Business capital loans give companies the money they need to fund daily operations, manage cash flow in slow months, expand the business, and more.
Business capital loans fall within the broader category of traditional business banking loans and lines of credit. Without this financing, small businesses must face tough decisions. A 2025 Goldman Sachs survey reported 81% of respondents had trouble securing access to capital during the previous year; as a result, nearly half had to halt expansion plans, while 22% had to lay off workers.
In this article you’ll learn what business capital loans provide, different types of financing available, and what it takes to get credit approval.
What is a business capital loan?
Business capital loans are loans a company receives from sources like banks or other lenders to fund their activities: launch the business, fuel growth, hire employees, lease space or equipment, manage cash flow in a slow month, buy inventory, cover prototype or research costs, expand into new markets, and cover other operating expenses. Companies repay the money over time based on the terms of the agreement.
Business financing refers broadly to any type of working capital a company uses to operate and grow, so this category extends beyond just standard bank loans to include venture capital, angel investors, and selling an ownership stake in your business, among others.
Factors that can affect business loan approval include loan size, industry, how long the company has been in business, revenue, credit history, and collateral available. The more lenient the requirements, the more lender risk. For this reason, credit for newer small businesses tends to carry higher interest rates.
Types of business capital financing
- SBA loans
- Traditional bank and credit union loans
- Online and alternative loans
- Microloans
- Business credit cards and lines of credit
- Merchant cash advances
Businesses have an array of financing options. They can choose among the various types of business loans, depending on their needs and preferences for repayment. Here are six options:
SBA loans
In SBA loan agreements, the US Small Business Administration guarantees a portion of a loan issued by an approved lender like a bank or credit union. They’re popular with entrepreneurs because they often have some of the lowest interest rates and longer repayment terms than other options.
In exchange for these terms, participating lenders tend to have high standards to lower their risk. They typically want at least two years of business history, good credit scores, and no defaults on other loans. For this reason, an SBA loan program can be a good choice for an established, successful for-profit business; it’s not an ideal option for newer entrepreneurs or those seeking funds for start-up costs because the odds of credit approval are low.
SBA backed loans require anyone who owns 20% or more of the business to sign a personal guarantee, a legally binding commitment that requires individual owners to repay the loan if the business defaults; if the company can’t repay, owners’ personal assets like their house or savings are at risk of seizure.
Obtaining an SBA loan also can create conflicts if you plan to raise other types of funding like venture capital because the risk setup is entirely different, says Matt Scanlan, founder of cashmere company Naadam. SBA loans protect lenders by holding founders individually liable; VCs, by contrast, operate using a high-risk model where liability is strictly limited to the company. SBA loans break that clean limited liability scenario that VCs expect.
“SBA [loans] are a very good tool, but there’s some risk,” Matt says on an episode of Shopify Masters. “I wouldn’t recommend taking SBA loans that you personally guarantee if you’re going to have investors around the table at any point—because your incentives are never going to be aligned unless they’ve agreed to pay that off, transfer the guarantee to the entity, or guarantee it themselves.”
Traditional bank and credit union loans
A bank loan is a lump sum borrowed from a bank and repaid with interest over a fixed term. As with SBA loans, traditional lenders typically offer some of the most competitive interest rates on the market—but in exchange they come with stringent lending standards. Credit unions have similar terms; however, because they’re member-owned nonprofits they often provide more personalized service and potentially better rates than traditional banks, especially if you’re already a member.
More established companies may have enough valuable business assets to use as collateral to secure these loans. For newer small businesses and startups, banks and credit unions typically require personal guarantees just like SBA loans. Those newer upstarts may also find it tougher to obtain credit approval for this type of loan.
That’s what happened to Inder Bedi when he initially sought bank loans to start Bedi Studios, which makes premium outerwear and accessories from discarded and upcycled materials. “Nobody wanted to fund it,” Inder says on an episode of the podcast Shopify Masters. “I’ll never forget how one bank manager told me, ‘If you want a loan for a car, no problem—but your business, no. Good luck.’”
Nicola Hamilton experienced something similar when she walked into a Toronto bank with her pitch to open Issues Magazine Shop, a small store dedicated to independent publications around the world. “The day that Issues became real was … going to the bank and saying, ‘Hey, I want to open a print magazine store,’” Nicola says on Shopify Masters. “They were like, ‘Um, no.’”
Still, some entrepreneurs do succeed in acquiring a bank loan. Truvelle founder Gaby Bayona coupled one with her own savings to get her bridal brand off the ground, she says on Shopify Masters.
“I bootstrapped all of my company to jumpstart everything,” Gaby says. “I did get a $15,000 loan from the bank, and I reinvested everything.”
Online and alternative loans
Given the challenges with securing SBA and traditional bank loans, new or less established businesses might turn to the growing category of alternative lenders. This includes a wide range of fintechs, online-only lenders, and other non-bank options, like Shopify Capital.
These alternative lenders often provide a far easier application process, with limited paperwork and fast approvals; for example, Shopify Capital automatically assesses applicants based on sales, disputes, customer interactions, and platform history, and applications are reviewed within one to three business days.
Non-bank lenders may also have more flexible requirements. Compared to banks, they typically accept less operating history, lower credit score thresholds, less collateral, and less documentation to process. That can be appealing for new businesses, owners with a weaker personal credit score, or those who need funds quickly. The trade-off: This convenience and flexibility often comes with higher interest rates and shorter repayment terms.
Microloans
These smaller loans are specifically designed for early-stage businesses that may not qualify for traditional financing, ranging from a few hundred dollars to $50,000. Many microloans are offered through nonprofit or mission-driven lenders committed to supporting new founders and those who may be underserved by banks.
Microloans are inherently small, but they can help cover startup costs, purchasing equipment, or funding an initial product run.
For Issues Magazine Shop, Nicola ended up choosing two microloans with a beneficial payment schedule: “The loan that we got is a five-year loan … but you don’t have to actually start paying the loan back until year two, which is super helpful,” she says. “You have the first year to sort of get your feet under you.”
Business credit cards and lines of credit
Stores with little to no credit history might choose a business credit card, which is a revolving credit line tied to a card that’s used for everyday purchases. They typically carry higher limits than personal credit cards.
Making on-time payments helps build a business credit history separate from the owner’s personal credit, which can make it easier to qualify for more financing later. Options include Shopify Credit, a pay-in-full business charge card that lets a store either pay the full statement balance each month or repay over 10 months through automatic debits from daily sales, for a fee, with cash back on eligible purchases.
Stores with a record of steady sales may opt for a business line of credit, which is a type of revolving credit that functions similarly to a business credit card. Lines of credit tend to have much higher borrowing limits compared to credit cards, making them a more effective tool for costly short-term needs like new equipment or inventory. LOCs also entail lower interest rates since they’re designed for more established businesses.
Merchant cash advances
A merchant cash advance (MCA) is a funding method in which a financing company provides capital in exchange for a percentage of your future sales. Rather than issuing a loan with interest, MCA companies purchase a portion of your future credit card sales, debit card sales, or other receivables, which are repaid with fees over time.
Lenders take withdrawals daily, weekly, or monthly based on agreement terms until the advance is fully repaid. In this way, merchant cash advances are different from traditional small business loans, where most lenders mandate monthly payments with a fixed or variable interest rate. These loans tend to come with fewer requirements and the money is typically disbursed faster, but they can also be more expensive than other options.
Merchant cash advances are available through programs like Shopify Capital, which provides funding to eligible businesses based on the store’s location, history, and Shopify platform activity. You can use the funds for inventory, marketing, leasing retail space, or hiring.
*All loans through Shopify Capital Loans are issued by WebBank. Offers are subject to change based on several factors including your store’s performance and the review of your financial information. Shopify Capital Loans must be paid in full within 18 months, and two minimum payments apply within the first two six-month periods. Offers to apply do not guarantee funding. Repayments are made based on a percentage of daily sales.
Business capital loans FAQ
What types of business financing are available?
Small business owners can access many types of financing options, including SBA loans, traditional bank and credit union loans, microloans, online and alternative loans, business credit cards and lines of credit, and merchant cash advances.
How do you qualify for business financing?
It varies. To qualify for business financing, SBA lending partners and banks often look for a solid operating history of at least a few years, a strong credit score, and stable revenue. Businesses without these bona fides might turn to options like microloans, business credit cards, and merchant cash advances.
Should I choose a one-time loan or flexible financing?
You might choose a one-time loan for a single specific purchase with a fixed cost, like a piece of equipment. Flexible financing. like a line of credit, is a better choice if you need ongoing access to funds for operating expenses that change over time.
This post is for information only. You are responsible for reviewing and using this information appropriately. This content doesn’t contain and isn’t meant to provide legal, tax, or business advice. Requirements are updated frequently and you should make sure to do your own research and reach out to professional legal, tax, and business advisers, as needed. To sell products using the Shopify platform, you must comply with the laws of the jurisdiction of your business and your customers, the Shopify Terms of Service, the Shopify Acceptable Use Policy, and any other applicable policies.
