What is Term LoAN?
A traditional term loan is a lump sum of cash you pay back, plus interest, over a fixed period of time.
What Do I Need to Qualify?
2+ years in business
620+ credit score
$75,000+ in annual revenue
Disclaimer: These are general qualifications. Other information might be considered during your application.
HOW DO I APPLY?
Term loans are traditionally a bank product, but there any many online lenders, such as Bond Street, Funding Circle, and Lending Club that offer longer-term loans at affordable rates. Apply for these online term loans below.
Term Loans at a Glance
A traditional term loan is probably the most common form of business loan, so it’s pretty easy to understand. You borrow a lump sum of money—usually for a specific purchase you’re making for your business—and pay the loan back over a set term, most often at a fixed interest rate.
maximum loan amount
$25,000 to $500,000
1 to 5 Years
7 - 30%
Pros and Cons of Terms Loans
Set a payment structure
Suitable for many purposes
Lower monthly payments
than short term loans
Longer payment terms than
short term loans
Potential prepayment penalties
Term Loan Qualifications
Plenty of businesses can qualify for a traditional term loan—as long as you’ve been in business for a bit, have a good credit score, and are generating revenue.
(See more on a term loan’s minimum qualifications below.)
Not all term loans are the same, though: the interest rate, length of the term, and maximum loan size depends on your business revenues and credit rating.
Since traditional term loans have longer repayment periods than short-term loans, your business’s financials and credit score are more important.
Most Customers who qualified had
Time in Business
Over 3 years
What documents will I need to apply?
Voided Business Check
Profit and Loss Statements
Business Tax Returns
Personal Tax Returns
How does Term Loan Work?
Every business could use some extra cash. Whether it’s for an equipment upgrade, an order of inventory, or a new employee, a business loan could always help out.
But how can you find funding that your business can afford?
We deal with all sorts of businesses here at LendingMatchup, and we’ve got some insight into which applications lead to which loans.
Take a look at how a term loan works—and what you’ll need to qualify for one. That will help you understand whether a term loan is the right product for you.
When You Think of Loans, You Think
of Term Loans
Quick—imagine a business loan.
You probably thought of a term loan, since it’s the most common kind of business loan out there.
And simply put, they’re all about predictability.
You get a predetermined amount of money with a set interest rate, which might be fixed or variable. Then you pay that cash back over an agreed-upon amount of time in regular intervals and increments.
When it comes to term loans, there’s nothing unexpected. You know exactly what you’re getting into.
Different Kinds of Term Loans
That doesn’t mean all term loans are exactly the same, though.
Depending on your small business’s growth needs, credit rating, cash flow, revenue, and more, there are plenty of different term loans available.
In fact, you can get term loans with lengths and payment structures as varied as 1 year with daily payments to 5 years with monthly payments—and everything in between.
Similarly, loan amounts and interest rates vary according to your business’s needs and history. You can get more or less money—at higher or lower rates.
The exact details of your term loan depend on your business’s financials, but the structure will stay the same.
Traditional term loans are a wide category of business financing, available both from traditional banks and alternative non-bank lenders.
Applying for a Term Loan
Getting a traditional term loan isn’t always easy, especially if you’ve got a low credit score or no collateral to secure that cash with.
In fact, collateral might be a requirement for a term loan—depending on the rest of your business’s financials—and you risk losing that collateral if you can’t repay your loan.
And while many of these lenders might not ask for a specific piece of collateral but, instead, put a “blanket lien” on your business, the same risk still applies.
(Learn more about blanket liens here.)
Don’t forget: when you apply for a small business term loan, make sure to ask if there are any prepayment penalties or other fees you should be aware of. Go over the exact terms with the lender so you can arrive at a monthly payment you know you can afford.
Your biggest help?
A term loan’s predictability.
You should be able to figure out whether a term loan will help or hurt your business from the get-go. Just understand the calculations beforehand and plan the coming months or years of spending carefully.
Whats a Term Loan Good For?
The point of a term loan: to help you finance something big for your business.
Whether you need to make a specific equipment or inventory purchase, want more working capital, need to refinance other business debts, are looking to meet tax or payroll obligations, or something else entirely, a small business term loan can help you out.
And as it turns out, there are few loan use restrictions, if any—though, generally speaking, it’s best practice to spend that money creating more revenue for your business.
Since borrowing isn’t free, you want to come out of a loan with more money than you began with. It’s all in the planning ahead.
If used the right way, traditional term loans can help you push your business to the next level—introducing new equipment, locations, products, or marketing campaigns into your toolbox.
To distinguish traditional term loans from their shorter-term alternatives, we usually refer to them as “medium-term” loans instead.
What will a Term Loan Cost You?
Exactly the right question to ask. Thankfully, the price tag of a term loan is pretty easy to figure out. Let’s take a look at an example.
Example of a Term Loan
Congratulations—you’ve qualified for a term loan!
Let’s say you’re borrowing $25,000 from a lender at a 12% interest rate and a 5-year term.
Given the longer length of that traditional term loan, you’ll most likely have a monthly payment of about $556. (Term loans can come with weekly payments, too.)
That’s a predictable expense you can easily understand and plan your financials around.
Breaking Down Each Term Loan Payment
But here’s the thing: not every payment goes toward the same thing.
Traditional term loans amortize, which means you don’t pay equal parts interest and principal (or the amount you borrowed) from month to month. Instead, lenders usually stack interest payments early on and leave your principal payments for later.
That way, even if you pay off your loan early and get the rest of the interest forgiven, you’ve still paid most of it to the lender.
In other words…
You might save less than you’d think by paying your term loan off before it’s due.
However, your monthly payment is still the same amount—it’s just the proportion of interest to principal that changes.
In order to understand your loan completely, make sure to ask your lender for an amortization schedule.