What is a Term Loan and is it right for my business?
A business term loan is relatively straight-forward and are granted upfront by the lender. Specifically, for businesses, the loan is repaid along with interest in fixed monthly payments. Typically a short term business loan would last between one and five years, whereas a long term business loan is paid over 5 to 10 years.
Not all loans are the same and loan amounts can vary greatly, anywhere between a few thousand dollars to several million. How much the lender is willing to offer and the rate is dependent upon your company’s revenue, how long your business has been operational and your personal/business credit score. The APR usually starts at about 5.9%, but can be increased to much higher rates depending on risk.
Usually the funds acquired from a term loan are applied to immediate expenses, such as cost of equipment, upgrades, purchases, large inventory orders, office renovations or expansions, new hires, payroll obligations, etc.
A term loan is generally intended for businesses that have been operational and profitable for over a year. Repayment begins straight away and sometimes collateral is required.