Entrepreneurs know how important financing is in keeping their businesses afloat. In fact, business term loans are one of the most sought-after funding solutions in the market. Among the different business loan options, they have longer repayment terms and affordable fixed monthly payments. Entrepreneurs often use term loans to finance long-term investments like, new locations, buying equipment, or investing in new technology. The best thing you can do is to match the asset you’re financing with the maturity of the loan you’re planning on taking out.
Despite term loans being harder to qualify for, this financing option is one that can generate outstanding. If you’ve been in the business long enough and have a good credit standing, you won’t have a problem qualifying for term loans.
For those wondering what makes term loans a good financing option, here’s why small businesses should apply for it:
1. Interest Rates are Lower
Financial institutions usually offer lower interest rates for business term loans since the repayment periods tend to be longer than other business loans. The fixed interest rates also appeal to small business owners considering that they’re still in their humble beginnings. However, interest rates can vary with different lenders and could depend on the length of the loan, borrower’s credit history, and the collateral used to secure the loan. With that, it’s always important to check with the lenders first before deciding on pursuing your term loan application.
2. Payments Are Manageable
As for short-term loans, you need to pay them back within one to five years. On the other hand, repayment terms for long-term loans can reach up to 20 to 25 years depending on the lender. Since there is a clear timeline for the loan payoffs, expenses and costs become more manageable and entrepreneurs can fit the financed assets into an on-going budget.
Related: 5 Types of Long-Term Business Loans
This can be very helpful for businesses that need a large cash injection to make a specific investment. It can be renovations, new locations, or equipment for their businesses. Nevertheless, with term loans, you can slowly pay the borrowed amount in fixed installments.
3. Improves Business Credit Score
It’s a known fact that good business credit can help aid the growth of your business. Applying for a term loan can essentially boost your credit score, given that you pay your dues on time. Once your credit score improves, it can attest to your creditworthiness making applying for loans easier in the future.
While you may not be able to qualify for a term loan if you have a poor credit score, you can apply for alternative business loans that don’t focus on credit score as a requirement. But once you get approved of term loans, you can continue improving your credit background by paying before or on the due date. Once your credit score is up, you’ll be able to qualify for other business loans in the future, should you need another one.
4. Quick Approval
The loan approval process could take months to get approved. With term loans, on the other hand, the approval and funding process is faster than most loans. This is especially beneficial if your business needs cash on hand in the soonest time possible. Depending on the lender, term loans are usually approved anywhere from two days to two weeks. As long as you submit all the requirements, then you can expect to hear back from the financing company within a few short weeks or days.
5. Working Capital Can Be Spent on Other Areas of the Business
Unlike other business loans that are specifically designed for a purpose, term loans can be used for whatever the business expenses. Additional benefits that come with business term loans are, there are far fewer limitations on how you can use the funds. For instance, you can use term loans to hire employees and pay for the training they need, to improve their skills and become an asset to your company. Or, you can use it to fund business expansion or buy additional equipment. With the money from term loans, you can solve any problems related to daily business expenses and even unforeseen ones.
Best Business Term Loans for Your Small Business
Business term loans are great for entrepreneurs who are looking to grow and expand their business ventures. It provides flexible terms and you can use it for just about anything business-related. Although applying for a business loan is a big decision, it’s one that you’ll need constantly as you continue to run your company. Remember, additional cash injections in your business will help you invest, grow, expand, and survive in the business industry.