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Business Term Loan

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What is a Business Term Loan

Even when you’re already established in your industry, small business loans and financing options can often come in handy. Some of the most popular funding products include business term loans, which offer a lump sum of capital paid back over a specified schedule.

Business term loans vary in duration; Some are shorter-term loans, while others are longer-term loans. You even have the option to explore medium-term loans with an intermediate repayment schedule.

The loan term or repayment schedule for a business term loan is typically monthly, bi-monthly, weekly, or sometimes daily. An automatic clearing house or ACH deducts the payment from your business bank account based on a set schedule.

You can find business term loans from several lenders, including traditional business lenders like banks and credit unions, the Small Business Administration, or online Fintech lenders through the marketplace at AdvancePoint Capital.

Choosing the Right Business Term Loan

When searching for small business funding, first ask yourself, “Why?” Why do you need the funding you are applying for right now? The purpose or use frequently dictates which loan is best for you. Traditional lenders and online lenders alike will want to know where their money is headed when determining a small business owner’s eligibility for a term loan.

The product you settle on applying for is ultimately up to you, but multiple components are at play. While many business owners only make their choices based on business term loan rates, there are more things to consider, such as:

  • Costs
  • Repayment terms
  • Payment frequency
  • Product flexibility
  • Minimum credit score
  • Eligibility requirements
  • Use of funding

After considering everything above, you can determine whether short-term loans, medium-term loans, or long-term loans are right for your business. AdvancePoint Capital will help you make an educated decision about the best business term loan for your needs.

Choosing the Right Business Term Loan

When searching for small business funding, first ask yourself, “Why?” Why do you need the funding you are applying for right now? The purpose or use frequently dictates which loan is best for you. Traditional lenders and online lenders alike will want to know where their money is headed when determining a small business owner’s eligibility for a term loan.

The product you settle on applying for is ultimately up to you, but multiple components are at play. While many business owners only make their choices based on business term loan rates, there are more things to consider, such as:

  • Costs
  • Repayment terms
  • Payment frequency
  • Product flexibility
  • Minimum credit score
  • Eligibility requirements
  • Use of funding

After considering everything above, you can determine whether short-term loans, medium-term loans, or long-term loans are right for your business. AdvancePoint Capital will help you make an educated decision about the best business term loan for your needs.

Benefits and Best Uses of Business Term Loans

  • Raising capital to expand infrastructure or operations
  • Acquiring new or existing businesses
    Funding significant or ongoing projects
  • Replenishing essential supplies and inventory
  • Covering emergency expenses
  • Finishing facility renovations
  • Hiring new employees
  • Debt refinancing
  • Purchasing or lease large machinery and equipment
  • Making regular payments at a fixed interest rate

The 5 Best Business Term Loan Options

Take a look at some of the most popular term loan options for small business owners below:

Traditional Bank Term Loans

Many traditional lenders like banks offer business term loans directly or through the SBA, which we’ll discuss in detail here later. You can often obtain a business line of credit or business credit card through traditional banks, but they will have incredibly competitive rates and require extensive paperwork, including proof of minimum annual revenue and additional financial documentation. Put simply, it’s not easy to get approved for a traditional bank term loan.

 

Product Overview

  • Annual percentage rate (APR) or interest rate of 4.5% up to treasury index plus 1% to 2.75%
  • 1 to 5-year loan term with extensions to 15 years if highly qualified
  • Origination fees from 1% to 3%
  • Monthly payments
  • Must have a deep and excellent credit history
  • Processing times of one week, up to a month depending on bank

 

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Long Term Business Loans

Over the last decade, longer-term loans have become more prevalent with the rise of online lenders. Long-term loans are defined by terms lasting over two years. These business term loan rates can vary greatly and are based on business credit and the company’s financial condition. Expect to provide a lot of documentation to qualify as the rates are attractive and credit standards are more stringent than shorter-term loans. You will need to be in operation for a minimum of two years to qualify.

 

Product Overview

  • Annual percentage rate starting at 6.99%
  • Loan amounts from $30,000 to $250,000
  • Loan term of 2 to 5 years, up to 10 years in rare cases
  • Fees originate from 1% to 3%
  • Monthly or bi-monthly payments
  • Must have an excellent and extensive credit history

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Long Term Business Loans

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Short Term Business Loans

Short-term loans offer a lump sum of money upfront, with a set repayment term length of typically 6 to 18 months. Short-term financing is an excellent alternative when you cannot qualify for other traditional business loan products. These business term loan rates are based on factor costs and are typically more expensive, but the good news is these products require minimal paperwork, and credit requirements are much more forgiving.

 

Product Overview

  • Factor rates starting at 1.10% up to 1.45% of the loan amount
  • Loan term of 6 to 18 months
  • Fees originate from 1% to 5%
  • Weekly, bi-weekly, monthly, or daily ACH payments
  • All credit scores considered
  • Fast approval process; same day to 24-hour funding

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Short Term Business Loans

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Small Business Administration (SBA) Loans

SBA loans are loans backed by the Small Business Administration, providing guarantees and financial protection to lenders in case of defaults. The SBA is not a lender but sets qualifying guidelines for all SBA loan products offered by approved creditors. These programs are perfect for when you need larger amounts of capital with longer-term financing.

SBA qualifications are stringent, and you must submit significant paperwork before approval, which can be challenging to obtain. These loans are not a quick fix; the application process is lengthy, and processing timeframes range from weeks to months, so don’t expect immediate funding, or even approval for that matter, from the SBA.

 

Popular SBA Loan Programs

  1. 7(a) Loan Program – The most popular choice for starting a business or accessing working capital.
  2. SBA Microloan Program – Small businesses receive small loans of up to $50,000 to run their company.
  3. CDC/504 Loan Program – Provides long-term, fixed interest rate financing to expand or modernize small businesses.

 

Product Overview

  • Interest rates of 5.5% or treasury index plus 1% to 2.50%
  • Loan terms of 2 to 25 years depending on product
  • Most programs offer maximum loan amounts of $5 million (excludes Microloan)
  • Fees originate from 0% to 3%
  • Monthly payments
  • Must have good to excellent credit score and deep credit history
  • Processing time of one week to a month

 

Benefits and Drawbacks of SBA Loan Programs

SBA loan programs have attractive repayment terms and lower rates, allowing for a larger term loan amount to fund significant projects and expansion. Unfortunately, SBA funding lacks flexibility, and you cannot draw money as you go. Instead, you receive a lump sum upfront with fixed terms, payments schedules, and specified uses. You’ll need to provide extensive paperwork, and approval isn’t always guaranteed.

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SBA Loans

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Business Acquisition Term Loans

Banks can help you finance the purchase of a new or existing business if you have collateral, a down payment, or significant business assets to offer. Acquisition term loans are excellent for expansion, but these products require considerable paperwork, and qualifying for them can be challenging.

 

Product Overview

  • Interest rates starting at 4.5% up to treasury plus 1% to 2.75% (rates can be higher for challenged borrowers)
  • Loan term of 5 to 15 years
  • Fees originate from 1% to 3%
  • Monthly payments
  • Down payment requirements of 0% up to 25%
  • Must have good to excellent personal credit score and deep credit history

 

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The fast, convenient, and straightforward way to get the money you need for your small business – now!

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Qualifying for a Business Term Loan

Quite a few factors can play a critical role in your ability to get approved for a small business term loan.

Many term loan products require a decent credit score and solid credit history to qualify. Some options, such as short-term loans, have more leniency when it comes to personal credit.

Most lenders like to see that you’re well-established in your industry. Term loan options typically require your business to operate for at least one year, if not two or more.

Products such as business acquisition loans will require business owners to provide collateral such as real estate, personal or business assets, and equipment.

Documentation of your business’s financial health is critical in proving your creditworthiness to a lender. You may be asked to provide profit and loss statements, annual revenue insights, market projections, and more.

Loans like those from the SBA or a traditional bank might require you to submit additional paperwork such as a business plan.

Pros and Cons of Business Term Loans

Pros

  • Meets a range of business needs
  • Predictable payment structure
  • Online lenders often fund quickly
  • Helps build business credit and improve business credit score
  • Can finance a larger project or major investment
  • Same-day decisions from trusted lenders

Cons

  • Typically requires collateral or a personal guarantee
  • Potential for prepayment penalties
  • Can have higher fees than other small business financing options

FAQ: All About Business Term Loans

Long-term loans and SBA loan programs offer larger amounts than many other funding options due to their longer repayment period. Business term loans typically have better rates, more desirable terms, and a predictable repayment schedule. However, there can be a potential prepayment penalty associated with a business term loan.

The answer is yes and no. A long-term loan and SBA funding can be difficult for a business owner to obtain due to the risks of extended repayment terms.

Short-term loans are much easier to get approved for due to lower credit standards and document requirements, but the cost will be higher and the repayment period shorter. Our market of lenders can help simplify the application and approval process.

Most businesses in operation for at least one year (with the exception of business acquisition loans) can qualify for some type of term loan offer. Your chances of qualifying for a business term loan improve with a longer amount of time in business, better credit, and strong business financials.

Sometimes you can get approved for short-term loans even with credit issues, but there are some limitations to this leniency. Traditional lenders like banks might not be your best bet, but credit unions and online lenders are often a worthwhile route for business owners with bad credit.

However, it’s important to note that long-term loans and SBA loans will not be an option if you have bad credit.

Most long and short-term loan products are not available to startup enterprises except for specific SBA loan programs and business acquisition loans. Keep in mind qualifications are often strict, and it’s challenging to get approved for business term loans without an established amount of time in business.

There is not a one-size-fits-all answer to this question, as every bank will have different options to select from and unique qualifications when it comes to your chosen term loan. Traditional lenders like banks will have stricter eligibility requirements compared to online lenders.

Long-term loans, SBA loans, and short-term loans have origination or startup fees that range from 1% up to 3%. Application and underwriting or processing fees may also apply. You can also potentially incur prepayment penalties depending on the product, and you’ll, of course, be paying interest rates over time. Check over your loan agreement thoroughly for all terms, charges, and total costs.

The simple answer to this question is experience. We have an extensive understanding of small business loans and are proud to offer you every product available in the marketplace from multiple lenders. It’s easy to shop around, compare lenders and loan products, and finally find the best fit for your business with help from the experts at AdvancePoint Capital.

Apply for a Business Term Loan With AdvancePoint Capital Today

At AdvancePoint Capital, we strive to be the one-stop-shop for small businesses seeking out a term loan or any other small business financing product for that matter. We make you our top priority and provide valuable insights while searching for the best business term loan for your organization.

Our experts can help you explore every possibility and compare multiple lenders, all with attractive rates. This way, you can settle on a loan product that’s perfect for your business and its needs. Contact us now to learn more about business term loans and additional options to continue expanding your business today.

Get your quote for a business term loan from AdvancePoint today by filling out our simple form.