Business Term Loans

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Table of Contents

    What are Business Term Loans?

    A business term loan is a type of traditional business loan where the borrowing business receives a lump sum upfront, which they then pay back in monthly increments over a specific term as specified in the loan agreement. Usually, repayment periods for business term loans can range from a few months to ten or more years, depending on the stability and structure of the borrowing business, their credit strength, and their expense needs. Depending on the lender, term loans may have a fixed interest rate or variable interest rates, and pledging collateral may afford businesses with longer terms and lower rates because the collateral offers security for the lender.

    Term loans provide businesses of all sizes with the ability to borrow capital for most types of business expense purchases, which might have not been affordable while only relying on operating cash flow for working capital. Without term loans, many business owners would have trouble covering everyday working expenses, expanding their business by taking advantage of growth opportunities, paying for expensive equipment costs, or any number of costs that term loans can help cover and ease the burden. There are countless ways that business owners have utilized the different term loan programs available, and it is easier than ever to discover information online about how to apply for term financing, or how to qualify for it, and some websites even offer a term loan calculator to help business owners figure out specific problems like how to calculate payments on a short term business loan. One of our lending advisors can help business owners learn more about business term loan programs available and help to find the right program for any business.

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    Loan Amounts

    $100,000 – 5,000,000

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    Rates

    5.25% – 7.75%

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    Speed

    Less than 30 days

    What are the different types of Business Term Loans?

    Whether you’re looking for long-term business loans, medium-term loans, short-term small business loans, or any other type of business term financing, it is important to first consider the different types of business term loans that are available for businesses.

    There are five common types of term loans that are used most frequently by SMEs: small business bridge loans, multi-year term loans, SBA term loans, asset-based term loans, and equipment term loans. Depending on the funding amount needed, the length of time the funds will be repaid over, and the type of expense the funds will be utilized for, there are several factors that influence the type of business term loan that will work best for a given business.

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    What type of collateral is used for Business Term Loans?

    When business owners are considering applying for a business term loan, in addition to working cash flow, the type of collateral that the business has to offer should be considered. Lenders will want to check to see if the borrowing business has a typical influx of sales or working capital to sustain payments, and if there is any reason to doubt that the borrower will be able to make their payments, lenders will especially want to see collateral that a business can offer to secure the funds.

    Collateral is used by lenders to secure funds in the case that if a borrower fails to make payments on the terms that were agreed upon, the lender can use the collateral the borrower put up to repay the amount borrowed. If a borrowing business does not have the capital to sustain monthly payments but has highly valuable assets to be used as collateral, the business owner might be able to secure funding with a business term loan, despite low cash flow. Some examples of the most popular types of collateral considered by lenders are machinery and equipment, commercial real estate, and inventory.

    What type of collateral is used for Business Line of Credit?

    At SMB Compass, we accept different types of collateral to secure your business term loan. The value of your collateral can help you qualify for higher loan limits, lower interest rates, and more liquidity. There are different types of collateral, but here are the top four ones that are commonly used by our clients:

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    Why Use Business Term Loans?

    Business term loans are utilized by many business owners that need assistance with capital or other business expenses. Because of the range and flexibility of costs and restrictions, and the variety of different types of programs, there is a business term loan to fit the needs of most borrowing businesses. Some of the most common uses for business term loans are: business acquisition, equipment purchases, debt consolidation, working capital, inventory, real estate, and debt refinancing

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    What are the best industries for Business Term Loans?

    Business term loans are industry-agnostic, meaning that they can be used for a variety of reasons across industries. A business term loan is a great option for business owners, whether they are in an industry that sells business-to-business, business-to-consumer, or business-to-government. With the range in flexibility and qualifications for business term loans, there is usually a business term loan product that can fit each borrower’s needs.

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    What are Business Term Loan Rates?

    There are many different types of term loans rates, and different loan products and packages will have different structures, rates, and terms. The specific details for business term loan rates will vary from lender to lender, and there are a number of factors that can influence the rates.

    Lenders offer two types of interest rates for their term financing products: Fixed and variable interest rates. Fixed interest rates imply that the same interest rate will be charged for the loan throughout the term. Variable interest rates, on the other hand, could change overtime depending on how the economy is currently faring. In other words, your payments could change if the economy goes up or down.

    We offer both fixed interest rates and variable rates for our term loan programs. However, the type of rate will vary depending on a number of factors, such as:

    • Business trade history
    • Profitability of the Borrowing Business
    • Length of Time in Business
    • Operating history
    • Personal Credit Score of Business Owner
    • Collateral available to secure the loan
    • Subordinate or First Position
    • Use of funds
    • Length of term
    • Quality of clients

    What are the Rates for Business Term Loan?

    Fixed interest rates are typically customary for business term financing. Because the interest rates don’t change overtime, your payments will remain the same for the duration of your loan (1 to 5 years or more). This makes it easier to figure out how much financing your company can afford and keep up with monthly payments until the loan is paid off.

    Moreover, there are factors that identify business term loan interest rates. This includes:

    • Credit Score
    • Business Style
    • Business years of operations
    • Formal business documents
    • Business financial status
    • Collateral

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    FAQ

    What is a Business Term Loan?

    A business term loan is a type of business loan that allows borrowing businesses the ability to receive a lump-sum of money from a lender given that the borrower agrees to repay the amount borrowed over the course of agreed upon terms of the loan. These types of loans can range in length from a couple of months to several years, where the borrowing business makes monthly payments to the lender over the course of the terms of the loan. Business term loans are beneficial for business owners because they provide funds to help bridge capital gaps or cover daily operating expenses, or any number of business costs, as the restrictions are extremely flexible for business owners.

    How to Apply for a Business Term Loan?

    Applying for a business term loan is easier than ever before. The level of documentation necessary for the application will vary depending on the lender and the type of business term loan program that the borrowing business is applying for. If the borrowing business can provide documentation to demonstrate strong cash flow and credit history, the application process can be extremely quick and easy. For borrowers that are using assets as collateral to secure funds, the documentation process might be extended, and might include a field audit to determine the value and liquidity of the asset.

    How to Secure a Business Term Loan?

    The first necessary step to secure a business term loan is to determine the expenses necessary to cover with the funds. Because the business term loan programs vary, typically based on the purchases that the funds are needed for, the borrowing business should first determine what the fund will be spent on. Next, borrowing businesses should determine if their working capital and cash flow are stable enough to apply for the business term loan without using collateral to secure the loan, or the borrowing business should consider what assets they have available to secure the funds for a business term loan. Once the purpose and the amount necessary are determined, the final step is for the business owner to organize their financial information and documentation to provide for the lender. The more organized the business owner is, the smoother the application process will be.