A business term loan is the most popular form of financing. In fact, it’s the first thing that comes to mind when people think about taking out a loan. Whether you need to renovate your office, purchase equipment, or additional working capital, a term loan can provide you with the funds needed to grow your business.
Business owners can apply for term loans from banks, credit unions, and online lenders. There are three types of term loans: short-term loans, medium-term loans, and long-term loans. The type of loan you choose ultimately depends on the needs and goals of your business.
1. Short-Term Loans
The repayment terms for a short-term loan is between six months to a year, depending on the lender. This makes it ideal for small businesses that need quick access to working capital to fund immediate needs. Other benefits of short-term loans include access to funds to build inventory in preparation for peak seasons; improve credit, which helps you qualify for larger, less expensive loans. Short-term loans have higher rates of approval because there’s a greater chance that borrowers will pay back the loan. More often than not, you don’t have to put up collateral for short-term loans.
2. Medium-Term Loans
Medium-term loans have repayment terms of one to three years. Most borrowers use them for business assets that generally last for a few years, such as electronics, rather than long-term investments like properties. While short-term loans are usually for everyday operating costs, medium-term loans use them for capital expenses (equipment, machinery, commercial vehicles, etc.). The amount you can qualify for is greater than short-term loans, but approval can be challenging. Additionally, you will need collateral and/or a personal guarantee to secure the loan.
3. Long-Term Loans
For long-term loans, repayment terms often range from three to ten years or even more, depending on the lender. Unlike short-term loans, you need collateral to secure the loan, such as commercial property, inventory, equipment, or a combination of assets. It’s tougher to qualify for a long-term loan and the process takes longer compared to the other two. You’ll also be asked to submit financial statements and other documents that support your business claims.
Experts say that it’s better to use long-term loans for long-term business investments. For example, if you own a printing press, you can use the funds from a long-term loan to purchase new commercial printers.
Which Type of Business Term Loan is The Best for Your Company?
At the end of the day, the answer to this question depends on the needs, goals, and capability of your business. Remember, you should only borrow enough money to take your business to the next level. Prior to applying for funding, be sure you can repay any loan you have been approved for.
SMB Compass offers business term loans for companies across the United States. Our financial experts can help you acquire the best type of loan for you and your business that is based on your needs.
Simply give us a call today at (888) 853-8922) or email us at email@example.com and get all the details.