Business Term Loan

What is a Business Term Loan and How Does it Actually Work?

If you’ve ever borrowed money that you repay with regular payments, whether it’s a student loan, auto loan, or home mortgage, you’re familiar with the concept of a term loan. You get a sum of money to buy something you can’t afford outright, and the lender gets to add on an interest charge to your repayment until the debt is paid off.

A business term loan is simply a sum of cash that lets you afford equipment, real estate, payroll, working capital, and more, and you can even use it to refinance existing debt at a lower interest rate. 

Can a business term loan help your small business meet its growth goals? Read on to help you decide.

How can small business owners benefit from a business term loan?

When you take out a business term loan, you’re borrowing anywhere from $5,000 to $2 million with repayment terms ranging from one to five years. Interest rates will vary, but borrowers with good credit and a strong likelihood of repayment could get a rate as low as 6%, with funding in as little as 24 hours after approval.

Business term loans can be used for almost anything, making them a great source of capital when your needs vary, or if you can’t secure financing with a more specific product like a commercial mortgage or equipment financing.

Is a business term loan the right choice for your particular business? It could be if any of these situations sound familiar:

• You have multiple financing needs and want a single loan that can meet several of them. 
• You need a source of capital with a predictable repayment structure that can help you weather seasonal sales periods.
• You have an investment opportunity that won’t last long, and you need money quickly to take advantage of it.

Maybe you’re thinking about expanding to a new location, and the perfect lot just came up for sale. You could apply for a commercial mortgage, but the property will likely be under contract by the time you’re approved. In this case, if you can afford the higher payments dictated by a shorter term length, a business term loan could help you snag a limited-time opportunity at a reasonable rate.

Another common scenario is when a small business has a variety of financing needs ranging from new equipment and payroll to working capital and building renovations. Instead of looking at a loan product that meets a single need and hoping you can take care of the rest on your own, a business term loan gives you the flexibility to address several different financial demands simultaneously. Without a single area holding your business back, you can ensure you’re growing as quickly as possible.

Are there situations where another financing option could be a better choice than a business term loan? Yes, if:

• You need to borrow more than $2 million.
• You need to finance an expensive purchase and can’t afford a term length shorter than 10 or 20 years.
• You want to have the option to borrow through a vehicle such as a business line of credit instead of a lump sum of cash that you must begin to pay back as soon as you take out the loan.

If you’re looking to expand your business to several new locations, the $2 million cap on a business term loan might not be enough. And even for amounts that are well within the limit of a business term loan, a five-year term might lead to prohibitively expensive monthly payments. In this situation, a financing option with a lower interest rate or longer terms will be a better fit.

Qualifications for a business term loan

How to qualify for a business term loan.

When you’re applying for a business term loan, lenders will look at a range of factors to decide whether or not you qualify. Your business credit score will be one of the main concerns, along with your annual revenue, time spent in business, and other outstanding debts you might have. The lender will also typically look at your personal credit score to make sure you’re not an outsized risk before lending your business the money.

If those factors make qualifying for a business term loan sound difficult, you don’t have to worry too much. Marks on your record like bad credit or a relatively new business don’t necessarily disqualify you from taking out a loan. Instead, they might limit how much you can borrow, or a lender might extend financing at a higher rate to offset some of their perceived risks.

Interested in getting the process started? Fill out our loan application today. In addition to information about business term loans, you’ll also see what other financing tools your business could qualify for.

Pros and cons of business term loan.

A business term loan can meet quite a few different needs, but it’s not something to rush into. Before you decide to take out a loan, consider these pros and cons:

Our take on the business term loan

Is a business term loan right for your small business? In our opinion, business owners with varied financing needs who want a predictable repayment structure stand to benefit the most from a business term loan. If your needs begin to approach the $2 million upper limit of the business term loan, you might want to look at a more specific product designed to tackle a single class of expenses. On the other hand, if the one- to five-year term length and relatively low rate sounds ideal, apply today and find out how much you could qualify for. When you fill out an application, we’ll also let you know what other financing products you could qualify for, ensuring that a lack of capital never causes you to miss out on a growth opportunity.