Glossary of Business Credit Terms

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Business Term Loan

What Is Business Term Loan?

Business term loan refers to funds borrowed by companies for business purposes such as working capital, equipment or real estate and have regular repayments at a fixed or variable interest rate. The borrower repays the given loan amount with interest between one and 25 years. Banks, credit unions, online lenders, equity crowdfunding, and other alternative finance providers can issue business term loans. This type of financing can be bank loans, microloans or even invoice financing.

How does Business Term Loan Work?

Your business may need more working capital to meet payroll or tax obligations, purchase equipment or settle other financial needs. A business term loan can be a way out in such a situation. You need to understand how it works to decide whether it is the right financing solution for your business.

The borrowed amount of cash has a variable or fixed interest rate. You can choose any payment option (weekly, monthly, and others) to repay the loan within an agreed period.

What are the Qualifications for Business Term Loan?

Businesses that can qualify for the term loan must be financially strong with a good credit rating. These qualifications are crucial since the loan is associated with a longer repayment period compared to short-term financing. They must have been in business for at least 2 years. All business term loans are not the same, but the following features depend on the credit score and revenues of the businesses.

1. Maximum loan amount.
2. The interest rate.
3. The length of the term.

Depending on the financial strength of your business, you may be required to provide collateral. You may lose the pledged asset if you fail to repay the loan. The same fate awaits your business if a lender is granted the legal right to seize if you fail to repay the loan.

How to Obtain Business Term Loan for Your Business?

Business term loan providers are mostly banks. However, there are online lenders who provide this type of financing at reasonable interest rates. The online application process is faster than the usual procedure when applying to a bank. The following documents are required for a business term loan application.

1. Driver’s license
2. Credit rating
3. Personal tax returns
4. Business tax returns
5. Balance sheet
6. Bank statements
7. Profit and loss statements (Income Statement)
8. Voided business check

The Advantages and Disadvantages of Business Term Loan

Considering the pros and cons of a business term loan will help you to decide whether it is the right option for you.

Benefits of a business term loan

1. Suitable for various financial needs of businesses.
2. It has a longer repayment period than short-term loans.
3. Flexible repayment options.

Disadvantages of a business term loan

1. There may be prepayment penalties.
2. Fees associated with the loan can increase its cost.

When used effectively, business term loan can help you expand your operations and grow your business. Besides, you can choose a payment option that suits your cash flow.

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