What is a Business Term Loan

A Business Term Loan is a lump sum of capital (a specified amount) that you pay back with a specified repayment schedule and has a fixed (or adjustable) principal & interest rate or a “factor rate,” which is fixed cost. A business term loan can vary in duration from short ( 6 to 12 months, intermediate (12 to 24 months), or long term (3 to 25 years). Payments are typically made either monthly, bi-monthly, weekly, or in some rare cases daily Monday-Friday via an ACH (automatic clearing house) deduction from the business bank account. Business term loans are offered by Traditional Banks, The Small Business Administration, and also Fintech Online Business Lenders.

How Much Will a Business Term Loan Cost?

Truth in Lending Disclosure-A term loan typically comes with a “Truth in Lending” disclosure if it’s a principal & interest product. The Truth in Lending Act (TILA) is a federal law that ensures that consumers are treated fairly by lenders and are informed about the true cost of credit. The TILA requires lenders to disclose credit terms in an easily understood manner so that consumers can confidently comparison shop interest rates and conditions. Truth in Lending (TIL) is a disclosure statement that includes information about the amount of your term loan, the annual percentage rate (APR), finance charges (including application fees, late charges, prepayment penalties), a payment schedule and the total repayment amount over the lifetime of the term loan. 

SmartBox Disclosure– A term loan that charges a factor rate typically offers a “SmartBox” disclosure. This tool is provided to help you understand and assess the cost of your small business financing when you are given a “factor Rate” instead of principal & Interest. The “Smartbox” includes the total cost of capital (this does not include fees and other charges such as late payment fees and return payment fees), Annual Percentage Rate (APR) This is a cost of the loan-including total interest and other fees express as a yearly rate. This does not mean it is an interest rate, average monthly payments, cents on the dollar and any prepayment features.   

How Business Term Loans Can Help You: 

  • Raising capital to expand infrastructure
  • Funding large projects that are an on-going basis
  • Long term work orders that require a lot of capital for supply or inventory
  • Renovations for facilities of a company
  • Large equipment or machine purchases

How to Choose the Right Business Term Loan

When beginning the process of finding a term loan for a small business, the first question you need to ask yourself is, why? What is the purpose? How will the financing benefit your company? The purpose and use may dictate what loan product you will choose and drive what the best business financing product is. Your choice should not be just based on rates. You need to balance interest rate or factor rate with costs, terms, payment frequency, and product flexibility when making the best choice. Lenders will want to know where their money is headed when determining whether or not they will loan to small business owners. A term loan offers a lot of diverse options to choose from, which we’ll cover next.

The 5 Best Business Term Loan Financing Options

1. SBA (Small Business Administration) Term Loans

SBA loans are loans backed by the Small Business Administration and provide guarantees to the issuers (approved lenders by the SBA) of these loans in case of default. The SBA is not a lender but sets the guidelines, qualifications, and requirements of SBA loan products. SBA loans are a great product for larger amounts of capital that require long term financing. SBA guidelines and qualifications are stringent and do require significant paperwork for annual revenue and other financial statements. Unfortunately, SBA loans are more difficult to get approved for, and they are not a quick fix and will require time to process and get an answer. A small business loan like this is not for the young company. Typical time frames range from a week to as much as a month. The rates and terms are very attractive and highly sought after by small businesses.

How to Choose the Right SBA Loan Program

These three programs are considered to be the most popular for SBA:

The 7(a) Loan Program – The 7(a) loan is the most popular choice for businesses looking to access working capital or startup their business.

The Small Business Microloan Program – With the Microloan, small businesses receive small loans of up to $50,000 to run their company.

The CDC/504 Loan Program– This program provides long-term, fixed-interest rate financing to small businesses that are trying to expand or modernize.

Product Overview

Rates: Interest rate of 5.5% or Treasury index plus 1% to 2.50%.

Loan Term: 2 to 25 years depending on product

Fees: Origination fees range from 0% to 3% 

Payments: Monthly payments

Credit Score Standards: Must have good to excellent and deep credit history

Processing Time: 1 week up to a month

Benefits and Best Uses of SBA Loans 

SBA loans offer attractive small business loan terms because of the length of duration and low rates. The SBA loan terms allow for a larger loan amount to fund big projects and expansion. SBA loans lack flexibility as they are not business lines of credit where you can draw money as you go. You receive a lump sum upfront and no ability to draw money with a fixed term and fixed payment.

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2. Traditional Bank Term Loans

Some traditional banks will offer a small business term loan directly or through the SBA. Many banks will only offer businesses either Business lines of credit or Business Credit cards. Bank rates are competitive. These products do require significant paperwork for annual revenue and other financials — and are not easy to qualify for. They have a very low approval rate. Less than 20% of all bank business loan applicants receive approval from a bank and fund. 

Product Overview

Rates: Interest rates 4.5% up to Treasury index plus 1% to 2.75%.

Loan Term: 1 to 5 years can extend to 15 years if highly qualified

Fees: Origination Fees range from 1% to 3% 

Payments: Monthly

Credit Score Standards: Must have excellent and deep credit history

Processing Time: At least one week and can be up to a month depending on bank

Benefits and Best Uses of Traditional Bank Loans 

Traditional bank financing has great rates, good terms, and low fees. The use of the money can be used for a variety of different purposes, such as small business expansion or working capital. You will have to prove the use of funds.

3. Long Term Business Loans

Over the last decade, long term business loan offers have become more prevalent due to the rise of Fintech Online Business Lenders. Long is defined as terms over two years in duration. Rates vary greatly and can start at 6.99% and go up to as much as 28% based on credit and financial condition of the company. Expect to provide a lot of documentation to qualify and get approved as the rates and terms are attractive. Application approval rates with these programs are in the range of 15% to 25%, so only really healthy and profitable businesses get approved. Credit standards are more stringent than short-term loans. You will need to be operating your company a minimum of 2 years to qualify.

Product Overview

Rates: Interest rates starting at 6.99% 

Loan Term: 2 to 5 years, in rare cases up to 10 years

Fees: Origination Fees range from 1% to 3%

Payments: Monthly, Bi-monthly

Credit Score Standards: Must have excellent and deep credit history

Benefits and best uses of Long-Term Loans 

Long-term business financing has great rates, good terms, and low fees. The use of the money can be used for a variety of different purposes, such as business expansion or working capital.

4. Short Term Business Loans

Short term business loans are defined as loans that have a fixed lump sum (a specified amount) offered upfront, with a fixed payback amount over a fixed term of time typically 6 to 18 months. When you cannot qualify for more traditional business loan products, short term loan financing options can be a great alternative. Rates are based on factor costs and not principal & interest and cost more than traditional loan options. The good news is these products require very little paperwork and credit requirements are much more forgiving than traditional loan products.

Product Overview

Rates: Factor Rates starting at 1.10% up to 1.45% of the loan amount

Loan Term: Typically 6 to 18 months

Fees: 1% to 5% Origination Fees

Payments: Weekly, Bi-Weekly, Monthly, and in some cases daily Monday-Friday ACH payments

Credit Score Standards: All credit considered from Poor to Excellent

Special Features: Fast Process. Approval to funding can be same day to 24 hours 

Benefits and Best Uses of Short Term Loans 

Short term business financing have higher rates, shorter terms, and fees than traditional business financing. This business funding product can come to the rescue for businesses that need the money now and can’t get approved for more traditional business loan products. The use of the money can be used for a variety of different purposes but most commonly used for working capital and cash flow problems. You DO NOT need to prove the use of funds.

5. Business Acquisition Term Loans

Whether it is to start a new business or acquire an existing business, there are banks that will help you finance the purchase if you have collateral or down payment to offer. Acquisition loan rates are competitive and are typically start at 4.5% up to Treasury plus 1% to 2%. Rates can be in the teens, the more challenging the file either due to credit, financials, down payment, or collateral. These products do require significant paperwork and are not easy to qualify for.

Product Overview

Rates: Interest rates starting at 4.5% up to Treasury plus 1% to 2.75%. Rates can be in the teens for challenged borrowers.

Loan Term: 5 to 15 years

Fees: Origination Fees ranging from 1% to 3%

Payments: Monthly

Down Payments: 0% up to 25% down payment requirements

Credit Score Standards: Must have good to excellent and deep credit history

Benefits and Best Uses of Business Term Acquisition Loans 

Clearly, the best use of this type of business funding is to acquire an existing or new business. The benefits of this type of financing allow the business owner to purchase an existing business.

The fast, convenient and straightforward way to get the money you need for your business – now! Get Your Quote Today by filling out our simple form.

Frequently Asked Questions

Who Qualifies for a Business Term Loan?

Most business owners that have been operating a business greater than one year (with the exception of business acquisition loans) have some type of term loan that can be offered. The longer time in business, the better the credit and financial statements, the more business term loan products can be offered.  

What does a term loan mean?

Business Term loans usually offer better rates, cost structure, and terms than other business funding products. Long term and SBA loans offer larger amounts than many other business funding options do to their long repayment duration.

Which bank is best for a business loan?

There’s no real one size fits all answer to this question, as every bank will have different options to choose from when it comes to term loans.

Are Business Term Loans Difficult to Obtain?

The short answer is yes and no. Long-term and SBA loans are difficult to obtain because of the risks of the long-term duration of repayment of the loan option. Short-term business loans are much easier to get approved for with lower credit standards and document requirements, but the cost will be more and obviously be shorter in duration to risk.  

What will a Business Term Loan Cost You?

Long-term loans, SBA loans, and short-term loans have origination fees that range from 1% up to 3%. Application, Underwriting or processing fees may also apply. Check your Truth in Lending Disclosure, SmartBox Disclosure, or your agreement for all charges and terms. 

Can I qualify for Business Term Loan if I have bad credit?

The answer is Yes and No. You can get approved for short-term loans if you have credit problems, but there are limits to how bad your credit can be. Long-term business term loans and SBA loans will not be an option if you have bad credit.  

Can I get Business Term Loan if I am a startup business?

The short answer is no, to most long-term loan products and short-term loan products with the exception of some SBA loan options and Acquisition loans. Keep in mind qualifications are difficult to get approved for and will require a lot of effort to get approved for long-term loan options.

Advice, Tips, Warnings about Business Term Loans

Business Term Loans, like any other business funding product, starts with asking the question, why? What are you using the money for? Are you looking to work on a large project that requires long term repayment? Did you use a cost versus benefit analysis of the capital you are trying to acquire for your business? Have you looked at all other business financing options and determined business term loans are the best option?

How to Apply for Business Term Loans?

Start with this Online Form

AdvancePoint Capital offers an easy business term loan experience that can help answer any questions you may have. Our customers love the fast, streamlined process and high approval rates that come from working with us for their term loan.

Applying for a term loan with AdvancePoint Capital is as simple as a 1, 2, 3, 4 process. Start with this online form, then fill out the short application page, wait a few hours for your approval, and then get your money!

* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.