Even when you’re already established in your industry, business loans and other 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.
What is a Business Term Loan? How do Business Term Lans work?
But what exactly is a business term loan? Business term loans are loans that provide a one-time lump sum funding with a fixed duration of repayment. Duration will vary; Some are shorter-term loans, while others are longer-term loans. The loan term or repayment schedule for a business term loan is typically monthly payments, but can also be 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 even have the option to explore medium-term loans with an intermediate repayment schedule. Interest rates, terms, and the maximum loan amount will vary and depend on creditworthiness. Lenders typically offer fixed payments.
Alternatives to Business Term Loans
A business line of credit (or credit line) is not a term loan but a revolving line of credit in which you only pay interest on an outstanding balance up to a credit limit, like a credit card. Merchant cash advances provide a lump sum at funding but are not term loans. They are advances of business funds based on annual revenue and repaid by taking a percentage of future sales.
Where can you find Business Term Loans?
You can find term loans from many online lenders, including traditional banks and credit unions, the Small Business Administration, or online Fintech lenders through the marketplace at AdvancePoint Capital. Advancepoint Capitals marketplace has many lending partners with a variety of business funding products such as business lines of credit, equipment leases and loans, and business cash advances to name a few. Whether you need a short-term business loan, medium-term business loan, or long-term business loan, we've got you covered. Our lending partners and product diversity is far superior to banks or traditional lenders.
AdvancePoint Capital makes the loan application process a simple, straightforward experience.
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AdvancePoint Capital makes the loan application process a simple, straightforward experience.
Choosing the Right Small 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 interest rates, there are more things to consider, such as:
- Interest Rates
- Frequency of payments (monthly, bi-monthly, weekly or in some cases daily)
- Qualifications & Eligibility requirements
- Agreement terms & conditions
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.
The Most Common Uses of Business Term Loans
- Improving Cash Flow Issues
- Working Capital
- 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
Term Loan Options for Your Business
Take a look at some of the most popular term loan options for small business owners below:
Small Business Term Loans
Small business loans are term loans with fixed loan amounts, fixed terms, and fixed monthly payments. Weekly, bi-weekly or daily payments have also become popular over the last couple of years to approve more customers who have thin business bank account balances. A small business loan funds businesses for a variety of business needs. Small business loans are commonly referred to as working capital loans as well.
- Simplified application process
- Fixed payments
- Terms from 12 to 36 months
- Completive interest rates
Long-Term Business Loans
A long-term business loan is a small business loan that is paid back over a long period of time, typically 5 to 30 years. This business loan is most commonly used for large business expansion plans that will require a substantial loan amount and need to be paid over long periods of time to get an affordable payment under current business revenue.
- Repayment terms greater than 5 years
- Monthly payments
- Application process requires signification paperwork to qualify
- Rates that start at 9%
Short-Term Business Loans
Short-term loans are business loans with obviously a shorter term to pay back, typically 6 to 18 months. Short-term loan approval is easier to get because of the reduced risk of time to repay by the lender. Personal credit score needs to be fair or better for approval. Same-day funding is available. Great product for managing cash flow and working capital.
- Terms from 3 to 18 months, up to 24 months
- Streamlined application requiring 3 months bank statements
- Rates and costs are higher than traditional small business loans
- Higher approval rates than other alternatives
Small Business Administration (SBA) Loans
The Small Business Administration is a federal agency that sets the guidelines and requirements for SBA loans. The SBA is not the lender but provides guarantees to SBA-approved lenders so they will lend affordable interest rates, terms, and monthly payments for small businesses that lenders would not do without the guarantee.
- Excellent rates and terms
- Lengthy application process
- Must have good credit
- Backed by the Small Business Administration
For businesses that rely on heavy equipment for their services, equipment loans provide a path to purchase equipment vital to the business's success under the benefits of a term loan with affordable monthly payments to repay. The loan amount will depend on the purchase price and down payment for approved borrowers.
- Quick application process
- Limited documentation needed
- Equipment is used as collateral to secure the loan
- Terms range from 2 to5 years
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 business owner credit score and solid credit history to qualify. Some options, such as short-term loans, have more leniency when it comes to personal credit and your credit score.
Documentation of your business’s financial health and annual revenue 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.
Time in Business
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.
Loans like those from the SBA or a traditional bank might require you to submit additional paperwork such as a business plan to learn how the business operates.
SBA Products will require business owners to provide collateral such as real estate, personal or business assets, and equipment.
Pros and Cons of Business Term Loans: Is a Business Term Loan a Good Idea for my Business?
- Meets a range of business needs
- Set repayment schedule
- Online lenders often fund quickly and receive funds the same day
- Helps build business credit and improve business credit score
- Can finance a larger project or major investment
- Same-day decisions from trusted lenders
- Typically requires collateral or a personal guarantee
- Potential for prepayment penalties
- Can have higher fees than other small business financing options
- Does not have a draw feature like a business line of credit
FAQ: All About Business Term Loans
How to Apply for a Business Term Loan
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 regardless of credit score.
- Identify need- Consider what you need business funding for and how much you will need
- Initial interview- Discuss products based on your need as well as qualifications with a business funding specialist.
- Application- Fill out application and provide required documents for the business term loan approval. This usually consists of business bank statements and other financial statements.
- Offer(s)- A decision then comes with hopefully an offer(s) that are issued. The offer will include a term sheet and/or disclosures clearly outlining the product rate, term, and conditions. Compare multiple offers so that you can make a good decision.
- Accept terms- Once you have selected an offer you will need to sign agreement and provide closing conditions to fund.
- Business Funding- When agreement is signed and underwriting clears all remaining conditions, and ACH payments are set up, funds are sent by wire or ACH...
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 and receive funds in a timely fashion. Contact us now to learn more about business term loans and additional options to continue expanding your business today.