Business Term Loans

Explore a variety of online lenders offering both variable and fixed-rate options for Business Term Loans, ensuring you find the right fit for your financial needs.

Intro To Business Term Loans

When exploring small business financing, Business Term Loans often stand out as the quintessential and widely acknowledged choice. These loans offer small business owners a lump sum of capital that is repaid with interest through consistent monthly payments over an agreed-upon loan period. Despite the structured repayment schedule, many businesses favor Business Term Loans for their capacity to foster growth and enable substantial investments without causing cash flow disruptions.

In this detailed guide, we’ll cover the following inquiries and beyond:

What Is a Business Term Loan?

A business term loan is often the preferred choice for small business owners seeking financing. This type of loan features a straightforward repayment structure: borrowers receive a lump sum and commit to repaying it through regular, scheduled payments over a specified period, known as the loan term. Typically, these payments are fixed amounts made on a monthly basis.

In addition to repaying the principal amount borrowed, borrowers must also cover interest charges. Interest is the fee levied by lenders for the use of their funds, calculated as a percentage of the loan amount. The interest rate determines the cost of borrowing and influences the total repayment amount over the loan term.

Business term loans offer options for both fixed and variable interest rates. A fixed interest rate remains unchanged throughout the loan term, providing stability and predictability for borrowers. Conversely, variable rates are linked to market benchmarks such as the WSJ Prime Rate and may fluctuate over time.

Small business term loans generally provide higher borrowing limits and lower overall costs compared to other financing alternatives. However, qualifying for them can be challenging, especially for long-term loans like those offered through the Small Business Administration (SBA), which impose stringent eligibility criteria.

MAX FUNDING AMOUNT

10K – $5M

FACTOR RATES

Starting at 1-4% p/mo

TERM

3 months – 5 years

SPEED

1-3 Business days

How Do Business Term Loans Work?

Business term loans come with monthly payments, interest rates, and a fixed repayment term. However, the type of interest system can vary significantly, each with its own advantages and disadvantages. Depending on the loan structure, your interest rate may remain constant or fluctuate over time. Similarly, while your monthly payment amount might stay consistent, the proportion allocated to interest versus the principal amount borrowed can vary.

The type of interest system also dictates whether it’s advantageous to pay off the loan before its scheduled due date. Some loans impose prepayment penalties, while others encourage early repayment by reducing the total interest paid.

Business term loans are often preferred by companies seeking to invest in substantial capital assets that foster business growth, such as equipment or inventory. Options like SBA loans or equipment financing are tailored for these purposes.

Moreover, businesses may utilize term loans to enhance working capital or consolidate higher-interest debt, thereby lowering overall interest rates and monthly payments by extending repayment over an extended period. Term loans can also be used to meet tax obligations or cover payroll expenses effectively.

Example of a Business Term Loan:

Imagine you require business funding to acquire a significant inventory order totaling $100,000. This purchase is crucial for expanding your in-store product offerings, meeting current customer demands, and attracting new customers. However, your current bank balance does not cover this expense.

To address this, you decide to apply for a small business loan. After negotiating a five-year term at a fixed interest rate of 8%, you secure the funds and proceed with the inventory purchase. The cost of acquiring this inventory is then spread out over sixty months through monthly repayments. This type of term loan offers a structured and manageable approach for your cash flow, contrasting with alternatives like merchant cash advances, which often necessitate repayment based on a factor rate within a shorter timeframe of six months to one year.

Business Term Loans – Facts, Research & Reports

In 2022, 40% of employer firms sought external funding to bolster their business operations, according to findings from the 2023 Small Business Credit Survey.

Among businesses that pursued funding in the same year, data from the survey indicated that 43% applied for a business line of credit, 34% sought a traditional business loan, and 23% pursued financing through an SBA loan or line of credit.

Further insights from the Joint Federal Reserve Small Business Credit Survey revealed that approximately 21% of small businesses operating for less than two years and applying for financing did not secure any funding. Moreover, only 42% of applicants received the full amount they requested.

What Are The Advantages of Business Term Loans?

Term business loans offer numerous advantages over other financing options. They are typically the most cost-effective due to their low fixed interest rates and extended repayment terms, resulting in lower overall costs over time. Additionally, they often provide higher borrowing limits compared to alternative loan products.

Another significant benefit is the clear fee and repayment structure of term loans. Many entrepreneurs are familiar with how these loans operate, which saves time that might otherwise be spent researching unfamiliar financial products. There’s clarity regarding which loan type offers the lowest interest rates and predictable payments, facilitating easier budgeting.

Qualifying for top-tier term loan products requires meeting specific criteria, but these requirements are transparent. If your credit score is excellent, your business has been operational for at least a year, and your financial health is robust, you are likely to qualify with most online lenders. The criteria are straightforward—either your business meets them, or it doesn’t. In contrast, it can be uncertain what level of financial health or credit score is needed for other types of financing. Some online lenders even offer long-term loans without requiring an excellent credit score and may accept real estate as collateral for borrowers with less-than-perfect credit.

What Are The Disadvantages of Business Term Loans?

Entrepreneurs often encounter challenges related to poor credit, often stemming from circumstances beyond their control. Unfortunately, for term loans, a strong credit score is typically non-negotiable. Even if your business is profitable, a tarnished credit history can significantly impede your approval chances. In contrast, many online lenders offer other loan products that are more accessible to borrowers with less-than-perfect credit.

There’s a widespread belief that the most favorable loan terms are reserved for financially secure individuals who do not urgently require funds. While this isn’t entirely unfounded, it reflects the reality that lower interest rates and extended repayment terms generally benefit borrowers with robust financial standings, posing lower risk to lenders.

Unlike some loan types, business term loans are specifically designed for substantial, long-term investments that generate revenue over an extended period. They are not suited for short-term needs, such as covering immediate expenses during a downturn or funding temporary increases in inventory. For these purposes, more flexible options exist, such as short-term business loans or business lines of credit, which allow for adaptable use of funds. Traditional bank loans often necessitate a detailed repayment plan demonstrating your capability to repay, which can complicate approval without clear financial forecasts.

Furthermore, comprehending the interest structures of term loans can be intricate. Different lenders may offer the same product with varying interest systems, contributing to potential confusion. In contrast, other loan products typically maintain consistent fee structures across different providers.

PROS
CONS

Business Term Loans Compared To Other Products

LOAN TYPES
MAX AMOUNTS
RATES
SPEED

Who Qualifies For Business Term Loans?

Approved businesses generally met the following criteria:

ANNUAL REVENUE

$75K+

CREDIT SCORE

550+

TIME IN BUSINESS

6 months+

How To Apply For Business Term Loans:

Starting your application for a business term loan is swift and uncomplicated when you have all the required information at hand. Here’s how to begin:
Step 1: Assess Your Financing Needs

Before moving forward, it’s crucial to assess if a business term loan fits your financial needs. Consider whether the loan amount adequately covers your working capital requirements and if you can effectively handle the repayment terms. Strategizing in advance helps mitigate potential liquidity issues throughout the repayment period.

Step 2: Prepare Your Documents

Gather the following documents and information for your application:

Step 3: Complete the Application

To begin the application process, you can either give us a call or complete our straightforward online form. Please ensure you have the information gathered from the previous steps ready, including the specific amount of funding you are seeking.

Step 4: Consult with a Representative

Once you submit your application, a representative will reach out to discuss the repayment structure, interest rates, and available terms with you. This ensures transparency and prevents any surprises or hidden fees during the repayment period.

Step 5: Await Approval

Once approved, expect funds to be deposited into your bank account within 1-2 business days.

Managing Your Business Term Loan

Your business term loan isn’t just about securing financing; it’s also an opportunity to enhance your credit profile:

  • Ensure all payments are made promptly and in full.
  • If you have a business credit line or another revolving credit, keep your balance below the credit limit.
  • Consistently meeting these obligations will improve your credit score, opening doors to more favorable rates and terms for future small business financing needs.

What If I’m Declined For a Business Term Loan?

Lenders may reject loan applications for various reasons, such as insufficient personal credit scores, annual revenue not meeting their standards, or inadequate cash flow to support fixed monthly payments for long-term loans. However, these setbacks shouldn’t discourage you from seeking other highly beneficial small business financing options.

While alternative working capital products may not offer the same borrowing limits, interest rates, or terms initially desired, effectively managing your debt can pave the way for better terms in future loans. Your ideal financing solution remains attainable—it may just require additional effort to secure.

At 60Day Capital, we’re committed to assisting you in exploring alternative options and recommending the most appropriate solutions. This could involve exploring different business loan programs or considering products like business credit cards or personal loans, which often have more flexible qualification criteria compared to traditional bank loans.

Contact us

175 Great Neck Rd # 206, Great Neck, NY 11021, United States

info@60daycapital.com