A business term loan is one of the most common and straightforward ways for an established business to finance its growth. If you need a significant amount of cash for a major purchase or investment, understanding how a term loan works is the first step.
What is a Business Term Loan?
In simple terms, a business term loan is a lump sum of capital lent to your company. You agree to pay this back, plus interest and fees, through regular monthly payments over a set period of time, known as the “term.”
Think of it like a mortgage or a car loan, but for your business. It’s a predictable, structured form of financing.
What Can You Use a Term Loan For?
Term loans are typically used for large, one-time investments that will help your business grow, such as:
- Purchasing major equipment or vehicles
- Buying commercial real estate
- Financing a large inventory purchase
- Undertaking a significant renovation or expansion
- Refinancing existing business debt to get a better rate
The Key Components of a Term Loan
When you evaluate a term loan offer, you’ll see these main parts:
- Loan Amount: The total lump sum you borrow.
- Interest Rate: The cost of borrowing the money, usually a fixed percentage that doesn’t change over the life of the loan. This makes budgeting easy.
- Loan Term: The length of time you have to repay the loan. Terms can range from one year to 25 years, depending on what the loan is for. A loan for equipment might have a 5-year term, while a loan for real estate could have a 20-year term.
- Monthly Payment: Your fixed, regular payment amount, which includes both principal and interest.
How Does the Repayment Work?
Repayment is simple and predictable. Each month, you make a payment of the same amount. A portion of that payment goes toward paying down the original loan amount (the principal), and the rest covers the interest cost.
Because the payments are fixed and the interest rate doesn’t change, you can easily budget for this expense for the entire life of the loan.
What Do Lenders Look For?
Lenders want to feel confident you can repay the loan. To qualify, they will typically check:
- Time in Business: Most lenders prefer businesses that have been operating for at least 2 years.
- Annual Revenue: Your business needs to show sufficient cash flow to handle the new monthly payment.
- Credit History: Both your business credit score and your personal credit score will be reviewed.
- Collateral: For larger loans, lenders may require collateral (like the equipment or property you’re buying) to secure the loan.
The Challenge of Finding the Right Term Loan
Not every lender offers the same amounts, rates, or terms. Some specialize in equipment loans, while others focus on commercial real estate. Finding the right match for your specific needs can be time-consuming and complex.
This is where KoboMerchants.com simplifies the process. Instead of applying to multiple banks and lenders individually—which can lead to multiple credit checks and a lot of paperwork—you can use our service.
We connect you with our network of lenders who offer business term loans. By understanding your needs, we can help match you with potential lenders who are a good fit for your business profile, saving you time and helping you find competitive options.
In summary: A business term loan provides a lump sum of cash that you repay over time with fixed payments. It’s ideal for major investments that will help your business grow.
Ready to explore your term loan options? KoboMerchants.com can help you find the right fit. [Get started today].
