Business term loans are relatively straightforward loans that are granted in full upfront by the lender. They’re specifically offered to businesses, but are basically the same as other familiar term loans like car loans, mortgages, student loans, and many personal loans. The funds are usually made available in a few days to one week. The loan is repaid, along with interest, in fixed monthly payments over an agreed-on period of time. Typically, short-term business loans are repaid over one to five years, and long-term business loans are repaid over five to 10 years.
Not all business term loans are the same, obviously. Loan amounts generally range anywhere from a few thousand dollars to several million. Your company’s revenue, length of time in operation, and your personal and/or business credit score are key factors in determining how much a lender is willing to offer and what the interest rate will be. The annual percentage rating (APR) usually starts around 5.9% and can be much higher depending on the risk involved.
The funds acquired in a business term loan are most often applied to significant immediate expenses. These would be costs like equipment upgrades and purchases, a large inventory order, office renovations or expansions, new hires and associated payroll obligations, and business expansions.
These loans are primarily for businesses that have been profitably operating for at least a year. Repayment begins right away, so if you need more flexibility in this regard, another option like a business line of credit may be more appropriate. Also keep in mind that collateral may be required for a business term loan depending on the lender and the situation and the amount you need to borrow.
Banks and credit unions are the traditional lenders. They typically offer lower interest rates but have more strict qualification requirements than online lenders—the other option. Online lenders may offer more convenience and flexibility, such as even smaller or shorter-term loans. Application processes vary between lenders. At SBF we have a much higher approval rate and require much less as far as documentation than traditional banks and credit unions do. Our rates and terms are also very competitive and SBF are much faster to approve term loans and fund merchants than credit unions and banks.