What Is a Business Term Loan?
Term loans are traditional business loans. A business is funded a lump sum of capital and is expected to repay the loan over a set term, with a fixed interest rate. Terms can range anywhere from 1 to 5 years, and rates can vary between 5% to 25%. Your business’s factors such as credit, cash flow, revenue, time in business, etc. will determine the structure and rate of the term loan you will qualify for.
Structures can vary anywhere from 1 year terms with daily payments to 5 year terms with monthly payments. While there are few to no loan use restrictions when it comes to business term loans, businesses typically use term loans to finance a specific project or investment. If used properly, to generate more revenue, a term loan can help boost your business to the next level.
Lower Payment Amounts
Term loans typically have lower monthly payment amounts than shorter term financing options, due to their extended repayment periods of 1 – 5 years.
Wide Range of Uses
Term loans can be used by a business to finance a wide range of projects and investments!
Fixed Payment Structure
Term loans have a fixed payment structure. Repayments are made based on a set term and rate.
Do I qualify?
Minimum Qualifications
600+ personal FICO score
At least 1 year in business
$100,000+ in annual revenue
What You Need To Apply
Basic info about your business
Business checking account
Last 3 months business bank statements
How Does a Business Term Loan Work?
Business term loans are straightforward. Once approved, you receive the full loan amount upfront, minus any fees. You then repay the loan with interest over a set period.
Types of Business Term Loans
Short-Term Loans
- Repayment period: Up to 1 year, usually with daily payments.
- Easier to qualify for but have higher interest rates.
- Best for immediate expenses like seasonal inventory or urgent equipment needs.
Intermediate-Term Loans
- Repayment period: 1 to 5 years, with bi-weekly or monthly payments.
- Ideal for opening new locations, expanding teams, purchasing equipment, or refinancing debt.
Long-Term Loans
- Repayment period: 6 to 20 years.
- Suitable for large projects like construction, purchasing buildings, or other businesses.
- Lower interest rates but harder to qualify for, requiring proof of revenue and good credit.
Features of Term Loans: Other Considerations
Secured vs. Unsecured Loans
- Secured Loans: Require collateral, meaning your assets are at risk if you default.
- Unsecured Loans: No collateral needed but come with higher costs and shorter terms.
Fixed vs. Variable Interest Rates:
- Fixed Rates: Remain constant, providing predictable payments.
- Variable Rates: Can fluctuate, starting lower but carrying the risk of increasing payments if the benchmark rate rises.
Fees
- May include origination fees, late payment penalties, monthly/annual fees, and prepayment penalties. These can increase the overall cost of the loan if included in your loan payments.
Understanding these aspects can help you choose the right term loan to fit your business needs and financial situation.
How to Get a Business Term Loan
Before applying for a business term loan, it's crucial to evaluate your funding needs carefully. Lenders offer term loans ranging from $5,000 to $500,000, with the entire amount disbursed upfront. To avoid unnecessary debt, borrow only what you need. Here's a detailed guide to help you secure a business term loan:
1. Assess Your Funding Needs
- Identify Your Purpose: Determine the specific purpose for which you need the loan. Whether it’s for expanding your business, purchasing equipment, or covering operational costs, having a clear objective will help you decide the appropriate loan amount.
- Calculate the Amount: Make a detailed estimate of the amount required. Include all potential costs associated with your project or investment to ensure you don’t fall short of funds.
2. Evaluate Your Eligibility
When considering a business term loan, lenders typically focus on a few crucial factors:
- Business Revenue: Lenders will assess your business's revenue to determine your ability to repay the loan. Requirements vary by lender, but they generally look for $100,000+ in annual revenue. Lenders in our network often have more flexible revenue requirements than traditional banks, which is advantageous for newer or smaller businesses.
- Credit History: Your credit history is a key factor in evaluating your financial reliability and risk of default. Most lenders look for a personal FICO score of 600+. A higher credit score can improve your chances of receiving more favorable terms.
- Time in Business: The length of time your business has been operational is another crucial criterion. Traditional banks typically require a business to be active for at least two years, whereas lenders in our network often require a minimum of just one year. A longer operational history can convey stability to lenders, potentially leading to lower rates and better terms.
3. Submit Your Application
Applying for a business term loan at Status Funding is designed to be quick and easy. Our online application process can be completed in just a few minutes. During the application, you will be asked to provide details about your business which includes the owner's information, general business information, the last three months of bank statements, identity verification documents, and a business checking account. Once submitted, our advanced algorithm swiftly evaluates your business profile to match you with the ideal lenders, ensuring a perfect fit for your financial needs. If approved, you will receive business term loan offers to review and select the best offer that suits your needs. This enables you to access the capital your business requires, often within as little as 24 hours, streamlining the process to get you funded efficiently and effectively.
Pros and Cons
Predictable monthly payments
Often cheaper than other financing
Flexible repayment over 1 to 5 years
Timely repayments boost credit score
May require assets as security
Can be lengthy with extensive paperwork
Good credit and financials needed
Our application process is easy.
1
Apply Instantly
Fill out our quick and easy online application. It only takes a few minutes and won't affect your credit score.
2
Discover Your Options
Receive personalized funding offers, carefully curated to align with your business goals and requirements.
3
Get Funded
Choose the best funding offer for you and access the capital your business needs in as little as 24 hours.
*The content provided on this page reflects the opinions and insights of Status Funding, based on our research, methodologies, evaluations, and various additional considerations. This information is accurate as of the initial publication date. Status Funding makes every effort to update and maintain the accuracy of this content to ensure its relevance and accuracy, however, the information may differ from what you may find on other platforms, including financial information sites, different service providers, or specific product pages. All information is presented without any warranty. We encourage you to carefully review the terms and conditions, relevant policies, contractual agreements, and all applicable details of the financial institution when considering offers. The ranges mentioned here do not represent pre-qualified offers. Ranges may be greater or less based on the information provided in your business financing application. Please be aware that Status Funding may receive compensation from financial institutions that are reviewed on this page if you proceed to obtain business financing through them.
