Term Loan
A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. Term loans are normally meant for established small businesses with sound financial statements. In exchange for a specified amount of cash, the borrower agrees to a certain repayment schedule with a fixed or floating interest rate. Term loans may require substantial down payments to reduce the payment amounts and the total cost of the loan.
Term loans are commonly granted to small businesses that need cash to purchase equipment, a new building for their production processes, or any other fixed assets to keep their businesses going. Some businesses borrow the cash they need to operate on a month-to-month basis. Many banks have established term loan programs specifically to help companies in this way.
Borrowers often choose term loans for several reasons, including:
- Simple application process
- Receiving an upfront lump sum of cash
- Specified payments
- Lower interest rates
FAQ
Why Do Businesses Get Term Loans?
A term loan is usually meant for equipment, real estate, or working capital paid off between one and 25 years. A small business often uses the cash from a term loan to purchase fixed assets, such as equipment or a new building for its production process. Some businesses borrow the cash they need to operate from month to month. Many banks have established term-loan programs specifically to help companies in this way.
What Are the Common Attributes of Term Loans?
Term loans carry a fixed or variable interest rate, a monthly or quarterly repayment schedule, and a set maturity date. If the loan is used to finance an asset purchase, the useful life of that asset can impact the repayment schedule. The loan requires collateral and a rigorous approval process to reduce the risk of default or failure to make payments. However, term loans generally carry no penalties if they are paid off ahead of schedule.
Our Team is Ready to help you with all the types of business loans to let you reach your goals in business
Understanding Term Loans
Term loans are commonly granted to small businesses that need cash to purchase equipment, a new building for their production processes, or any other fixed assets to keep their businesses going. Some businesses borrow the cash they need to operate on a month-to-month basis. Many banks have established term loan programs specifically to help companies in this way.
Special Considerations
While the principal of a term loan is not technically due until maturity, most term loans operate on a specified schedule requiring a specific payment size at certain intervals.
A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms.
Borrowers agree to repays the loan with a fixed amount over certain repayment periods with either a fixed interest rate or floating interest rate.
Term loans are commonly used by small businesses to purchase fixed assets, such as equipment or a new building.
Business owners or Borrowers prefer term loans because they offer more flexibility and lower interest rates.
Short term loans and intermediate-term loans may require balloon payments while long term loans come with fixed monthly payments.
