Business Term Loans 2024

What is a business term loan?

A business term loan is essentially a personal loan but for a business – you borrow a lump sum from a lender and pay it back over a fixed term.

How does a business term loan work?

Once you’ve compared rates and found a lender that’s right for you, you simply apply for the term loan and supply the information your lender needs to make a decision. Once approved, the lender will deposit a lump sum amount into your business bank account which you can then use to purchase equipment, pay for advertising, or fund other activities.

Top business term loan options

Funding Circle

✔ Funding: Borrow $25,000 to $200,000
✔ Minimum Credit Score: 700
✔ Loan term: 6-12 months
✔ Funding turnaround: 24-48 hours

Funding Circle offers affordable business loans with interest rates lower than alternative lenders with monthly repayment schedules for borrowers with good to excellent credit scores.

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Credibility Capital

✔ Funding: Borrow up to $500,000
✔ Minimum Credit Score: 650
✔ Best For: Term loans
✔ Funding turnaround: Varies.

With Credibility Capital, borrowers with strong credit can obtain small business loans with attractive rates. A personal guarantee along with a business lien and revenue may be required to qualify. Note: This lender provides funding for all states except for North Dakota, Nevada, South Dakota, Vermont.

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SBA 7(a) loan

✔ Funding: Borrow up to $5,000,000
✔ Minimum Credit Score: 650
✔ Best For: SBA loans
✔ Funding turnaround: Varies.

The SBA 7(a) program features lenders such as Wells Fargo in their network and provides capped interest rates and long repayment term flexibility. Term loans and lines of credit access available. Typically, collateral will be required with a personal guarantee. Funding times vary and may be longer than most other lenders.

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Types of business term loans

Business term loans only differentiate by their length. The different types of business term loan are:

• Short term business loans: These loans are often the payday loans of the business world – they’re designed to help you cover a cashflow shortage over a short period, typically days or weeks rather than months (though it may be the latter). This is a good option for those in construction or wholesale as you know you’re going to be getting a lump sum payment from a client in the near future. These loans typically have high interest rates.

• Medium term business loans: Medium term loans are paid back over a longer term, typically 2-3 years, though they may be anywhere between 1-5 years. These loans have more favorable rates than short term loans, though they often come with more stringent requirements.

• Long term business loans: Long term business loans typically have a repayment period of more than 5 years, and can be as much as 25 years if it’s a loan for property. These loans offer the best rates and the highest loan amounts, but they also have the most hoops to jump through before you can secure your funding.

What are the pros and cons of business term loans?

PROS

• You can access funding for short-term needs or long-term growth
• Borrowing and successfully paying back a term loan will build business credit
• You can access services or equipment you wouldn’t otherwise have been able to afford
• Online lenders offering business term loans will typically approve and fund your loan within days (so it’s fast)

CONS

• They’re not as flexible as other forms of business funding – you get the money once and pay it back slowly
• Short term loans, while helpful, are costly
• Loans with more affordable interest rates often take longer to fund
• They’re often difficult to get when you most need them in the early years of business
• You often need to put up collateral or take personal responsibility for the loan

What is an example of a business term loan?

Say you own a small construction company that’s growing fast, and you realize that the best way to increase how quickly you can complete additions on people’s homes is if you have another excavator. You realize you can cut costs if you buy used, and it will cost you around $15,000.

You don’t have $15,000 to spend on an excavator – at least, not without making your business short on cash. So you look into a term loan. You compare rates and choose one that’s right for you. You gather your details, make your application, and get approved. The money is in your account three days later, and you purchase the used excavator for your business. You then pay back that $15,000 over the next 3 years in monthly installments.

What can a business term loan be used for?

Like a personal loan (which is also a term loan), a business term loan can usually be used for anything. The lender will deposit a lump sum into your account and you’ll be able to spend that money on whatever you need for your business.

In some cases, you may find a term loan that is tied to equipment, but these are usually known as “equipment loans” and are worth researching if that’s what you plan to use your loan for.

What type of businesses typically use a term loan?

The good news is any type of business can benefit from a term loan, though you will find it easier to attain a business loan if you have 2-3 years (or more) of business under your belt. Remember that lenders don’t want to lend to a business they think may fail and disappear, so they’ll want to see strong growth or longevity before offering low interest rates.

Will I need to provide collateral for a business term loan?

In some cases, you may. Most business term loans are unsecured, like a personal loan, which means they essentially take your word that you’ll pay off the loan. However, you can often get better rates or borrow more if you provide collateral as a business or personally as the business owner.

What is the repayment period for a business term loan?

Short term business loans may be less than 3 months, medium term business loans are typically 1-5 years, and long-term loans are typically 7-10 years, but may be up to 25 years in some circumstances.

What is the average interest rate for a business term loan?

This depends on how long the term is for, as well as your credit worthiness and how much you want to borrow. That said, you may see rates as low as 5% for long term loans, 5-24% for medium term loans, and up to 36% for short term loans. If you’re planning to use a short-term loans, make sure you read the fine print as some rates can be extremely high.

Business term loan payment calculator

Try our term loan calculator and estimate your monthly payments below.