Business Term Loans

Business Term Loans

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Business term loans provide a borrower with a lump sum up front that is then repaid at regular intervals. These term loans can be set to daily, weekly, monthly and yearly. There are quite a few extra options available like a fixed or floating interest rate. So let's dive a bit deeper into how a business term loan can help your small business.

The “term” in “term loan” comes from it's set repayment term length. Which can range from a few months to several years depending on the type of loan. Therefore, although term loans can vary in length, the phrase “business term loan” is most often used to refer to loans with terms or one to five plus years.

How can you use a business term loan

How can you use a business term loan

As mentioned briefly above, business term loans are likely what you think of when it comes to commercial (or even personal) financing. With a term loan, a small business lender gives you access to a lump sum of capital which you then pay back, with interest and fees, over a set period of time.

Although your payment schedule will vary based on the type of business term loan and the lender you're working with, you'll make equal payments over the course of your loan term.

This 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 top qualifications and will be slower to fund. Online lenders, on the other hand, will offer greater flexibility and faster funding times, but will likely be more expensive and have shorter terms.

Overall, in addition to a predictable payment schedule, one of the benefits of business term loans is that they can be used for a variety of business financing purposes. Therefore, with medium and long-term loans (vs. short-term loans), you'll find that these loans are often used for:

  • 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
How to Apply for a Business Term Loan: Requirements and Getting Started

How to Apply for a Business Term Loan: Requirements and Getting Started

To apply for a business term loan, as quickly as possible. Below you will see a form asking for your basic business information. By filling that out, step one is done. From there one of our loan specialists will give you a call walking you through the next step.

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With this in mind, once you've determined where you're likely to qualify, you'll be ready to start preparing your business loan application.

Again, the application process will largely depend on the lender; alternative lenders typically offer online-based, streamlined applications with minimal documentation, whereas banks are more likely to require extensive documentation and an in-person or paper application.

Overall, however, you should expect to provide some (if not all) of the following when applying for a business term loan:

  • 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)

Moreover, as we mentioned, many lenders will require that you sign a personal guarantee for your loan, whereas others will take out a UCC-lien on your business's assets. Before signing any agreement, therefore, you'll want to thoroughly review all of the details to ensure you understand the terms, fees, and liabilities.

I know that's a bit of information so If you like to speak with us feel free to give us a call: 386-825-5626
Business Term Loan Example

Business Term Loan Example

To get a better sense of how business term loans work, let's walk through an example.

Let's say you're offered a term loan of $250,000 with monthly payments and a two-year term. The interest rate on this loan is 8% and you're paying the lender an origination fee of 2%.

With this information, you can plug-in the numbers into a term loan calculator to estimate your monthly payments as well as determine how much this loan will cost your business.

Overall, you'll be making monthly payments of $11,306.82 to the lender with a total repayment of $271,363.75. The cost of this loan, therefore, is $26,363.75. In addition, you can also use these calculations to determine your APR, as opposed to the simple interest rate. If your interest rate is 8%, but you also have an origination fee of 2%, your APR will end up being higher than that quoted 8%.

In this case, the APR on the loan is 10.01%.

Business Term Loan Breakdown

Let's take a look at a simple 6 month $20,000 business term loan at 6% interest rate. This will give you a better understanding of the term loan breakdown.

DatePaymentPrincipalInterestTotal InterestBalance
Jan$3,391.91$3,291.91$100.00$100.00$16,708.09
Feb$3,391.91$3,308.37$83.54$183.54$13,399.72
Mar$3,391.91$3,324.91$67.00$250.54$10,074.81
Apr$3,391.91$3,341.54$50.37$300.91$6,733.28
May$3,391.91$3,358.24$33.67$334.583,375.03
Jun$3,391.91$3,375.03$16.88$351.45$0.00
Types of Business Term Loans

Types of Business Term Loans

The phrase “business term loan” can actually encompass a variety of financial products that all share this term structure. Therefore, it's important to distinguish between the different types of business term loans. Generally, as we've already seen so far in this discussion, the most common way to differentiate business term loans is by the length of their repayment period short-term, medium-term, or long-term.

  • Short term business loans: Short term loans have repayment periods of one year or less (sometimes up to 18 months). These loans are usually issued by online lenders, have the most flexible qualifications, and are the fastest to fund. Short-term loans, however, are also typically the most expensive type of business term loan.
  • Intermediate or Medium term loans: Medium-term loans have repayment periods of one to five years. These loans are available from online lenders, as well as banks and credit unions. Although these products may have higher requirements and be slower to fund than short-term loans, they're usually much more affordable.
  • Long term business loans: Although in some instances medium-term and long-term loans are used interchangeably, in general, long-term loans are those with terms longer than five years. Some of the most notable long-term loans are SBA loans with terms of up to 25 years. Long-term loans require top borrower qualifications and are slow to fund, but also offer the lowest interest rates. These term loans almost always are issued by traditional lenders like banks and credit unions.

As you can see, although business term loans are often broken up into these categories, you'll want to keep in mind that they can also be differentiated by their issuer business loans, credit union loans, online loans, etc.

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All states we service for Business Term Loans:

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

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