A business term loan refers to any sum of money paid back with regular payments for a set term length. They have a fixed interest rate and the term is usually one to five years. They’re typically used for one-time investments.
$25K - $500K
1 - 5 years
7 to 30%
As fast as 2 days
How do Business Term Loans Work?
Term loans are pretty traditional. If, as an individual, you have student loans or a mortgage, then you have a term loan. As a business, term loans work along these same lines. The stipulations – requirements, interest rates, and terms – vary between banks and online lenders. Online lenders offer convenience and fewer stipulations, but shorter terms and higher interest rates. Banks are slower and have higher qualifications, but offer longer terms and lower interest rates.
At FaaSfunds, we’ll figure out if a term loan works for your business, and we’ll quickly match you up with a lender that fits your needs.
Pros & Cons
Pros of a Business Term Loan
- Set repayment structure
- Cover a wide range of business needs
- Suitable for a wide range of business needs
- Lower payments than short-term loans
- Longer payment terms than short-term loans
Cons of a Business Term Loan
- Possible prepayment penalties
Instantly see your top options for business loans and credit cards based on your business’s needs using our FaaSmatch technology.
Who Qualifies for a Business Term Loan?
Most businesses can qualify, but it depends on your credit score, financials and how long you’ve been in business what your term length, loan size, and interest rate will be.
How Do You Apply for a Business Term Loan?
Term loans, traditionally, come from a bank. The application process from a bank will be longer and several physical documents. For an online lender, like Kabbage or Funding Circle, the application process is much easier and convenient. They all require the same information, but online lenders off a more streamlined input process.
Some lenders may charge prepayment penalties or other fees.
Apply using FaaSfunds online application and we’ll connect you to the top business term loan lenders, and get you approved in as little as a day.
What You're Going to Need:
- Driver’s License
- Voided Business Check
- Bank Statements
- Profit & Loss Statements
- Credit Score
- Business Tax Returns
- Personal Tax Returns
What else should you know about Business Term Loans?
Business Term Loans are the most common form of loan out there, and they’re pretty straight-forward.
- You get a set loan amount, usually for larger purchases.
- You have a set interest rate, which varies depending on your lender and your business.
- You have a set repayment term, which also varies.
- They might require collateral depending on your business financials, and you could lose that collateral if you can’t repay it.
There are some other details you should know before applying, however.
Types of Business Term Loans
Your only options for business terms loans come from either banks or online lenders. These are the two “types” and their tradeoffs.
- Banks – offer the lowest rates, but you need to have good credit and strong financial history. These traditional loans also take longer to apply for and receive.
- If you have no collateral, getting these traditional business term loans are also hard if you have no collateral to secure them with.
- Online lenders – offer quicker access to funds. They’re easy to apply for and have looser credit and business financial history requirements, but typically have higher rates.
What are the Costs of a Business Term Loan?
Business term loans are one of the simpler funding methods to figure out, but they can still have very complex terms. Here’s a run-down of how the repayment works.
Business Term Loan Uses
Business term loans are usually used for large business investments, such as:
- Real estate
- Marketing campaigns
The goal of getting a business term loan is to come out of it with more money than you spent on it, so it takes a lot of planning and calculation to make sure you’re going in the right direction for your business.
Not sure if a Business Term Loan is right for you?
Let us walk you through your options and help you decide which program is right for you.
Business Term Loan Example
If you’re trying to purchase new furniture for your restaurant, you need a loan to make that large, one-time purchase. After you’re approved for and receive a $30,000 business term loan and you purchase the furniture, you’ll most likely have to start paying monthly payments. Those monthly payments will include 13% interest over a seven-year period. If the interest is on the principal amount borrowed, your monthly payments will be about $403 per month. This all depends on the loan stipulations and how the interest is compounded, but it can give you a basis of how business term loans work.
Term loans amortize. This means that each loan payment doesn’t go equally toward interest and principal amount. Early on in repayment, lenders stack on interest payments and leave payment toward your principal for later on. Through the course of the loan, these payments will start to equalize and eventually the amount to pay toward your principal will surpass the amount you pay in interest. Your monthly payment is still the same amount, only the proportion of interest to principal changes.
Lenders do this so that just in case you pay off your loan early, you’ve still paid most of your interest to the lender. This means you save less than you’d think by paying off a loan before the term is over.
Our FaaSfunds financing experts provide you with the latest industry knowledge to keep you in the know.
Let one of our FaaSfunds financial experts help lead you through the process and guide you down the best path for your business financing needs.