A traditional business term loan is a lump sum of capital that you pay back with regular repayments at a fixed interest rate. The “term” in “term loan” comes from its set repayment term length, which will typically be one to five years long. Most business owners use the proceeds of term loans to finance a specific, one-off investment for their small business.
Who Qualifies for a Term Loan?
Plenty of businesses can qualify for a traditional term loan however its strongly contingent upon if your business has a strong credit profile and generating sufficient revenue for debt service.Since traditional term loans have longer repayment periods than short-term loans, your business’s financials and credit score are most important.
How Do Business Term Loans 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.
Like mortgages and car loans, term loans typically follow an amortization schedule. This means most of your payment goes toward paying interest at the beginning of the loan, and more toward principal near the end. Term loans can usually be repaid early to save on interest, although lenders may charge a prepayment penalty.
Term loan example: On a $100,000 term loan with a five-year repayment period at 20% APR, you’d make fixed monthly payments of $2,649 and pay total interest and fees of $58,963.
How Do You Apply for Business Term Loans?
Business term loans are traditionally a bank product. If you’re applying for a term loan from a bank, you can expect a longer application process with many documents required.Business term loans from traditional banks and certain online lenders will be the hardest term loan products to qualify for. However 555 Capital prides itself on speed and efficiency in digitally processing applications at the speed of opportunity.
Getting a traditional business term loan isn’t easy 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 with some lenders—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.
When getting a business term loan, 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.