Term Loans and its Various Options

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A term loan is a regular loan that you repay with a fixed interest rate over time. Such loans are used to finance a specific business investment or purchase.

As long as a business has a good credit score and have been generating revenue for some time, they can apply for a term loan. For whatever reason, like a new employee or equipment upgrade, a business loan can always help a company with some extra monetary funds.

Why apply for term loans?

Since it is the most common kind of business loan, term loans are used more often than other kinds of business loans. When you apply for a term loan, it is simply all about predictability.

You get a said amount of money with a variable or fixed interest rate; you pay that cash back over an agreed-upon amount of time in regular intervals and increments.

Qualifications for a term loan

Not all term loans are the same – the term length, loan size, and interest rate depend on your business’s credit rating and revenue; this is because traditional term loans have a comparatively longer period of repayment than short-term loans.

Documents needed to apply for traditional term loans

• Personal Tax Returns
• Business Tax Returns
• Credit Score
• Profit and Loss Statements
• Balance Sheet
• Bank Statements
• Voided Business Check
• Driver’s License

How to apply for a term loan

Applying for a traditional term loan is not always a cup of tea, especially if you have no collateral or have low credit scores. In some cases, collateral might be required for a term loan, depending on the rest of your business’s financials. You can lose that collateral if you are unable to repay your loan.

A term loan’s predictability is your biggest help. If you want to figure out how a term loan will affect your business, you will need to understand the calculations beforehand and plan the coming spending months or years carefully.

Kinds of term loans

Depending on your small business’s credit rating, growth needs, cash flow, etc., there are different kinds of term loans available. You can avail term loans with payment structures and lengths ranging from one year with daily payments to five years with monthly payments.

In the same way, interest rates and loan amounts vary according to your business’s history and needs. The terms will depend on your business’s financials, but the overall structure remains the same.

Pros

• Fixed and structured payment
• Suits many business purposes
• Monthly payments are lower and payment terms are longer than short-term loans

Cons

• Open to prepayment penalties

What is a loan term good for?

The primary point of a term loan is to help your business get financed. Whether you need to make a specific inventory purchase or looking to meet taxes, a small business term loan can help you out.

There are few loan use restrictions. But, it is best to spend that loan money in creating more business revenues. Since you will be paying back the
loan with an interest rate, you would earn more money than you began with.

Traditional term loans can be distinguished from their shorter-term alternatives by referring the latter as medium-term loans.