term BUSINESS Loans

Term Business Loans

A term loan is one common type of financing for businesses. A lump sum of cash is paid upfront. Then, interest will be charged over a predetermined time period.

Online lenders can offer term loans upto $1 million and provide quicker funding than banks offering small-business loans.

Pros:

• To invest in your business, get cash immediately

• These loans allow you to borrow more than any other type of loan.

• Online lenders are faster than traditional banks and can usually provide funding in a matter of days to weeks, rather than several months.

Cons:

• You may need to provide collateral or a personal guarantee — such as real estate, business equipment or other assets that the lender is able to sell in case of default.

• There are many costs to consider. Online lenders tend to charge higher interest rates than traditional banks for term loans.

Ideal for:

• Companies looking to expand.

• Borrowers with good credit and a solid business who are willing to wait for funding.

Term loans are available to finance small-business investments. Online lenders, banks and credit unions all offer term loans for business.

A business term loan is a lump amount of capital you borrow from a lender. You pay it back over a specified time period, also known as a term. While term loans usually have fixed interest rates, starting at a 6% annual rate, some lenders may charge variable rates that change based on market conditions.

A small-business loan can be used for equipment purchases, office renovations or other business purposes. This financing option is great for long-term investments that will help you grow your business.

Here are some top options for business term loans. You can also learn about their operation and how to apply.

term BuSiness Loans

What is a Business Term Loan?

A term loan is a loan that you borrow money for a specific purpose, such as a student loan, car loan, or mortgage. A term loan is a loan that you borrow money upfront to pay a fixed amount and then repay it over a time period with equal, fixed payments.

There are many reasons that businesses can borrow term loans, such as:

• Purchase equipment and inventory

• Renovation of an existing property or expansion to a new one.

• Purchasing real estate.

• Hire new employees.

• Working capital.

• Refinancing existing debt.

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How Term Loans Work

Term loans are available in sizes ranging from $2,000 to $5,000,000, with an average APR of 6% to 99 percent.

These loans are similar to car loans and mortgages. They usually follow an amortization plan. This means that most of your monthly payment will go toward interest at the start of the loan and less toward principal towards the end. Although lenders may charge prepayment penalties, term loans can be repaid quickly to save interest.

Traditional banks, credit unions, and online lenders offer business term loans.

Although banks offer lower rates for term loans, they have stricter criteria such as high income and a strong credit score. They also take longer to fund. Bank term loans have a typical repayment term of 10 years or more.

Online lenders are fast and convenient, but they often have higher fees. Online lenders are also more flexible than banks in terms of qualifications. Online business lenders can also provide short-term loans with terms ranging from three months to three years.

Both online lenders and banks offer Small Business Administration loans that are guaranteed by the federal government. This term loan can be up to $5,000,000 and has a repayment term of up to 25 year depending on the purpose of the money. SBA loans are a great option for long-term financing because they have the lowest interest rates.

Example of a business term loan

This example will give you a better understanding of the operation of small-business term loans.

You would make monthly fixed payments of $2649 for a $100,000 term loan, with a 5-year repayment period at 20% APR. Total interest and fees would be $58,963.

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Types of Business Term Loans

Loans for short-term

The repayment terms for these loans are typically 12 months or less. Online lenders are often able to provide short-term loans that are quick to fund. These loans are often easier to get than other business term loans. However, they have higher interest rates and require larger monthly or weekly payments.

Loans for medium-term

The repayment terms for medium-term loans typically range from one to five year. These loans can be obtained from both online lenders and banks as well as credit unions.

Medium-term loans may require you to meet more stringent requirements than short-term loans. However, they can offer lower interest rates. Medium term loans typically have a monthly or weekly repayment schedule, which makes it easier to manage individual payments.

Loans for long-term

Medium-term loans and longer-term loans can sometimes be combined, but long-term loan are loans that have a repayment term of over five years.

Although long-term loans can be slow to finance and are more difficult to qualify, they offer great terms and low interest rates for large projects such as business or real estate renovations.

The loans are typically repaid monthly, with smaller individual payments spread over a longer time period. However, the total cost of debt may be higher than short-term or intermediate-term loans.

SBA 7(a), which has terms up to 25 year, is a popular example of a long-term business loan.

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Business Term Loans Pros and Cons

Pros

• To finance growth or expansion, you can borrow large sums of money.

• Large investments can be more affordable if you have long repayment terms.

• You may be able to build your business credit by repaying term loans on a timely basis.

• Online lenders allow loans to be approved quickly and funds can usually be available within days to a fortnight

• Online lenders might have less stringent requirements than traditional banks.

Cons

• There is less flexibility than with business credit lines, since payments start immediately after funding.

• However, short-term loans can have high interest rates and require frequent repayments. This is dependent on the lender.

• SBA loans are affordable, but they have strict requirements and can take time to fund.

• Sometimes collateral may be necessary — this would be equipment or real property that the lender can buy if you are unable to make your payments.

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How to Apply for a Business Term Loan?

These steps will help you apply for a term loan if you feel it is the right option for your financial needs.

1. Evaluate your qualifications. Examine your credit score, annual income and length of time in business. These are the three main requirements that lenders consider to determine if you are eligible for a loan.

2. Compare lenders. Compare lenders to determine which lender is right for you. Online lenders can offer more flexibility and quicker funding times than traditional banks, but they may charge higher interest rates. While online lenders can offer lower rates than banks and credit unions but can be more difficult to qualify for, they can still provide better products.

3. Prepare your documentation. After you have decided on the lender that is best for you, you need to prepare your documentation. Common documents required are business financial statements, personal and business tax returns, bank statements, and legal documents.

4. Submit the application. Follow the instructions of the lender to complete the application. You can take advantage of any assistance offered by the lender to help you with the application process.