People Also Ask:
Is a Business Loan The Same As a Term Loan?
Initially, the words “business loan” were only used to describe conventional loans. Today, however, these two words can refer to any business financing product. But when you contact a company about financing, they will most likely assume that you’re looking for a Business Term Loan.
Are Microloans the Same as Business Term Loans?
A microloan is a special type of small, short-term business loan. Microloans often help new and young businesses by providing funding to get them started, especially when the business owners don’t qualify for traditional business financing.
Non-profit organizations, such as the SBA, provide eligible businesses with microloans for a variety of uses, such as buying inventory, production equipment or machinery, office equipment, and supplies, and even for paying staff members.
According to the most recent figures from the SBA, in 2019, the average microloan was for $14,735, with an interest rate of 7.35%.
Can I Pay Off My Loan Early?
Some loans have prepayment penalties because paying early means the business lender makes less money. Others, however, allow you to save on interest by paying early.
While most business term loans can get paid off early, it doesn’t always make good financial sense to do so. That’s because it depends on the interest rate and the terms of your loan.
Many business loans come with a lower interest rate than other forms of business financing. It could make more sense to pay off a higher interest rate business credit card or credit line first.
As you can see, this is a great question to ask the business lender before starting the application.
What’s The Difference Between Business Term Loans And Business Credit Lines?
Businesses use term loans and credit lines to help finance their companies, yet they have some pretty significant differences.
With a term loan, you receive a lump sum of money all at once and start getting charged interest as soon as you receive the loan money. As you make regular payments, your loan balance, or the money you owe, decreases. And then once the loan has been paid off, your loan agreement ends.
With a business credit line, on the other hand, you get what is known as revolving credit. This means, that like a business credit card borrowers get approved to borrow up to a preset limit.
You can borrow up to that limit at any time. Borrowers only get charged interest on the amount borrowed. You pay down the balance owing and can access your credit line again and again, up to the agreed-upon limit.
Credit lines might cost more than a fixed rate business term loan. And you could find it more challenging to qualify for a credit line if you have bad credit or no credit.
Another key difference between business loans and business lines of credit is how payments work. With most loans, you’ll pay the same amount every payment. So your payment is predictable and easy to work into a regular budget.
With a credit line, your payment depends on the outstanding balance and the interest rate.
How Much Does a Business Term Loan Cost?
How much will your business term loan cost? It depends on a few factors—first, your loan amount. Second, your interest rate will alter that cost. Third, the term of the loan. With our lender network, term loan business rates start at 9%. Your regular payments for your business term loan will be smaller than they would be for other types of business loans. That’s because you pay off term loans in a matter of years, not weeks or months. If you want to get an estimate of your loan payment costs, try using our business loan quote tool at the top of this page.
Is Collateral Necessary For Business Term Loans?
Business term loans could be secured or unsecured.
Secured Business Term Loans:
A secured loan means the loan is tied to “security” or “collateral.” This is something of value that the lender has the right to seize should the borrower not make payments on the loan as agreed.
An equipment loan is an example of a secured business term loan. In the business world, a secured business term loan often gets tied to a specific item, equipment, or another capital asset. In some cases, business loans get secured with a “blanket lien” on a business. So your entire business is considered the asset that’s securing the loan.
Let’s say you take out an equipment loan of $50,000 to buy a new piece of machinery. Should you default on that loan, or not pay it back according to the terms of your loan agreement, the lender could repossess the equipment.
Lenders like secured loans because it reduces their risk of losing out on the money they lend. Borrowers like secured loans because they generally come with lower rates than unsecured business loans. And since they’re considered lower risk to the lender, borrowers with poor credit might have a better chance of qualifying than they would for an unsecured loan.
Unsecured Business Term Loans:
Borrowers use unsecured business loans for all sorts of things. The interest rate might be higher than for an unsecured business loan, but they offer flexibility when you need funding.
Can I Get a Business Term Loan with Bad Credit?
This product is available to borrowers with bad credit, but your interest rate and terms will be less convenient. However, if you can provide collateral or fulfill the other requirements with flying colors, poor credit history may have less affect on your borrowing amount, rates and terms. You could also apply for a short-term Working Capital Loan instead, which carries the same repayment structure as a Business Term Loan but is much more accessible for borrowers with bad credit. Paying off this loan on time will likely make you eligible for a larger borrowing amount, lower rates, and longer terms.
If you want to access the best possible rates and terms and don’t need money right away, you should definitely consider our credit repair services. It’s always beneficial to do whatever you can to improve your credit score before applying for products that often carry low rates and long terms.