Are you a business owner who needs working capital to keep the business afloat and purchase necessary assets? Did you know that many business owners are unsure how to calculate what they need, leaving them in debt, and sometimes they go out of business?
Term loans are an excellent financial tool many business owners use to give their business the money it needs to purchase business equipment or to pay for other business expenses.
So what are term loans, and how can you apply for one? Continue reading below to learn more about term loans for businesses and who you can contact to start the process.
What Are Business Term Loans?
Business Term Loans are lump sums of capital you pay back to your lender with interest. The interest rate for most term loans for businesses is fixed.
This means you have an interest rate that won’t change when you repay your loan. The “term” refers to the length of time you have to repay the debt.
With short-term loans, you have a few months to a year or so to pay back the debt. With long-term loans, you may have a few years to repay what you’ve borrowed.
Business owners use these types of loans to purchase real estate, expand their business, refinance debt, or other business-related expenses to keep their company moving forward.
Short Term Business Loans vs. Long Term Business Loans
As mentioned earlier, short term loans have shorter repayment periods. You generally only have a few months or a little over a year (roughly 18 months) to make your payments.
You can find short term business loans online. Online lenders have flexible qualifications, and once approved, you can receive your funds within 24 to 72 business hours.
Long Term Business Loans
Long term loans have repayment periods that can last longer than five years. You can find long term business loans are typical through the SBA (Small Business Association), and they carry repayment terms of up to 25 years.
It is important to note that qualifying for a long term business loan through the SBA is quite difficult. You must have specific qualifications, and even when you receive approval, they take some time to release your funds through the SBA. If you choose to apply for a term loan through an online lender, they can release your funds in a timely manner.
Advantages of Business Term Loans
There are several excellent benefits that come with using term loans to fund your business needs. For example, you have a set payment structure when you use a term loan.
Regardless of the type of term loan you apply for, you will know your payment due date and how much you need to pay each month. Once you know how much you must pay each month, you can then plan how to manage your business’s cash flow and other finances.
As mentioned earlier, regardless of which term loan you apply for, you have the opportunity to receive your funds within a timely manner. This is because online lenders have flexible requirements, streamlined applications, and faster funding times when compared to credit unions or other traditional banks.
Added Cash Flow
If your business attempted to obtain a fixed asset loan through a supplier but you were unable to do so, you can use a term loan to purchase what you need. Your business won’t have to wait for cash reserves to free up to purchase the asset your company needs.
Long Term Business Loans for Larger Investments
Suppose you need to finance a large investment, such as securing business property or purchasing business vehicles. In that case, you can do so with a long term business loan.
Because long term business loans provide you with more time to repay the loan, you can purchase large investments and pay them back when you have the cash flow. So long as you make your payments responsibly, you may have the opportunity to build business credit. The better your business credit is, the more likely you are to qualify for more loans.
Possible Disadvantages of Term Business Loans
Although several excellent benefits come with obtaining a term business loan, there are a few disadvantages you should be aware of. For example, depending on your credit or your business credit history, you may need to put down collateral or a personal guarantee.
Of course, not all lenders require their borrowers to put down some form of collateral, but some do if you don’t have favorable credit. Sometimes the lender may ask that you put down your business property as the collateral. This means that if you default on the loan, the lender will take possession of the business property and sell it to recoup what they lent you.
How to Get a Business Term Loan
If you are ready to apply for a business term loan and you know which one is best for you, you must find a lender that works best for you. As mentioned earlier, there are online lenders you can use to fund your business needs.
Although each lender has its underwriting requirements, there is a general consensus on what these lenders look for when qualifying candidates for a loan. For example, most lenders require their borrowers to have a credit score of at least 600.
Additional qualifying requirements:
- In business for at least one year
- Minimum annual revenue of approximately $100,000
Short term loans and long term loans through an online lender may give you greater flexibility than it would if you worked with a traditional bank such as a credit union. It is important to note that the better your qualifications, the better your rates and terms when applying for a loan.
Applying for a Business Term Loan
The application process will depend on the lender. Online lenders have a more streamlined process that you can complete on your computer or your phone that requires minimal documentation. In-person banks typically require their clients to fill out paper applications and supply many business documents before considering the application.
In general, there are some common things you must provide to the lender, regardless if they are online or in person.
Information needed to apply for your term business loan:
- Your contact phone number, mailing address, and email address
- Your driver’s license information
- Business phone number, business address, and a voided business check
- Business license
- Personal and business bank statements
- Personal and business credit scores
- Collateral (if applicable)
- Profit and loss statement
- Balance sheet
As stated earlier, each lender requires different documents before they review your application. You can generally expect to provide information about yourself and your business.
What Can You Use a Business Term Loan For?
Once you receive your term loan, you can use it for a large number of business needs. For example, you can use it as working capital or to expand your business and open up a new business location.
Other uses for a short or long term business loan include:
- Hiring new employees
- Refinancing debt
- Purchasing equipment
Regardless of why you need this money for your business, it is essential that you only take what you need. If you notice your cash flow does not have any room to make your payments back on what you’ve been approved for, adjust the loan. The last thing you want is to default on your loan, possibly lose your collateral, and lose control of your business finances.
Revolving Credit vs. Term Loan
Many business owners get confused between revolving credit and term loans. The main difference between the two is the fact that one is a lump sum of money, whereas the other works like a credit card.
With revolving credit, you have the opportunity to pay back whatever you’ve used and then use that credit again. With a term loan, once you use up the lump sum of money, the money you pay back is not available for use again. A business line of credit, or revolving credit, is best if you frequently need to boost your cash flow.
Qualify for the Best Business Term Loans
Running a business involves a lot of moving parts. Not only do you have to make sure your customers are happy with your product or service, but you also need to ensure you have enough cash flow to keep the business going.
This is where term loans come into play. If you are ready to see what you qualify for, submit your information today. Our team is here to answer any questions or concerns you may have about qualifying for a loan or any general questions you have.