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Term Loan

When you’re ready to make a significant investment in the future of your business, you need a way to fuel it financially. A business term loan is a predictable financial solution that won’t strap your business for cash.


What Is a Business Term Loan?

A business term loan is a one-time infusion of capital that you pay back over a set repayment term. Learn more by scheduling a call with a Team Consultant - Here

Business term loans are used for long-term investments, including equipment, debt refinancing, and commercial real estate. You might also fund office renovation projects, purchase inventory, hire employees, and more.

There are unsecured business term loans and secured business term loans. A secured loan means the borrower uses a piece of equipment, property, or a sum of cash as collateral to help obtain funding. With unsecured loans, you’re not required to offer collateral to get the loan, though you might have to provide a personal guarantee. This means that if your business can’t repay the loan, you’ll be personally responsible. Also, you’ll likely have a higher interest rate and shorter repayment window than you’d find with a secured loan.

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Why do businesses Term Loans Work?

Business term loans work as follows: Longer-term loan payments may be set up monthly, while shorter-term loans may require a daily or weekly payback structure.

Typically, business term loans offer you higher funding amounts, more extended repayment periods and lower interest rates than many financing alternatives.

When determining the best long-term small business loan for you, consider the following factors:

​Loan Term

Typically, business loan terms range from 1-5 years, giving you more time to pay off your debt. And with more time to repay your long-term business loan, you can expect lower payments than you’d find with a shorter term.


Interest Rates

Business term loan rates will depend on many factors, including your credit score, revenue and time in business. But in general, they offer some of the most competitive rates available to small business owners.


Business term loans amortize. Interest accumulates on the remaining principal balance and loan payments are interest-front-loaded, meaning a large part of your loan payments go toward interest at the beginning of your term. As time goes on, the interest portion of your loan payments decreases and more is applied to your loan principal.


Interest rates can be fixed or variable. A variable interest rate fluctuates up and down as the market and interest indices change. Fixed interest rates do not change regardless of market conditions.


Repayment

Business term loans are paid back in daily, weekly or monthly installments, depending on the terms of your agreement. Variables such as the loan amount, term length, risk factors and business preference help determine this structure.


What Will a Business Term Loan Cost?

Due to their favorable interest rates, business term loan costs are lower than many lending products.


Types of Business Term Loans

Depending on the lifespan of the agreement, business term loans can be classified as:

  • Short-term loans: Short-term loans usually reach maturity in a year or less, though some terms can extend up to 18 months. This type of financing is well-suited to business owners with bad credit. Repayment frequency is often accelerated, with borrowers required to remit daily or weekly payments.

  • Medium-term loans: Medium terms loans generally reach maturity in 3 to 5 years, and are typically repaid through monthly installments.

  • Long-term loans: Long-term loans can run from 5 years to 25 depending upon the specifics of your loan agreement, the borrower’s financial health and the intended use of loan proceeds. A company’s assets most often secure this type of term loan. Learn more by scheduling a call with a Team Consultant - Here

What Are the Pros and Cons of a Business Term Loan?

Pros

  • Competitive interest rates: Note that rates vary according to lenders, but business term loans often have lower interest rates compared to other financing options. Businesses that qualify for term loans usually have strong credit histories and have been in operation for at least a year; these factors increase your likelihood of obtain lower loan rates.

  • Extended repayment terms: You’ll repay the funding and interest in monthly installments in 1-5 years. Shorter-term financing requires weekly or sometimes daily payments over a shorter period of time.

  • Flexibility in using funds: Some financing options limit how you can use the funding (e.g. equipment financing). Business term loans can be applied to various endeavors — such as hiring or acquiring another business as well as purchasing property and equipment — that will help your business grow.

  • Large loan amounts available: Lenders can approve your business for loans worth thousands of dollars or even $1 million or slightly more. Your time in business, credit history and revenue, among other details, will help determine how much funding you could receive.

Cons

  • Start-ups and newer businesses typically ineligible: Many lenders are reluctant to finance businesses that haven’t built a credit history, proving they can reliably manage debt.

  • Stricter qualification requirements: Business term loans provide more significant funding amounts, so many applicants have to meet higher standards to be approved for financing. Lenders prefer applicants that have been established for more than a year and have a good credit score; these factors make lending less risky.

  • Collateral or personal guarantee may be required: Putting up collateral (such as property, equipment or a sum of cash) or signing a personal guarantee can put your assets at risk. If you default your business term loan, the lender can claim your collateral or other personal assets to recoup its losses.

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