Affordable Business Financing
A term loan is a loan of money that is repaid periodically over a period of time. Term loans typically have a term of one to ten years, but in some cases can last longer. Term loans typically have an unfixed interest rate and therefore an additional payment balance. Good credit and finances are required. Term loans may be long term facilities with fixed payments, while short- and medium-term loans may require balloon payments.
A term loan is a loan issued by a bank or Tier 1 lender with a fixed amount and fixed or variable interest rate and a fixed repayment schedule. 1-, 2-, 3-, and 4-years fully amortizing loans that are typically repaid monthly. Annual interest rate from 6.99%. We specialize in looking at the long-term vision of small business owners when banks are too short-sighted to understand business needs and growth opportunities. If the bank doesn’t understand your dream, we will approve it!
Business Term Loan Details
| MAX. LOAN AMOUNT | LOAN TERM | INTEREST RATES | SPEED |
|---|---|---|---|
| Up to $1M | One to five years | 7% – 30% | As Little as 24 hours |
Pros
- Set payment structure
- Suitable for a wide range of business purposes
- Term loans from online lenders can fund quickly
with fewer requirements than traditional lenders - Can be a great way to finance a larger investment
while building business credit
Cons
- Potential prepayment penalties
- Shorter-term loans can be expensive
- Often require collateral or a personal guarantee
As mentioned briefly above, business term loans are probably what comes to mind when it comes to business (or even personal) finance. With a term loan, small business lenders give you access to a lump sum of capital, which you then repay, along with interest and fees, over a set period of time.While your payment schedule will vary depending on the type of commercial term loan and the lender you work with, you’ll make equal payments over the life of the loan.That being said, business term loans can be issued by banks, credit unions, and online lenders. In general, banks and credit unions will offer the most ideal rates and terms, but will also require the best qualifications and be slower to fund. Online lenders, on the other hand, offer greater flexibility and faster funding times, but are likely to be more expensive and have shorter terms.
Overall, in addition to a predictable payment schedule, one of the advantages of business term loans is that they can be used for a variety of business financing purposes. So with medium and long-term loans (versus short-term loans), you’ll find that these loans are typically used to:
- Purchasing equipment or inventory
- Working capital
- Refinancing other business debts
- Hiring staff
- Meeting payroll or tax obligations
- Financing business expansions
- Purchasing real estate
- Funding general long-term investments
Business Term Loan Rates and Terms
Business Term loans generally have a repayment period of one to five years.
However, there are also short-term loans with maturities of one year or less, and long-term loans with maturities up to 25 years (such as SBA loans). Loans with terms of one to five years are often referred to as “intermediate loans” in this context.
With this in mind, most business loans have a monthly repayment schedule, while some short-term loans require daily repayment, but you can see that long-term loans are available for much more.
Term business loan interest rates vary depending on the particular lender and company qualifications, but usually you can find interest rates between 7% and 30%. However, interest rates can even fall below the 7% threshold especially if you are an eligible borrower.
Business Term Loan Example
To better understand how business term loans work, let’s take a look at an example.
Suppose he was offered a $250,000 term loan with monthly payments over a period of two years. The interest rate on this loan is 8% and you pay the lender a 2% processing fee.
With this information, you can plug the numbers into the Term Loan Calculator to estimate your monthly payments and determine how much the loan will cost your business.
In total, you make monthly payments to the lender of $11,306.82 for a total repayment of $271,363.75. Therefore, the cost of this loan is $26,363.75. In addition, he can also determine APR using these calculations instead of simple rates. If the interest rate is 8% and the setup fee is 2%, the APR will be higher than the estimated 8%.
In this case, his APR for the loan is 10.01%.
Qualifications for a Business Term Loan
ANNUAL REVENUE – Over $300K
CREDIT SCORE – 680
TIME IN BUSINESS – Over 3 Years
*Based on past Benifyt Customers
Types of Business Term Loans
As mentioned earlier, the term “business term loan” can actually encompass a variety of financial instruments, all of which share this term structure.
Therefore, it is important to distinguish between different types of business loans. As we saw earlier in this discussion, the most common way to distinguish business maturity loans is by the length of the repayment period (short, medium, or long).
- Short-term loans: Short-term loans have a repayment period of one year or less (sometimes as long as 18 months). These loans are typically made by online lenders, have the most flexible eligibility and are the fastest to get funding. However, short-term loans are also typically the most expensive type of business loan. Learn more about short term business loans here.
- Medium-term loans: Medium-term loans have terms ranging from 1 to 5 years. These loans are available from online lenders as well as banks and credit unions. These products have higher requirements than short-term loans and can take longer to finance, but are usually much more affordable. Learn more about medium-term loans here.
- Long-term loans: In some cases, term loans and long-term loans are used interchangeably, but generally long-term loans have a maturity of five years or more. Some of the most notable long-term loans are his SBA loans with maturities of up to 25 years. Long-term loans require the highest eligibility from the borrower, take longer to raise funds, but also offer the lowest interest rates. These term loans are most often made by traditional lenders such as banks and credit unions. Learn more about long term business loans here.
As you can see, business loans often fall into these categories, but note that they can also be differentiated by issuer, such as bank loans, credit unions, and online loans.
Pros and Cons of Business Term Loans
When it comes down to it, term loans aren’t the only form of financing for small businesses. From lines of credit to asset-based financing, there are a variety of types of small business loans you might consider—so how do you know if a term loan is right for your needs?
To help make that decision, you can review our pros and cons breakdown below:
Pros Explained
- Specify payment structure: As mentioned earlier, one of the biggest advantages of term loans is their payment structure. No matter how long the loan is amortized, you’ll see a set payment schedule and know exactly how much you owe on each payment. As such, term loans are one of the most predictable forms of business financing, making it easy to understand the total cost and payment of debt. Additionally, these predictable payments make managing cash flow and other business finances much easier.
- Suitable for various business purposes: Another great advantage of business loans is their versatility. In general, most term loan lenders will have very few restrictions on the way you can use your loan. This being said, however, the length of your term will play some role in the way you can use your loan—a medium-term loan is more suitable for large equipment purchases, whereas a short-term loan is better used for small working capital needs.
- Term loans from online lenders can fund quickly with fewer requirements than traditional lenders: Although business term loans can be issued by banks and credit unions in addition to online lenders, online term loans can be a top option for businesses who are looking for speed and flexibility. Overall, online lenders can offer streamlined applications, more flexible requirements, and faster funding times in comparison to banks—and even though online business loans typically have higher interest rates than bank loans, medium-term loans from online lenders can still be extremely affordable.
- Longer-term loans are ideal for financing larger investments: For medium- and long-term loans, you’ll find no better way to finance a large business investment. Overall, these term loans are one of the cheapest financial products on the market, especially bank and SBA loans, and allow access to large amounts of capital to fund larger investments over the long term. Additionally, if you pay responsibly, term loans are great for building or improving your business’ credit.
Cons Explained
- Possible prepayment penalties: One of the most prominent drawbacks of business term loans is the potential prepayment penalty. Not all lenders charge these fees, but some providers do charge an advance payment penalty to ensure you receive outstanding interest even if you prepaid your loan.Work with your term lender We recommend that you inquire about our prepayment policy before agreeing to do so.
- Short term loans can be expensive: As already mentioned, online loans are almost always more expensive than their bank counterparts. Of course, that doesn’t mean you can’t find affordable business term loans. Instead, it’s important to remember that borrowing, especially short-term, can be expensive, especially for unqualified borrowers. Therefore, when considering business term loan options, you should always assess the total cost of debt and ensure that the business can afford it.
- Collateral or personal guarantees are often required: Finally, while asset-based loans may have more flexibility in terms of collateral and guarantees, we find that nearly all business loans are secured. That means you need physical security or personal guarantees. Additionally, some lenders obtain her UCC lien over business assets as another form of security. However, in general, the more qualified a company is, the more leeway it will have when negotiating collateral requirements.
How to Get a Business Term Loan
As you can see, there are various options worth considering to find a term loan for your business.
However, when comparing different lenders, the first thing you should do is evaluate the business to determine which products actually fits.
Business Term loan requirements vary from lender to lender, but in general, a minimum of 680 credit his score, at least one year of his business, and a minimum annual turnover of $300,000 is required to qualify for most products. .
Of course, as mentioned earlier, the bank and his SBA loans require the highest level of skill, but short-term loans offer more flexibility. However, the same applies here. The more qualified you are, the lowest interest rates and terms you can get from the lending institution.
Applying for a Business Term Loan
With this in mind, once you have identified where you are likely to qualify, you can start preparing your business loan application.
Again, the application process is highly dependent on the lender. Alternative lenders typically offer streamlined online-based applications with minimal paperwork, whereas banks tend to require extensive paperwork and in-person or paper applications. When applying for a business term loan, you should expect to provide some (if not all) of the following:
- Basic personal and business information, including a drivers license, voided business check, proof of ownership, business license, etc.
- Personal and business bank statements
- Financial statements such as your balance sheet and profit and loss statement
- Personal and business credit score
- Personal and business tax returns
- Proof of collateral (if required)
Additionally, as mentioned above, many lenders require you to sign a personal guarantee for your loan, while others obtain a UCC lien on company assets. Therefore, before signing any contract, you should thoroughly review all details to ensure that you understand the terms, fees and responsibilities.
The Bottom Line
Ultimately, business Term loans are one of the most popular forms of commercial lending. There are various reasons for this. Between short and long term loans, online or bank loans, you can choose the right solution for your business needs. However, with all the options available in the market, it’s important to remember that the best funding for your business is the cheapest one.
