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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.
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:
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:
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
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%.
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.
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.
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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