What is a Business Term Loan?
A business term loan is a fixed dollar amount of capital that you pay back with recurring payments at a fixed rate of interest over a set period — this type of conventional financing is what many people think about when it comes to a bank loan.
The “term” in “term loan” originates from its set payment term size, which can range from a couple of months to several years, relying on the kind of loan. As a result, although term loans can differ in length, the expression “business term loan” is usually utilized to refer to loans with terms from one to 5 years.
Usually, company owners use the proceeds of term loans to finance particular, one-off investments for their local business, such as property acquisitions, business expansions, financial debt refinancing, and more.
Business term loans: Advantage and disadvantages
- You can borrow large amounts of capital to finance expansion or growth.
- Extended repayment terms can improve cash flow and make payments more affordable.
- Paying back term loans on time can build business credit.
- Business Term Loans can be accessed through online lending institutions quickly and easily.
- Qualification requirements for online lending institutions may be looser than those for typical financial institutions.
- Less flexibility than business lines of debt, as payments start promptly after financing.
- Shorter-term loans might lug high prices and more frequent payments, although this depends upon the loan provider.
- SBA loans are typically lower cost but have a much longer application process and take a while to fund.
- Collateral may be needed– such as equipment or real estate.