Every Financing Option Available to Your Business Right Now, in Plain English

The Federal Reserve's latest small business credit survey found that 60% of SMBs applied for financing in the past year. The most common reason was covering operating expenses. The most common tool was a credit card.

That is not always the wrong call, but it is often an expensive one made by default rather than by design. Most business owners are not aware of how many options actually exist, what each one costs in real terms, or which situations each one is built for.

Here is a straightforward breakdown.

Line of credit

What it is:

A revolving credit facility you draw from as needed and repay over time. Think of it like a business checking account with a borrowing limit attached.

Best for:

Managing cash flow gaps, covering payroll during a slow period, smoothing out seasonal swings. You only pay interest on what you draw.

Watch out for:

Variable rates mean your cost can change. Some lenders require an annual renewal and will pull the line if your financials deteriorate. Do not treat it as permanent capital.

SBA loan

What it is:

A term loan backed by the Small Business Administration, offered through approved banks and lenders. Lower rates and longer repayment terms than most alternatives.

Best for:

Major investments: buying equipment, purchasing commercial real estate, funding an acquisition, or refinancing high-cost debt. If you have time to wait and a clear use of funds, this is usually the cheapest option available.

Watch out for:

The application process is slow and documentation-heavy. Approval can take weeks or months. Not the right tool when you need capital fast. Government shutdowns can also delay or freeze SBA approvals with no warning.

Term loan

What it is:

A lump sum borrowed at a fixed or variable rate, repaid over a set period with regular payments. Straightforward and predictable.

Best for:

One-time capital needs with a clear ROI: a piece of equipment, a build-out, a marketing push. You know what you are spending the money on and roughly what it will return.

Watch out for:

Fixed payments mean you are on the hook even if revenue drops. Make sure the monthly payment fits comfortably in your cash flow before you sign.

Invoice financing

What it is:

You borrow against your unpaid invoices. A lender advances you 80 to 90% of the invoice value upfront and collects the balance when your client pays, minus a fee.

Best for:

Businesses with long payment cycles and reliable clients. If you do work for creditworthy companies that just take 60 or 90 days to pay, invoice financing lets you access that cash early.

Watch out for:

The fees add up faster than most people realize. Annualized, invoice financing often costs 20 to 40%. It is a useful tool but an expensive habit. If slow collections are the root problem, fixing your AR process is almost always cheaper than financing around it.

Revenue-based financing

What it is:

A lender advances capital in exchange for a percentage of your future revenue until the advance plus a fixed fee is repaid. No fixed monthly payment.

Best for:

Businesses with predictable recurring revenue that want flexible repayment. Payments scale down when revenue slows, which reduces the risk of a cash crunch during a bad month.

Watch out for:

The total cost can be high, typically 1.2 to 1.5 times the amount borrowed. And because payments are tied to revenue, a fast-growth period means you pay it back quickly at full cost. Run the numbers before you assume the flexibility is worth the premium.

Merchant cash advance

What it is:

An advance against future credit card or debit card sales, repaid as a percentage of daily card receipts. Fast to access, minimal documentation.

Best for:

Honestly, not much. MCAs are one of the most expensive forms of small business financing available, with effective annual rates that regularly exceed 50 to 100%. They are a last resort, not a strategy.

Watch out for:

The daily repayment structure can destroy your cash flow. Many businesses that take MCAs end up stacking multiple advances to stay afloat. If you are considering one, exhaust every other option first.

Business credit card

What it is:

Revolving credit for business purchases, often with rewards, expense tracking, and float on purchases before the bill is due.

Best for:

Day-to-day purchases you will pay off monthly. If you are disciplined about paying the balance, a card with good rewards is a legitimate tool for managing expenses and capturing points.

Watch out for:

Carrying a balance on a business card at 18 to 36% APR is one of the most expensive things you can do. The Fed's latest data shows 61% of small businesses carry revolving card balances. That is a lot of expensive capital masquerading as a cash flow solution.

The right tool for the right job

Most cash flow problems have a cheaper solution than taking on debt. Tightening collections, accelerating payments from slow-paying clients, and improving visibility into what cash is coming in and when can eliminate the need for financing entirely in a lot of cases.

When financing does make sense, the key is matching the tool to the need. Short-term gap: line of credit. Long-term investment: SBA or term loan. Flexible growth capital: revenue-based financing. Invoice float: invoice financing, but only if your AR process is already tight. Business card for expenses you will pay off monthly. Everything else: proceed with caution.

Arclite is a cash flow management platform built for small and mid-sized businesses. It integrates directly with QuickBooks Online to automate AR collections, AP processing, and cash forecasting so you always know where you stand before you need to borrow.