What Is A Term Loan And How Can It Help Your Business?

With approximately 3/4 of small businesses in America using financing to support their companies, including term loans, it’s very important to know how a term loan could help your business. 

Definition Of A Term Loan

Allowing you to expand your business, a term loan is usually from an online lender or a bank and helps you with your immediate financial needs. 

If we were to sum this up, a term loan is when a borrower and a lender agree that the lender will provide a cash payment and will receive that back over smaller increments. As an added bonus for the lender, the person borrowing pays back this money with interest added on top. 

How Does A Term Loan Impact The Borrower?

You need to consider, as a borrower, the impact of making these monthly payments over the long term, and, of course, in relation to your business progression. In addition to the monthly payments, you may have to also pay interest, an underwriting fee, and a down payment.

term loan

Saying that, though, a term loan can also help small to medium business owners which have large expenses – like buying property, equipment, and vehicles, among others – bring in profit for the business in the future.

Eligibility For A Term Loan 

Most people are eligible for a term loan, however, the amount that the lender will loan them differs significantly. This depends on your credit history, bank statements, expenses, cash flow, and other details too.  

How Could A Term Loan Help Your Business? 

If you’re interested in opening a store (wholesale, clothing, office, etc.) and, therefore, need a location, a term loan might be the first idea that comes to mind. The reason? You may have enough cash flow to get your business off the ground, but it could still take years to gather enough money to open a store. With a term loan, you can open your store straight away, so that you’re not having to wait. 

Term loans can also be for equipment – be it machinery, industrial, or sports equipment. A small term loan could even help you stock your shelves for the busy season ahead. 

A term loan allows you to borrow small to large amounts of money for urgent, time-restricted needs. Should you make your loan payments on time, your credit score will also improve. And, the interest rates are a lot lower than the majority of credit card loans.

It’s also important to know that you could be waiting a while for the loan approval to take place (this does depend heavily on individual circumstance), and could enter long-term debt (especially, if you struggle to make repayments). It’s for both these reasons that you should consider the profit margins and potential direction of your business so that you don’t struggle later on. 

For more information or advice on term loans, feel free to get in touch with our expert and friendly team at Key Capital – we’re just waiting to provide financial business solutions for your company.