A complete guide to the different types of business loans

Whether you’re launching a startup, navigating growing pains, or scaling operations, securing the right kind of finance can make or break your next move. But with so many business loan options out there, knowing which one is right for you isn’t always straightforward. We're here to help—here's everything you need to know before you make a decision.

Unsecured business loan

Best for: Businesses that need quick, flexible funding without offering collateral.

Unsecured business loans let you borrow money without offering collateral. Instead, approval is based on your credit score and financial health, which makes unsecured finance faster and more flexible than secured alternatives. This type of finance is typically short-term—3 months to 5 years—and is ideal for covering cash flow, paying wages, or funding opportunities.

Unsecured loans carry more risk for lenders, and as such, often come with higher interest rates and smaller borrowing limits. If your business defaults, the lender will not normally have direct recourse against your property, but you may still be personally liable if you've signed a director's guarantee.

Benefits

• You don’t need to offer any collateral
• The repayment terms are clear and predictable
• The application process requires minimal documentation
• It can be used for a wide range of business needs
• The approval and funding process is typically fast

Drawbacks

• Lenders tend to charge higher interest rates
• Lenders may limit the duration of your loan
• It may require a director’s guarantee
• It also often comes with ongoing fees

Business line of credit

Best for: Businesses in need of ongoing access to funds to manage cash flow or cover short-term expenses.

A business line of credit gives you access to funds up to a set limit, and you only pay interest on what you use. You can draw from it whenever you need to and use it for a variety of purposes—to manage cash flow, cover overheads, fund business growth, and the list goes on. As you make repayments, your available balance goes back up, so you can keep using it as needed.

Credit lines may be either secured or unsecured and differ in their fee structures—some may charge interest solely on the amount used, while others might include additional setup fees.

Benefits

• You can withdraw funds whenever you need to
• You pay interest only on what you borrow
• There are several unsecured loan options available
• Using your credit mindfully and repaying on time can help improve your credit score
• The application process is quick and hassle-free

Drawbacks

• You may need a longer business history
• Business lines of credit could be subject to fees and charges
• Larger loans might need collateral
• Lenders may charge higher interest rates
• You may be asked for a director’s guarantee.

Equipment finance

Best for: Businesses looking to buy or upgrade equipment without the hefty upfront cost.

Equipment finance, also known as machinery or asset finance, is specifically designed to fund business machinery—think commercial vehicles, medical equipment, laptops, POS systems, walk-in fridges, and more. You own the asset from day one, but it's used as security for the loan.

Equipment loans are very commonly used for businesses needing big-ticket items while spreading the cost over time. Once the loan is paid off, the asset is fully yours with no strings attached.

Benefits

• Equipment finance frees up cash for other areas of your business
• Existing debt doesn’t usually affect approval
• You may qualify for government tax initiatives
• Interest rates are often lower than unsecured loans
• Equipment finance allows you to unlock capital by selling old equipment

Drawbacks

• Equipment loans often come with stricter terms compared to unsecured loans
• Early loan payouts may incur fees from some lenders
• Some lenders include extra fees and charges beyond interest
• If the equipment's value drops, you may be left owing more than it’s worth

Business car loan

Best for: Businesses needing vehicles for business purposes with manageable repayments.

A business car loan allows you to purchase a vehicle to use for business purposes—like a car, ute, or truck, for example—while spreading the cost out over time.

Similar to equipment finance, you own the vehicle from the get-go, but it will serve as collateral for the loan. This means that if you fail to repay it, the lender can take possession of the vehicle. Once you pay off the loan, the vehicle is yours, without any further obligations.

Benefits

• A business car loan frees up cash for other areas of the business
• Existing debts don’t usually affect approval
• You can sometimes qualify for government tax incentives
• Interest rates are often lower than unsecured loans
• Selling your old vehicle can give you a cash boost

Drawbacks

• Business car loans typically have more rigid payment terms than unsecured alternatives
• Early loan payouts may incur fees depending on the lender
• Some lenders may include extra charges
• If the vehicle’s value drops, you might owe more than it’s worth

Invoice finance

Best for: Businesses with unpaid invoices that want to free up cash without waiting for customers to pay.

Designed to bridge gaps between incoming and outgoing payments, invoice finance allows you to access funds tied up in outstanding invoices, cushioning the impact of late payments on your business.

There are two types of invoice financing—invoice factoring and invoice discounting—which differ in the level of control your lender has over your sales ledger. With invoice factoring, your lender purchases the unpaid invoices outright, which enables them to handle payment collection directly.

Benefits

• Invoice finance helps you access cash tied up in invoices quickly
• You can focus on running your business, without the stress of following up on late payments
• Usually, no physical collateral is required
• Invoice finance is flexible, and you can use it only when needed

Drawbacks

• Your customers must be seen as likely to pay in order to use these products
• Annual costs can be higher than other options
• Invoice finance is best suited for businesses with regular invoices
• You might lose some control over your accounts receivable
• Your customers may be notified in some cases
• Minimum sales volume may apply

Business acquisition loan

Best for: Entrepreneurs or companies to expand by acquiring another business’s assets, operations, or client base.

A business acquisition loan provides funding to purchase an existing business. It often covers the purchase price and other initial costs and usually has flexible repayment terms that align with the business’s cash flow, making them a viable option for businesses with proven profitability and growth potential.

Benefits

• Allows you to purchase a more established business instead of starting one from scratch
• It can help with business growth and diversification
• It can be a quick way to acquire a new customer base
• Often, the loan will cover both the purchase price and other initial costs

Drawbacks

• Business acquisition loans may require significant collateral
• There are risks of overpaying for the business
• These loans have a complex approval process and longer lead times

Secured term loan

Best for: Businesses looking to fund major projects or expand operations while leveraging existing assets to reduce repayments.

With a secured business loan, you use an asset as collateral. This reduces the risk for lenders and often leads to lower interest rates, longer terms, and higher borrowing amounts.

Collateral is typically residential or commercial property, but you can also use other high-value assets like equipment, real estate, or even business equity. As your business grows and you acquire more assets, you can update or change your collateral, which can improve your standing with lenders and potentially give you access to more favourable loan terms.

Benefits

• Secured term loans come with lower interest rates than unsecured loans
• You get access to higher loan amounts
• You benefit from extended repayment periods
• Secured finance builds credit history if repaid on time

Drawbacks

• You are at risk of losing the asset if you don't keep up with repayments
• The application process can be longer and more complex than other loan types
• Secured finance is limited to businesses with suitable assets

Trade finance

Best for: Importers or exporters needing short-term funding to manage domestic or international transactions.

Trade financing helps businesses cover the upfront cost of goods, whether locally or internationally, and similar to other small business loans, there’s usually a preset lending limit.

Many SMEs use trade finance loans for buying stock or materials in bulk, which allows them to spread their costs over time while still being able to benefit from discounts and lower shipping per unit. Lenders often monitor business performance, adjusting limits based on how the business is doing.

Benefits

• Trade finance allows businesses to save by buying stock in bulk
• Often, it provides the ability to borrow more than typical business loans
• It helps you keep cash free for other expenses

Drawbacks

• Trade finance requires more paperwork than term loans
• Funds are strictly for buying stock or materials
• Lending limits may drop if business performance dips

Lease agreement

Best for: Businesses wanting to use equipment or vehicles long-term without owning them outright.

An asset lease agreement lets your business use equipment, vehicles, or machinery without buying it upfront. Importantly, the asset isn't owned by you and won't appear on your balance sheet. You pay a set amount over a lease term, and at the end, you can return, upgrade, or buy the asset.

It’s a flexible option that helps preserve cash flow and keeps your business up to date with the latest equipment, all without needing to own it outright.

Benefits

• Keep your cash free for other uses
• Flexible options often include return, upgrade, or buy at the end
• An easy way to access updated equipment
• Payments are predictable, helping with budgets and cash flow management

Drawbacks

• You don’t own the asset until you buy it (if that’s an option)
• Total costs may be higher than buying outright in the long run
• Agreements often have strict terms
• Early termination fees may apply

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