At a Glance
Term loans help established companies pay for large expenses that often cannot be paid for with cash: This includes large expansions, capital improvements, working capital, and new equipment.
Benefits & Drawbacks
-Ongoing payments ideal for operational needs
-Fits many different industries and situations
-Can help improve business credit ratings
-May require collateral
-Lots of documentation is needed, including business statements
What Should I Know About Term Loans?
Terms loans are used for debt financing by companies that need access to additional funds for large projects. Both traditional lenders (banks, etc.) and nontraditional lenders can provide them. While these loans aren't a line of credit, they do tend to pay out over a set period of time, typically 1 to 5 years: Payments may be made every day, every week, or every month depending on the terms set.
Because these loans are so flexible, they are a common choice for more established companies. Startups and newer ventures, however, may find it more challenging to qualify.
How Much Will I Have to Pay for a Term Loan?
Term loans tend to have fixed rates or flat fees, which make their costs easier to predict. The loan rates vary from around 6 to 30 percent, depending on numerous factors. Payments are made through a business bank account or directly from your receivables.
What Do I Need to Apply?
First, remember that these loans are typically given to businesses that have been in operation for at least two years and can show a certain level of solvency – a good debt ratio for their industry, the necessary collateral, steady levels of revenue, and so on. Lenders will want to take a look at your P&L statements, balance sheets, tax returns, credit score, experience, and more while making a decision.