Find the best business loan rates (2021)

Business Term Loans

By Elise Moores Managing Editor at Fast Capital 360 Reviewed By Mike Lucas

How much do you need?

When you’re ready to make a significant investment in the future of your business, you need a way to fuel it financially. A business term loan is a predictable financial solution that won’t strap your business for cash.


What Is a Business Term Loan?

A business term loan is a one-time infusion of capital that you pay back over a set repayment term. 

Business term loans are used for long-term investments, including equipment, debt refinancing and commercial real estate. You might also fund office renovation projects, purchase inventory, hire employees and more.

There are unsecured business term loans and secured business term loans. A secured loan means the borrower uses a piece of equipment, property or a sum of cash as collateral to help obtain funding. With unsecured loans, you’re not required to offer collateral to get the loan, though you might have to provide a personal guarantee. This means that if your business can’t repay the loan, you’ll be personally responsible. Also, you’ll likely have a higher interest rate and shorter repayment window than you’d find with a secured loan.


How Do Business Term Loans Work?

Business term loans work as follows: Longer-term loan payments may be set upmonthly, while shorter-term loans may require a daily or weekly payback structure. 

Typically, business term loans offer you higher funding amounts, more extended repayment periods and lower interest rates than many financing alternatives. 

When determining the best long-term small business loan for you, consider the following factors:

Loan Term

Typically, business loan terms range from 1-5 years, giving you more time to pay off your debt. And with more time to repay your long-term business loan, you can expect lower payments than you’d find with a shorter term.

Interest Rates

Business term loan rates will depend on many factors, including your credit score, revenue and time in business. But in general, they offer some of the most competitive rates available to small business owners.

Business term loans amortize. Interest accumulates on the remaining principal balance and loan payments are interest-front-loaded, meaning a large part of your loan payments go toward interest at the beginning of your term. As time goes on, the interest portion of your loan payments decreases and more is applied to your loan principal.

Interest rates can be fixed or variable. A variable interest rate fluctuates up and down as the market and interest indices change. Fixed interest rates do not change regardless of market conditions. 

Repayment

Business term loans are paid back in daily, weekly or monthly installments, depending on the terms of your agreement. Variables such as the loan amount, term length, risk factors and business preference help determine this structure.


What Will a Business Term Loan Cost?

Due to their favorable interest rates, business term loan costs are lower than many lending products.

Need an estimate of just how affordable a business term loan could be for you? Use our business term loan calculator to get an idea of the cost of borrowing.


Types of Business Term Loans

Depending on the lifespan of the agreement, business term loans can be classified as:

  • Short-term loans: Short-term loans usually reach maturity in a year or less, though some terms can extend up to 18 months. This type of financing is well-suited to business owners with bad credit. Repayment frequency is often accelerated, with borrowers required to remit daily or weekly payments. 
  • Medium-term loans: Medium terms loans generally reach maturity in 3 to 5 years, and are typically repaid through monthly installments.
  • Long-term loans: Long-term loans can run from 5 years to 25 depending upon the specifics of your loan agreement, the borrower’s financial health and the intended use of loan proceeds. A company’s assets most often secure this type of term loan.

What Are the Pros and Cons of a Business Term Loan?

Pros

  • Competitive interest rates: Note that rates vary according to lenders, but business term loans often have lower interest rates compared to other financing options. Businesses that qualify for term loans usually have strong credit histories and have been in operation for at least a year; these factors increase your likelihood of obtain lower loan rates.
  • Extended repayment terms: You’ll repay the funding and interest in monthly installments in 1-5 years. Shorter-term financing requires weekly or sometimes daily payments over a shorter period of time.
  • Flexibility in using funds: Some financing options limit how you can use the funding (e.g. equipment financing). Business term loans can be applied to various endeavors — such as hiring or acquiring another business as well as purchasing property and equipment — that will help your business grow.
  • Large loan amounts available: Lenders can approve your business for loans worth thousands of dollars or even $1 million or slightly more. Your time in business, credit history and revenue, among other details, will help determine how much funding you could receive.

Cons

  • Start-ups and newer businesses typically ineligible: Many lenders are reluctant to finance businesses that haven’t built a credit history, proving they can reliably manage debt.
  • Stricter qualification requirements: Business term loans provide more significant funding amounts, so many applicants have to meet higher standards to be approved for financing. Lenders prefer applicants that have been established for more than a year and have a good credit score; these factors make lending less risky.
  • Collateral or personal guarantee may be required: Putting up collateral (such as property, equipment or a sum of cash) or signing a personal guarantee can put your assets at risk. If you default your business term loan, the lender can claim your collateral or other personal assets to recoup its losses.

How Can I Qualify for a Business Term Loan?

Improve your chances of qualifying for a long-term small business loan by taking the following actions:

Build Your Credit Score

Your personal credit score is an essential variable in qualifying for a business loan. The higher it is, the easier it will be for you to qualify for the best business term loan rates and the amount you want.

Understand Your Lender’s Requirements

Business term loan lenders will all require a specific threshold for business, annual revenue and credit score.  A credit score below 670 may disqualify you from some lenders. 

If you fall into this category and you’re looking for a long-term business loan for bad credit, you still have options. Some online lenders are less strict about time in business and credit scores; in certain circumstances, companies with at least a year in business, a credit score at or above 600 and annual revenue of $200,000 or greater could be approved.

Gather Necessary Documents

In addition to your bank statements, your lender will ask you to provide a list of business and personal documents that reflect the health and stability of your business. These include, but aren’t limited to, your driver’s license, profit and loss statement and a voided business check.


How Can I Apply for a Business Term Loan?

To apply for a  business term loan, you first need to find a lender. Traditional lenders, such as banks and credit unions, can offer long funding timelines and low rates, but they’re also known for tough underwriting requirements. If you don’t want to pursue a bank loan, it’s now possible to find some of the best business term loan lenders online. Technology advancements have allowed online lenders to offer faster funding with a quick web-based application. Online lenders are also more likely to fund applicants who might not qualify for traditional financing. Terms tend to be not as favorable, offering applicants higher interest rates and shorter terms. 

Though the application process will vary from business term lender to lender, you should expect to provide the following when applying for a business term loan:

  • Personal information of business owners 
  • Recent bank statements
  • Financing statements, including balance sheets and profit and loss statements 
  • Personal and business tax returns

  • Complete our simple and secure application, and we’ll pair you with term loan lenders.

    Applying is fast, easy — and most importantly — won’t impact your credit.

    Learn More

  • Document icon
    Accounts Receivable Financing
    Advance amount: Up to 80% of receivable value
    Repayment terms: Until the customer pays the invoice
    Factor rate: Starting at 1.02
    Funding available: Same day
    Advance amount: Up to 80% of receivable value
    Repayment terms: Until the customer pays the invoice
    Factor rate: Starting at 1.02
    Funding available: Same day
  • Business Lines of Credit
    Financing amount: Up to $250,000
    Estimated repayment term: 6 months - 2 years
    Interest rate: Starting at 8%
    Speed of funding: 1 day
    Financing amount: Up to $250,000
    Estimated repayment term: 6 months - 2 years
    Interest rate: Starting at 8%
    Speed of funding: 1 day
  • Bank icon
    Commercial Loans
    Financing amount: Up to $5 million
    Loan term: 3 months - 25 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
    Financing amount: Up to $5 million
    Loan term: 3 months - 25 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
  • Wrench icon
    Equipment Financing
    Financing amount: Up to 100% of equipment value
    Repayment terms: 1 year - 5 years
    Interest rate: Starting at 8%
    Speed of funding: 2 days
    Financing amount: Up to 100% of equipment value
    Repayment terms: 1 year - 5 years
    Interest rate: Starting at 8%
    Speed of funding: 2 days
  • Money icon
    Merchant Cash Advance
    Advance amount: Up to $500,000
    Estimated repayment term: 3 - 24 months
    Factor rate: Starting at 1.10
    Speed of funding: Same day
    Advance amount: Up to $500,000
    Estimated repayment term: 3 - 24 months
    Factor rate: Starting at 1.10
    Speed of funding: Same day
  • Bag icon
    SBA Loans
    Financing amount: Up to $5 million
    Repayment terms: 5 - 25 years
    Interest rate: Starting at 6.25%
    Speed of funding: 7 days
    Financing amount: Up to $5 million
    Repayment terms: 5 - 25 years
    Interest rate: Starting at 6.25%
    Speed of funding: 7 days
  • Short-Term Business Loans
    Financing amount: Up to $500,000
    Repayment terms: 3 - 18 months
    Interest rate: Starting at 10%
    Speed of funding: Same day
    Financing amount: Up to $500,000
    Repayment terms: 3 - 18 months
    Interest rate: Starting at 10%
    Speed of funding: Same day
  • Store icon
    Working Capital Loans
    Financing amount: Up to $500,000
    Repayment terms: 3 months - 5 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
    Financing amount: Up to $500,000
    Repayment terms: 3 months - 5 years
    Interest rate: Starting at 7%
    Speed of funding: Same day

One application. Multiple loan offers.

Quickly compare loan offers from multiple lenders without impacting your credit score.

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