Business Term Loans

Explore a variety of online lenders offering both variable and fixed-rate options for Business Term Loans, ensuring you find the right fit for your financial needs.

Intro To Business Term Loans

When considering small business financing options, Business Term Loans are often seen as the quintessential and widely recognized choice. These loans provide small business owners with a lump sum of capital that is repaid with interest through regular monthly payments over an agreed-upon loan term. Despite the structured repayment schedule, many businesses prefer Business Term Loans for their ability to support growth and facilitate significant investments without disrupting cash flow.

In this comprehensive guide, we will address the following questions and more:

What Is a Business Term Loan?

Business term loans are often the preferred choice for small business owners seeking financing due to their straightforward repayment structure. With this type of loan, borrowers receive a lump sum and agree to repay it through regular, scheduled payments over a specified period known as the loan term. Typically, these payments are fixed amounts made monthly.

In addition to repaying the principal amount borrowed, borrowers must cover interest charges. Interest is the fee lenders charge for the use of their funds, calculated as a percentage of the loan amount. The interest rate determines the cost of borrowing and impacts the total repayment amount over the loan term.

Business term loans offer options for both fixed and variable interest rates. A fixed interest rate remains constant throughout the loan term, providing stability and predictability for borrowers. In contrast, variable rates are tied to market benchmarks such as the WSJ Prime Rate and may fluctuate over time.

Small business term loans generally offer higher borrowing limits and lower overall costs compared to other financing options. However, qualifying for them can be challenging, particularly for longer-term loans like those available through the Small Business Administration (SBA), which impose strict eligibility criteria.

MAX FUNDING AMOUNT

10K – $5M

FACTOR RATES

Starting at 1-4% p/mo

TERM

3 months – 5 years

SPEED

1-3 Business days

How Do Business Term Loans Work?

Business term loans are characterized by monthly payments, interest rates, and a fixed repayment term, though the type of interest system can vary significantly, each with its own pros and cons. Depending on the loan structure, your interest rate may either remain constant or fluctuate over time. Similarly, while your monthly payment amount might stay consistent, the proportion allocated to interest versus the principal amount borrowed can vary.

The type of interest system also determines whether it’s advantageous to pay off the loan before its scheduled due date. Some loans impose prepayment penalties, while others encourage early repayment by reducing the total interest paid.

Businesses often prefer term loans when seeking to invest in substantial capital assets that drive business growth, such as equipment or inventory. Options like SBA loans or equipment financing are specifically designed for these purposes.

Moreover, businesses can use term loans to bolster working capital or consolidate higher-interest debt, thereby reducing overall interest rates and monthly payments by spreading repayment over an extended period. Term loans also serve purposes like meeting tax obligations or covering payroll expenses efficiently.

Example of a Business Term Loan:

Imagine your business needs $100,000 to purchase a significant inventory order crucial for expanding product offerings and meeting customer demands. Your current bank balance falls short of covering this expense.

To address this, you apply for a small business loan. After negotiating a five-year term at a fixed interest rate of 8%, you secure the funds and proceed with the inventory purchase. The cost of acquiring this inventory is then spread out over sixty months through monthly repayments. This type of term loan offers a structured and manageable approach to cash flow management, contrasting with alternatives like merchant cash advances, which typically require repayment based on a factor rate within a shorter timeframe of six months to one year.

Business Term Loans – Facts, Research & Reports

According to findings from the 2023 Small Business Credit Survey, 40% of employer firms sought external funding in 2022 to enhance business operations.

Among businesses seeking funding in the same year, data from the survey indicated that 43% applied for a business line of credit, 34% sought a traditional business loan, and 23% pursued financing through an SBA loan or line of credit.

Further insights from the Joint Federal Reserve Small Business Credit Survey revealed that approximately 21% of small businesses operating for less than two years and applying for financing did not secure any funding. Moreover, only 42% of applicants received the full amount they requested.

What Are The Advantages of Business Term Loans?

Term business loans offer several advantages over other financing options. They are typically the most cost-effective due to their low fixed interest rates and extended repayment terms, resulting in lower overall costs over time. Additionally, they often provide higher borrowing limits compared to alternative loan products.

Another significant benefit is the clear fee and repayment structure of term loans. Many entrepreneurs are familiar with how these loans operate, which saves time that might otherwise be spent researching unfamiliar financial products. There’s clarity regarding which loan type offers the lowest interest rates and predictable payments, facilitating easier budgeting.

Qualifying for top-tier term loan products requires meeting specific criteria, but these requirements are transparent. If your credit score is excellent, your business has been operational for at least a year, and your financial health is robust, you are likely to qualify with most online lenders. The criteria are straightforward—either your business meets them, or it doesn’t. In contrast, it can be uncertain what level of financial health or credit score is needed for other types of financing. Some online lenders even offer long-term loans without requiring an excellent credit score and may accept real estate as collateral for borrowers with less-than-perfect credit.

What Are The Disadvantages of Business Term Loans?

Entrepreneurs often face challenges related to poor credit, which can hinder their ability to secure term loans. Unlike some other loan types, term loans typically require a strong credit score. Even if your business is profitable, a tarnished credit history can significantly impact your approval chances. However, many online lenders offer alternative loan products that are more accessible to borrowers with less-than-perfect credit.

There’s a common perception that the most favorable loan terms are reserved for financially secure individuals who don’t urgently need funds. While there’s truth to this, it reflects the reality that lower interest rates and extended repayment terms generally benefit borrowers with robust financial standings, posing lower risk to lenders.

Business term loans are specifically designed for substantial, long-term investments that generate revenue over an extended period. They may not be suitable for short-term needs like covering immediate expenses during a downturn or funding temporary increases in inventory. For these purposes, more flexible options such as short-term business loans or business lines of credit offer adaptable use of funds. Traditional bank loans often require a detailed repayment plan demonstrating your ability to repay, which can complicate approval without clear financial forecasts.

Understanding the interest structures of term loans can be complex. Different lenders may offer the same product with varying interest systems, contributing to potential confusion. In contrast, other loan products typically maintain consistent fee structures across different providers.

PROS
CONS

Business Term Loans Compared To Other Products

LOAN TYPES
MAX AMOUNTS
RATES
SPEED

Who Qualifies For Business Term Loans?

Approved businesses generally met the following criteria:

ANNUAL REVENUE

$75K+

CREDIT SCORE

550+

TIME IN BUSINESS

6 months+

How To Apply For Business Term Loans:

Starting your application for a business term loan is straightforward when you have all the necessary information ready. Here’s a step-by-step guide:

Step 1: Assess Your Financing Needs

Before proceeding, evaluate whether a business term loan aligns with your financial requirements. Determine if the loan amount adequately covers your working capital needs and if you can manage the repayment terms effectively. Planning ahead helps mitigate potential liquidity challenges during the repayment period.

Step 2: Prepare Your Documents

Gather the following documents and information for your application:

Step 3: Complete the Application

To start the application process, you can contact us directly or fill out our simple online form. Ensure you have all required information ready, including the specific funding amount you’re seeking.

Step 4: Consult with a Representative

After submitting your application, a representative will contact you to discuss the repayment structure, interest rates, and available terms. This ensures transparency and clarity, avoiding surprises or hidden fees during repayment.

Step 5: Await Approval

Upon approval, funds will typically be deposited into your designated bank account within 1-2 business days.

Managing Your Business Term Loan

Your business term loan not only secures financing but also enhances your credit profile:

  • Make all payments promptly and in full.
  • If using a business credit line or other revolving credit, keep your balance below the credit limit.

Consistently meeting these obligations improves your credit score, potentially unlocking more favorable rates and terms for future small business financing needs.

What If I’m Declined For a Business Term Loan?

Lenders may decline loan applications for several reasons, including insufficient personal credit scores, inadequate annual revenue, or cash flow that doesn’t support fixed monthly payments for long-term loans. However, encountering these challenges shouldn’t deter you from exploring other valuable small business financing options.

While alternative working capital products may not initially offer the desired borrowing limits, interest rates, or terms, effectively managing your debt can improve your position for future loans. Your ideal financing solution remains achievable—it may just require extra effort to secure.

At 800Funding, we are dedicated to helping you explore alternative options and recommending the most suitable solutions. This could involve exploring different business loan programs or considering products like business credit cards or personal loans, which often feature more flexible qualification criteria compared to traditional bank loans.

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