medical, agricultural or nonprofit work. It gives the SBA’s funding programmes for minority-owned small businesses as one example.
Revenue-based financing, cash advances and equity
With revenue-based financing, the Business Initiative guide says you receive capital in return for a revenue share, and repayment is a percentage of revenue. It lists flexible terms and no equity dilution among its features, along with revenue requirements you must meet.
A merchant cash advance is a close relative. According to the Chamber guide, a business receives a lump sum from a lender in exchange for a portion of its future sales, and repays it through routine business sales rather than fixed instalments like a typical loan.
Equity financing works differently, because the money is investment in exchange for ownership. The Business Initiative guide lists ownership dilution, investor involvement and growth expectations as its characteristics, and says it is aimed at high-growth businesses.
What to compare before choosing a type
Whatever the type, the same basic questions apply. The Chamber guide suggests starting with how much money is needed and how it will be used, since some loan types allow only specific purposes and some lenders cap the amount.
- Affordability: the guide advises looking at cash flow and business credit, because interest payments and potential penalty fees can add up quickly.
- Total cost: the Business Initiative guide lists interest rates, APR and total cost as things to compare.
- Fees: the same guide names origination fees, processing fees and prepayment penalties.
- Security: loans often need collateral, according to that guide, and credit requirements apply.
Some owners avoid outside money entirely and fund growth from their own resources, a path covered in bootstrapping a small business. Either way, rates, fees and eligibility differ by provider and country, so the written terms of any specific offer are the figures that matter.
Frequently asked questions
What is the difference between a grant and a loan?
Show answer
The Business Initiative guide, dated Dec 17, 2025, describes a grant as free money with no repayment required, while a loan is borrowed money with repayment, interest and often collateral. Grants are competitive and tied to specific purposes.
What are the SBA loan limits?
Show answer
The U.S. Chamber of Commerce guide gives a maximum limit of $5 million for 7(a) loans and $5.5 million for 504 loans, and says microloans go up to $50,000. Check the SBA directly, as limits can change.
Does revenue-based financing mean giving up ownership?
Show answer
The Business Initiative guide lists no equity dilution among its features, so ownership is retained. Repayment is instead linked to a percentage of revenue.
How is a merchant cash advance repaid?
Show answer
The Chamber guide says it is repaid through business sales on a routine basis, in exchange for a portion of future sales, unlike a typical business loan.
This article is for general information and education only and is not financial, investment, tax or legal advice.
