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What is a Business Term Loan?
A business term loan refers to the process of lending a lump sum of money. Borrowers receive this money and agree to pay it back in regularly scheduled payments over a set time period. The time period is known as a term.
Typical business loans offer terms of anywhere from one to five years. However, some lenders may offer terms ranging from a few months to 10 years.
In addition to the money borrowed, known as the principal, borrowers agree to pay interest, which is the fee the lender charges to borrow that money. Interest usually gets calculated as a portion or percentage of the amount borrowed.
Term loans for businesses come with fixed interest rates or variable rates. A fixed-rate means the rate won’t change during the term, while variable rates change with the Prime rate. Many business owners prefer the stability of fixed-rate business loans.
Business Term Loans – Facts, Research & Reports
According to the Consumer Financial Protection Bureau, 70 percent of small businesses seek loans of less than $250,000.52.
Data from the 2019 Small Business Credit Survey, shows that 43% of American small businesses sought external funding for their businesses. This means they went to an outside lender, such as a bank, to borrow money for business purposes. Of those business owners that applied, 53% got less money than they requested.
According to data from the most recent Joint Federal Reserve Small Business Credit Survey, about 21 percent of surveyed small businesses that applied for financing and had been operating for under two years didn’t get any financing. And only 42 percent of applicants got the full amount they requested.
Business Term Loans at a Glance
Business term loans often make sense for businesses ready to invest in large and/or expensive capital assets. These are the things that will help your business grow. They could include equipment or inventory.
Other businesses use term loans to provide working capital. Some might use one of these loans to consolidate higher-interest debt to lower their overall rate and payments by stretching out their debt over a longer time period. Businesses might also apply for a term loan in order to help pay off taxes or meet payroll obligations.
Example of a Business Term Loan
Let’s say you want to purchase a large inventory order at a cost of $100,000. This would let you expand your in-store product offerings to meet the demand of your existing customers and reach new customers. Yet you don’t have $100,000 in your bank account.
So you apply for a business loan. You negotiate a five-year term at a fixed rate of 8% with monthly repayments. You get the money and buy your inventory now. And the cost of buying that inventory gets spread over sixty months – it’s easier on your cash flow.
Other Things You Should Know About 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.
For example, 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 take it.
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 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 a secured loan, yet they offer flexibility when you need funding.
How Business Term Loans Get Underwritten
Lenders underwrite business loans in much the same way they underwrite other forms of business credit. They review your application form and all supporting documents. They will then make an approval decision and confirm the terms of the loan (interest rate, length, repayment arrangements) with you.
Your Business Term Loan Set Up – Now What?
Once your business loan gets set up, the lender will “advance” or give you the loan proceeds. In most cases for unsecured business term loans, this means the money you borrow gets deposited to your chosen bank account. Interest starts accruing or getting charged immediately. You can use the funds for whatever you need.
If your business term loan is to purchase a specific item, such as equipment, the funds could get sent directly from the lender right to the company selling the equipment.
What If I’m Rejected for A Business Term Loan?
Have you been turned down for business credit from another financing company? If so, contact United Capital Source today. We work with a wide range of businesses and understand the challenges you face. And we understand that not all business owners have perfect credit. We can help you figure out the best business funding solution to suit your business and financial needs at this time.
Funding Amount
10K – $5M
Funding Term
3 months – 10 years
Rates
Starting at 5%
Speed
1-3 Business days
Pros and Cons of a Business Term Loan
Pros:
- Flexible uses
- Preset, predictable payments make budgeting easier and helps smooth cash flow
- May get lower interest rates than other forms of business credit
- Making repayments as agreed can help establish/rebuild business credit
- Quick access to money
- Unsecured business term loans mean no personal guarantee or collateral required
- May qualify for lower rates with collateral or good credit
Cons:
- Depending on your terms you could have a longer repayment period
- Once the loan has been paid off you can’t access that money anymore
- Might be difficult to qualify for it
- If you pay it off early you might face prepayment penalties
Pros
- Fixed monthly payments
- Longer loan terms
- Less than perfect credit accepted
- Use for a variety of business purposes
Cons
- Same payment even when business is slow
- Possible prepayment penalties
Business Term Loans Compared To…
What’s the difference between Business Term Loans and Business Credit Lines?
Businesses use term loans and credit lines to help finance their businesses, 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 difficult 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. Depending on the terms of your business credit line agreement, your payment could get based on a percentage of the outstanding balance, or simply be an “interest-only” payment.
Compared to other loan types
| Loan types | Max Amounts | Rates | Speed |
|---|---|---|---|
| Merchant Cash Advance | $7.5k – $1m | Starting at 1.09 | 1-2 business days |
| SBA Loan | $50k-$10m | Starting at 5% | 3-5 weeks |
| Business Term Loan | $10k to $5m | Starting at 5% | 1-3 business days |
| Business Line of Credit | $10k to $250k | Starting at 8% | 1-3 business days |
| Receivables/Invoice Factoring | $50k-$10m | Starting at 5.8% | 1-2 weeks |
| Equipment Financing | Up to $5m per piece | Starting at 5% | 3-10 business days |
| Revenue Based Business Loans | $10K – $5m | Starting at 9% | 1-3 business days |
It’s always great to have options. With online credit opportunities, you can apply for all sorts of small business loans that fit your specific needs. However, these online options don’t always give you the simplicity that you need. Sometimes, you just need to keep it simple, but you don’t want to deal with the bank. With United Capital Source, you can have the best of both worlds. Not all credit sources offer a simple business term loan, but our network of lenders do. If a business term loan is the right choice for you, then contact us. Not sure if you need a term loan or another option? Don’t worry. We’ll help you find the type of financing that will work best for you and your business.
United Capital Source
Ready to invest in your own business? Then we’re ready to help get your business the term loan it needs. At United Capital Source, we want to help your business thrive. Start your online application with us today. Also, please feel free to give us a call, shoot us an email, or start an online chat. We look forward to working with you!
Who Qualifies
Before applying for a business term loan you should know the minimum application requirements:
Who Qualifies for Business Term Loans?
To apply for a business term loan, you simply have to fill out an application and provide three months’ worth of business bank statements. We don’t require extensive paperwork, perfect credit scores, or try to make things complicated. As long as you run a profitable business, you have an excellent chance of qualifying for a small business loan through United Capital Source.
How to Apply
How Do I Apply for a Business Term Loan?
Like any small business loan facilitated by UCS, your application process is simple and straightforward. In just a few steps, you’ll have a completed application. Here’s what you’ll need for your loan application.
Consider Your Needs
Your application will go much more smoothly if you have a ballpark idea of how much you’ll need. Consider how you plan to use this funding over time.
Gather Your Documentation
At United Capital Source, we like to start with documents from your past three months of business to get a good sense of where your business is. Here are the things you’ll need for your application:
- business bank account statements
- driver’s license
- voided business check
- United Capital Source 1 page application
Apply Through United Capital Source
Now, all that’s left is to submit your business term loan application. At United Capital Source, we do everything we can to simplify the application process. You can call us if you want someone to guide you through the process and offer advice. Otherwise, all you have to do is apply online. You can finalize your application quickly and hear back from us within 24 hours. From there, you may even receive your funds within just a few business days.
How it Works
How Does a Business Term Loan Work?
A business term loan is the most common and easily-understood small business loan. After your application is approved, you’ll receive a lump sum of money. You’ll repay this money with interest on a fixed schedule. You might make payments daily, weekly, biweekly, or monthly, depending on your loan terms. Unlike some other business loans, you’ll pay the same amount of money in each loan payment.
Cost
How Much Does a Business Term Loan Cost?
How much will your business term loan cost? It depends on a few factors. First, your original loan amount will obviously determine how much your loan costs. Second, your interest rate will alter that cost. At United Capital Source, our 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.
People Also Ask
People Also Ask
Whether you’re seeking your first business loan, or you’ve done this before, you probably still have a few questions. We’ve listed some of our most commonly-asked questions below. Check them out, and if you have any more questions, feel free to get in touch with us.
Why Choose United Capital Source Instead of a Bank?
While online business lending companies have lots of new and innovative loan options, the banks have always offered term loans. So why choose United Capital Source instead of a bank for your business loan?
United Capital Source’s network of funding programs come with all sorts of advantages that you can’t get from a bank. First of all, you don’t need a flawless credit score to get a business term loan. To the banks, your credit score is the most important thing about you. It doesn’t matter if you make consistent revenue and always make your payments on time. A bad credit score can kill your business loan application. With UCS, we look at far more than your credit score, and our network has bad credit business loan programs that can help you get the funds you need.
Second, banks often require that you use your assets as collateral for your business loan. At UCS, we have access to programs with unsecured funds, meaning that these business loans generally don’t require collateral.
Finally, a bank loan can come with mountains of paperwork. At UCS, we’ve refined our process to keep paperwork to a minimum.
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%.
Why a Business Term Loan Instead of a Different Loan?
With all of these loan options, why choose a business term loan? Lots of our clients choose the business term loan option, and here are the two biggest reasons why.
First, a business term loan provides simplicity. While some people need a modified repayment schedule, smaller funds, and other adjustments, a term loan is for those who want to keep things simple. You’ll always know exactly how much to pay and when to pay it.
Second, business term loans are perfect for those who want to make a big investment. While we have options for smaller, everyday needs, business term loans are best for those who want to open a new location, make a major inventory change, or maximize their business growth.
Can I pay off my business loan 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.
Also, some business loans charge a penalty for letting borrowers pay the loan off early. Known as a “prepayment penalty,” this charge helps the lender at least some of the interest they would have earned if the borrower kept making loan payments for the full term.
Is a Business Term Loan My Best Option?
As long as you want to make a major purchase and are ready to make long-term, steady payments, then a business term loan is probably your best bet. However, if you’re not sure, you can always have a chat with us. We can help you figure out which type of business loan product will do the most good for your company.
Apply for a Business Term Loan Through United Capital Source
Ready to invest in your own business? Then we’re ready to help get your business the term loan it needs. At United Capital Source, we want to help your business thrive. Start your online application with us today. Also, please feel free to give us a call, shoot us an email, or start an online chat. We look forward to working with you!
Most customers who were approved had
Annual Revenue
$75K+
Credit Score
550+
Time in Business
6 months+
What Documents Will I Need To
Apply For A Business Term Loan?
- Driver’s License
- Voided Business Check
- Bank Statements
- United Capital Source 1 Page Application
A Business Term Loan is great for business owners that like stability when it comes to their budget and cash flow.
Danielle Rivelli
Business Term Loans