A term loan is what most people think of when they think of business lending. They are loans with a set repayment time, set number of payments, and have a fixed or variable interest rate. The terms of the loans vary, from 1 year to 4 years fully amortizing. You can use a small business term loan to meet virtually any business need, including purchasing equipment or inventory, working capital, paying back other debts, meeting tax obligations, or large single purchases.
When Should You Use a Business Term Loan?
Unlike a line of credit, a term loan can give your business a lump sum cash infusion, and the loan balance is paid back over a specific term with a set interest rate, similar to a mortgage or auto loan. And like a mortgage or an auto loan, these business term loans are best utilized for set capital needs. A smart business-owner will want to make sure that loan works in a way that helps the business's cash continue to flow.
This may include investing in ownership of a large property that will give a business room to expand, or purchasing high-end equipment that would increase productivity and sales. These are significant purchases that should be made with the long-term goals of the business in mind, and you should make sure they won't interfere with the short-term goals of the business. If you do your research and crunch the numbers, it may be worth it for your business to take out a business loan—but only if it can accelerate your cash flow at a rate that outpaces the interest you'll pay on the loan.
Like lines of credit, term loans can be either unsecured or secured. If you're buying property or equipment, you may want to consider using that property or equipment to secure the loan.
The approval criteria for business term loans are much like those of business bank loans. You’ll need a financially profitable business that’s been operating for at least one year and taking in $1 Million or more annually. It's important to know that both your personal and business financial history, as well as your credit scores will most likely be the deciding factor during the application process. This includes your FICO and SBSS score. Term loans are tailored to finance small business owners with a profitable business and great personal credit.
Unlike bank loans, collateral is not typically required for term-loan approval, depending on the amount borrowed; signing a personal guarantee to repay the loan should be sufficient. Another important area that sets these loans apart from bank financing is turnaround time. While bank loans require a wait of two to six months before disbursement, you should have your term-loan funded within about a week of completing the application. Have questions about short term small business loans, or other business financing solutions we provide? Call (855) 998-LVRG or click below to get started.