The rewards of business ownership are substantial, but so are the costs of time, energy, and money.
Capital is critical for the development and success of any business, whether it is a multinational conglomerate or a brand-new start-up.
That's why it's important to know what a business loan is, what you'll need to apply for and qualify for it, and the benefits of the various types of business loans available before applying for one.
Even though some of the information here may seem basic, we are dedicated to giving you the important information you need.
Read along if you want to learn more and see if business term loans suit you!
Let's begin!
A business term loan is a lump sum of capital you borrow from a lender and repay on a fixed schedule over a set time, also known as a term.
Term loans are typically intended for well-established small businesses with stable financial statements.
As a borrower, you agree to a specific repayment schedule that can include either a fixed or floating interest rate in exchange for a defined quantity of cash.
Additionally, you can reduce payment amounts and the total cost of the loan by making substantial down payments.
Once you agree to this financial arrangement, you commit to making monthly payments toward the loan's principal and interest over its term.
This repayment schedule is usually set monthly or quarterly, depending on the agreement.
Your company's future growth and expansion prospects can improve significantly with the additional cash and decreased financial risk from a business term loan.
Whether starting, acquiring, or expanding a business, you don't want to deplete all of your savings or disrupt your current business's cash flow to fund the ongoing costs.
For that reason, term loans are a popular source of funding for business owners looking to make one-time expenditures, for example:
We can divide business term loans into 3 categories corresponding to the loan's lifespan.
Short-term business loans are an option for small company owners who need quick funding to bridge a cash flow gap or cover an unexpected expense.
There are a lot of lenders to choose from online, and some of them have an easy application procedure.
Once accepted, you can get the money on the same day, but you'll have only 3-18 months to pay it back.
Still, the most common is to repay the loan within a year.
The most typical forms of short-term business loans are:
✅ The interest rate is lower compared to long-term loans
✅ Fast funding time because these loans are considered less risky and more likely to be paid in a short amount of time
✅ An excellent choice for businesses with less than perfect credit score
❌ Usually, only provide smaller loan amounts.
These loans typically last 1-3 years, and you have to repay them in monthly installments from the business's cash flow.
Businesses with steady revenue growth looking to extend their operations should consider applying for a medium-term loan.
These loans provide a reasonable lump sum for many things, like opening a new branch, buying inventory, or buying new assets.
Interest rates (fixed or variable) for this sort of loan typically range between 6% and 30%.
Companies that need money to expand, either geographically or in terms of personnel, often turn to these loans.
This amount of money could help your company grow and improve its current activities in a big way since you can borrow up to $500,000.
Medium-term loans require solid credit and regular revenue from the business to be approved.
Each potential provider has its own set of requirements for acceptance.
For example, banks prefer businesses with high growth potential and credit scores over 700.
Still, banks often require putting up some sort of collateral when applying for a medium-term loan.
On the other hand, alternative or online lenders tend to be more lenient with applicants.
For example, they are willing to work with those whose credit ratings are in the 600s and higher.
They also look favorably at companies that have been around for at least a year and are generating profits.
✅ Fixed interest rates
✅ If you successfully pay off the loan, it can improve your personal and business credit score.
✅ You can use these loans for various purposes.
❌ The application process can be lengthy and require more paperwork than short-term loans.
❌ They often require collateral
❌ Can include origination fees and prepayment penalties
Some companies may find their financing problems solved with a medium-term loan.
For example, they are common among smaller businesses because of their adaptability and the stability of their fixed monthly payments.
They provide a good compromise between the high costs of short-term loans and the time investment of long-term loans.
However, their use is inappropriate for everyone since it depends on your creditworthiness, your business duration, and your revenue situation.
Any loan with a repayment term of 12 months or longer is generally classified as a long-term loan.
The repayment period for a long-term small business loan can vary (typically according to the purpose of the funds) and go up to a 25-year repayment schedule.
Long-term business loans, which have reduced interest rates due to more extended repayment periods, are helpful for financing expansion, refinancing an old debt, or buying expensive assets like property or machinery.
The following are the main features of long-term loans:
The process of applying for a long-term business loan will differ depending on your chosen finance provider.
For example, traditional lenders, like banks, often require an in-person approach to provide tangible paperwork.
Thus, it is typically the slowest and most manual procedure.
In comparison, online lenders will typically have streamlined, digital processes that can be wrapped up much faster, sometimes in a matter of minutes.
However, regardless of the lender you're working with, you can improve your approval odds and shorten the time it takes to get funded by preparing your application materials in advance.
The process can differ depending on the lender and the country where you are doing business.
Still, the most common requirements are as follows:
As we said, these small-business loans are flexible and can be used for anything from inventory to marketing to expansion.
Here is a quick overview of where to find them.
Myos offers asset-based financing, a perfect choice for any ecommerce business owner needing working capital.
Whether you need cash to bridge current operating difficulties or an additional boost for expansion, Myos has the right solution for you.
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The biggest perk is that with a flexible payment plan, you only pay when your turnover allows it. So you don't have to worry about slow months.
Or in contrast, if you wish to repay your loan early, there are no penalties.
You only have to pay a monthly fee on the outstanding capital. Additionally, your %-fee depends on your product scoring.
Term loans are one of many options for small companies looking for funding.
There are many kinds of small business loans out there, from lines of credit to asset-based funding, so how do you know if a term loan is the best option for you?
We've laid out the benefits and drawbacks so you can make an informed choice.
To sum it up, business term loans are a popular option for commercial funding for many reasons.
Whether you're looking for a short-term or long-term loan, an online lender, or a loan from a traditional bank, your choices are plentiful.
The best loan for your company is the one that fits your budget, so feel free to shop around and compare different loan offers from various lenders before settling on one.
As we understand that finding the right loan can be a challenging task, we broke down the key features of Myos financing:
Myos follows fair conditions and transparent fees, so you don't have to worry about hidden or unexpected costs.
Get a free, non-binding offer today and see why Myos is the first choice for thousands of online sellers!
To qualify for a business term loan, you should meet the following requirements: strong credit history, solid business plan, and track record of generating consistent revenue. Other factors are the size of your business, the industry you operate in, and the collateral.
The repayment term for a business term loan can range from one to ten years, depending on the lender and the loan amount.
While you can use business term loans for various purposes, lenders typically require that you use the funds for business-related expenses, such as purchasing equipment or expanding your business.
For a secured loan, the borrower must put up collateral, and the interest rates are usually lower.
Unsecured loans have higher interest rates and are based on the borrower's creditworthiness, income, and other factors.
Permanent Working Capital - Everything You Need To Know
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