Business Term Loan
?Small business owners frequently use small business loans to take advantage of a business opportunity, prepare for a busy season such as the holidays, or even just to increase their working capital.
Small business owners frequently use small business loans to take advantage of a business opportunity, prepare for a busy season such as the holidays, or even just to increase their working capital.
Business financing can be confusing and overwhelming to some business owners. But with the right research and knowledge, you could use a business term loan to your advantage financially. If a term loan allows you to ultimately make more money in the end, it can be a smart business move.
Let’s Look at a Business Term Loan
So, what is a business term loan? It is a loan designed for business owners in which they are lent a lump sum of money for a set time frame at a fixed interest rate.
You will make payments on the loan as specified in the loan agreement. These loans usually last from one to five years, which is the term of the loan.
What are the Requirements to Obtain a Business Loan?
To qualify for a business loan, the business must have been open for a certain number of years. You need to be bringing in some income, and your credit score needs to be high.
Here are some more business qualifications for the loan:
Your lender will want to see a certain level of cash flow monthly from your business. That along with your credit score will determine your interest rate, the term of the loan, and the amount of money you can borrow.
Unlike short-term loans in which you must repay quicker, traditional business loans have longer terms. Therefore, to obtain a loan, it is important to have a successful business and high personal or business credit score.
How Much will you Pay for a Business Term Loan
When you are applying for a loan, it is important to know the rates and fees that you will be paying. These are referred to as the loan terms for your business loan.
Fortunately, the cost is pretty straight forward, and these loans are not as expensive as short-term loans or a revolving line of credit.
For example, you might apply for a business term loan, and you are approved for $25,000 with an interest rate of 12%. You have 5 years to repay the loan.
Your monthly payment amount will be approximately $556. If you wish to pay your loan off sooner, you do have the option of weekly payments.
It will be easy to plan and budget that expense when you know upfront what the repayment terms are.
Just like other loans, small business term loans include additional fees, such as origination fees, prepayment penalties, etc.
Before you take out a loan, you need to understand the entire cost of the loan. Therefore, look over all the fees, so you will know how much the loan will cost.
Understanding Every Term Loan Payment
When you make a payment on a business term loan, each payment might go towards a different thing.
You do not pay the same amount of interest and principal each month. Early in the loan, lenders will want you to pay the interest. During the later parts of the business term loan, you will be paying the principal.
They do this because if you repay the loan early, you will have already paid the interest, so they will be sure to get their money.
Therefore, paying off your loan early doesn’t necessarily mean that you will save money.
If you are paying the same amount every month, after you pay the interest off, the amount you pay will go to the amount you owe.
Your lender needs to give you an amortization schedule, or loan payment schedule. This will help you to understand the terms and fees of the loan.
The Application Process
Many banks offer business term loans. When you apply for a loan with the bank, the application process takes longer, and you will be required to submit more documents then you might with other lenders.
You can also apply for a business term loan with an online lender. You can get affordable rates with online lenders, such as Lending Tree or Funding Circle. The application process with these online lenders is quicker and easier than with your local bank.
How Business Term Loans Work
At some point, all businesses can use some additional funds. You might need to order equipment or pay an employee. Whatever the reason, a business loan can be beneficial.
Let’s see what the business term loan process is like and the requirements for a loan. You can then have a better idea if a business term loan is right for you.
The Basics of Business Term Loans
A business term loan is the most popular loan available for business owners.
These loans are very predictable.
You will receive a specific amount of cash with a predetermined interest rate. You can then pay the loan back over the term of the loan. You will have specific dates that you need to make payments on the loan.
Business term loans are up-front. You know exactly what you will be paying for the loan.
Types of Business Term Loan
There are numerous business loan options available.
Your credit score, amount of money you make, annual revenue, and needs of your business are a few factors that determine what type of loan you need.
Business loans offer loan terms such as payments for 1 year, or you can pay the loan back in 5 years. You can make payments each day, each week, or each month.
Likewise, the annual percentage rate you will get will fluctuate depending on the history and needs of your business. You will be asked to show financial statements, as well as tax returns when you fill out your loan application. All of these factors will affect your approval as well as interest rates of your business loan.
The loan amount you can receive will depend on the annual revenue of your business.
Whether you get the loan from a bank or non-traditional lender, you will have numerous financing options available to you.
How to Apply for a Business Term Loan
Business term loans are more difficult to qualify for than short-term business loans.
If you have no collateral or a low credit score, business loans can be difficult to obtain.
In some cases, a lender might want you to provide collateral to secure the loan. If you cannot repay your loan, the lender will take your collateral.
In fact, a “blanket lien” could be put on your business, so the loan is not a risk to them.
Keep in mind that it is important to ask the lender about all the fees that you will be charged. You need to ask if there are any penalties for paying off the loan early. You also need to be certain that you will have the money to make your payments on time.
When is a Term Loan Beneficial?
The purpose of a term loan for a business is to provide you money to make a big purchase, take advantage of an opportunity, or for any other business needs.
You might need to consolidate other debts, purchase new equipment, or expand your business. A small business term loan can be beneficial for your small business.
However, there are minor loan use restrictions. It is a good idea to use the money to help generate income for your business.
Since you will be paying to borrow money, it is important to finish with more money than when you obtained the loan. You need to think about the future.
If you are smart with the way you use small business term loans, you can use the loan to expand your business. You might open a new location, or you might purchase new equipment.
Keep in mind that this type of loan is straight forward.
Before you apply for a business term loan, you will need to be able to decipher if it is right for your business. You need to be familiar with the rates, and make sure you come up with a plan to repay the loan.