Business Term Loan

A business term loan is a lump-sum financing arrangement provided by a bank, credit union, or online lender that a business repays over a fixed period (the “term”) with regular, scheduled payments of principal and interest. Unlike revolving credit (e.g., a line of credit), once the loan is disbursed, the borrower cannot reuse the funds—it’s a one-time, closed-end loan.

Key Features:

• Fixed Amount: Borrowers receive a single disbursement upfront (e.g., $100,000).
• Fixed Term: Typically 1–10 years (short-term: less than 3 years; long-term: 3–10 years).
• Fixed or Variable Interest: Rates may be locked in (fixed) or fluctuate with market benchmarks (variable).
• Collateral: Often secured by business assets (e.g., equipment, real estate) or personal guarantees.
• Usage: Common for expansion, equipment purchases, working capital, or refinancing debt.

Example:

A bakery secures a 5-year, $250,000 term loan at 8% annual interest to buy new ovens. They repay $5,069/month for 60 months until the loan is fully amortized.

Pros vs. Cons:

• Pros: Predictable payments, lower rates than credit cards, large funding amounts.
• Cons: Stricter qualification (credit score, revenue history), collateral requirements, possible penalties for early repayment.

Alternatives:

• SBA 7(a) loans (government-backed, longer terms).
• Equipment financing (asset-secured, tied to specific purchases).
• Revenue-based financing (repayment tied to sales, not fixed terms).

Advantages of taking out a Business Term Loan through BusinessMoney.broker

1. Predictable cash-flow impact
   Fixed monthly payment and fixed interest rate make budgeting and cash-flow forecasting simple for 1–10 years.
2. Large, lump-sum capital
   Receive the full loan amount up-front, ideal for expansion, equipment purchases, acquisitions, or refinancing higher-cost debt.
3. Lower total cost than most revolving products
   Fully-amortizing term loans usually carry lower APRs than credit cards, merchant cash advances, or lines of credit used long-term.
4. Credit-building
   On-time payments reported to business credit bureaus (D&B, Experian, Equifax) raise your PAYDEX and improve future borrowing terms.
5. Collateral flexibility
   Can be secured (equipment, real estate, blanket UCC) or unsecured, depending on credit strength, giving borrowers options.
6. Tax advantages
   Interest expense is generally tax-deductible, and certain equipment loans qualify for Section 179 depreciation or bonus depreciation.
7. Relationship banking
   Successfully servicing a term loan strengthens your banking relationship, unlocking larger credit lines, treasury services, and SBA or real-estate financing down the road.
8. Early payoff options
   Most lenders allow pre-payment with modest or declining penalties, letting you retire the debt early if cash flow improves.
9. Industry-specific programs
   Specialized term loans exist for franchises, medical practices, transportation fleets, SaaS companies, and more—matching repayment schedules to industry cash cycles.
10. Scalable
    Once you prove repayment discipline, lenders typically upsize subsequent facilities (e.g., $250 k → $750 k) without starting the underwriting process from scratch.