When your business needs an immediate infusion of cash to purchase inventory, pay down debt or fund growth and expansion initiatives, term loans can be an ideal solution.
Term loans provide more predictable business financing solutions. Repayment occurs over an agreed-upon loan term and regular installments must be made over its duration.
Short-term loans
Short-term loans are used to meet a range of business needs, helping the organization increase sales and profits. They may help cover expenses such as buying equipment, expanding inventory or weathering a cash flow shortfall.
Short-term loans offer many advantages, not least their flexibility. There are generally no restrictions or timeframes imposed upon how funds should be used, and funding often occurs quicker than with other business loans.
Another advantage of payday loans is that they’re typically less expensive than other loans, since interest payments spread out over a shorter term are lower than if paid over longer terms such as with bank loans.
Short-term business loans may not be suitable for all businesses; those with poor or no established credit histories may have difficulty being approved for one.
Medium-term loans
Medium-term loans offer low rates and flexible terms between one to five years; furthermore, most don’t incur prepayment penalties for early payoff.
They provide businesses with cash flow management and credit building capabilities. Furthermore, they’re popular financing solutions for expansion projects like purchasing equipment or inventory, hiring team members or refinancing debt.
When considering a medium-term loan for your business, it is crucial that you assess whether it will meet its intended use. A medium-term loan is best used by expanding companies with growing revenues who need immediate funding of near-term growth projects.
Repayment terms
Business term loans are lump sums of money borrowed from lenders and paid back over an agreed-upon time period – typically three to twenty years depending on your needs and amount borrowed.
Term loans offer businesses that need to make large purchases or expand their businesses the ability to take advantage of long-term repayment periods with lower interest rates than credit cards and give you plenty of time to generate profits before the loan comes due.
Qualification criteria for these loans will differ depending on your lender; most require at least 600 FICO credit score and $8,000 monthly revenue as minimum requirements for eligibility. Online lenders such as Funding Circle have requirements such as having been in business at least two years with strong annual revenue and strong personal and business credit histories to qualify.
Interest rates
Interest rates on business term loans can differ considerably, depending on your lender and loan type. Understanding how they’re set will enable you to secure the best possible rate for your company.
Interest on business loans varies based on a variety of factors, including lender type and your credit score. Other considerations may include how much you borrowed as well as when and how you intend to repay it.
Some lenders will provide lower rates to businesses with greater revenues and a solid business plan, as well as those that secure their loans with inventory or property collateral.
Your loan’s interest rate typically follows the Federal Funds Rate, the rate that banks charge other banks when borrowing money. Or it could be calculated based on a percentage of Prime Rate; which represents what banks usually offer their most creditworthy customers as their average rate.
