Among the countless financing options available for small business owners, a business term loan is one of the best. You can use business term loans at almost any stage of your business’s growth, whether you want to build up your customer base, expand operations, or explore new projects. Not all business term loans are alike, though. To help you figure out whether or not a term loan is right for you, we’re breaking down everything you need to know.
What is a business term loan?
A business term loan is a lump sum of money you borrow from a lender, then pay back at fixed intervals — with interest — over a set period of time. Depending on your lender, you’ll pay off the loan on a weekly, bi-weekly, or monthly basis. Repayment periods can last from a few months up to 10 years or more.
Interest rates also vary by lender, but they can be either fixed or variable. Fixed rates stay the same, while variable rates change depending on the state of the market.
Why term loans?
There are a number of reasons term loans are a fan favorite among business owners. Here are just a few:
- Lower interest rates: Due to their longer durations, business term loans are typically available at lower interest rates than short-term business loans.
- Cash flow flexibility: Term loans can help free up your cash flow. When you get funding for big investments or purchases from a term loan, you can allocate your remaining cash for short-term operational expenses and emergencies.
- Set payment structure: Business term loans give you more than just funding — they can also bring peace of mind. With a term loan, you have a predictable repayment schedule, which means you can plan and budget more easily.
- Simple, streamlined application process: Applying for an online term loan is fast and straightforward. You can fill out an application in minutes from the comfort of your couch, and usually hear back within a few days.
- Business advantages: The interest on a term loan is tax deductible, so you can save some money come tax season. Plus, making repayments on time can boost your business credit score, helping you score future financing opportunities at lower interest rates.
Autonomy: Since a term loan is a form of debt financing, you aren’t sacrificing equity for capital. Your business’s ownership stays 100% with you.
What can you use a term loan for?
Business term loans are great vehicles to invest in big purchases and long-term business growth. With long repayment periods and typically lower interest rates than credit cards, term loans give you ample time to generate a return on your investment before you have to pay your loan off.
You can use a term loan to:
- Open a second location
- Expand or remodel your property
- Hire more employees
- Buy a new building or space
- Purchase equipment, machinery, or software
- Cover upfront project or inventory costs
- Refinance debt