The need for business funding can arise at any time, sometimes unexpectedly, and catch entrepreneurs off guard. This may stem from a variety of situations, such as unanticipated expenses, a sudden demand to replenish inventory, or a shift in market trends that requires the prompt launch of a marketing campaign. In addition, many business owners are well aware of their company's funding needs well in advance. They might recognize the need to purchase assets, expand to a new location, or pursue business opportunities.
A business term loan can be advantageous in each of these scenarios. In this Huddle Business Capital blog article, we explain what a business term loan is, its uses, qualification requirements, and more. Our comprehensive guide provides the insights you need to make informed financial decisions for your business.
What is a business term loan?
A business term loan, as its name suggests, is a lump sum of cash used for business investments or operational needs. These loans are designed for creditworthy small businesses that have been in operation for a specified period, have consistent cash flow, and demonstrate good overall financial health.
Depending on the lender, these loans are available with either a fixed or adjustable rate and a defined repayment term. The monthly payments consist of the loan principal and interest, and some lenders may include additional fees such as an origination fee or closing costs.
Types of business term loans.
Business term loans can vary based on the loan amount, structure, and repayment terms. Of course, these loan attributes often differ from one lender to the next. Here are several types of business term loans.
Short-term loans
Short-term loans are ideal for businesses that require quick access to cash to cover immediate expenses, such as inventory, payroll, or operating costs. Typically, short-term loans involve smaller borrowing amounts and come with shorter repayment periods (less than 2 years), making them a practical option for businesses seeking financial relief without a long-term commitment. A short-term loan is a good option for companies that cannot qualify for a business line of credit.
SBA Loans
The Small Business Administration (SBA) offers several term loan options designed to support the growth and development of small businesses across the nation. The SBA works with lenders to guarantee a portion of the loan, thereby reducing the lender's risk and enabling them to offer borrowers favorable rates and terms. SBA term loan options include SBA "Express" loans, SBA 7(a) loans, and SBA 504 loans. SBA "Express" loans have terms of up to 10 years, and SBA 7(a) loans and SBA 504 loans have terms of up to 25 years.
Bank term loans
Many banks offer conventional term loans to businesses. These loans typically come with a fixed or variable rate and are repaid in regular installments, with terms of up to 25 years. Some term loans offered by banks require the business owner to put up collateral, such as equipment or real estate, to secure the loan.
Choosing a business term loan.
When deciding on a term loan for your business, it is essential to consider the amount of funding you require, the timeframe for receiving the funding, and the level of effort you are willing to invest in the loan application process.
While SBA loans and conventional bank loans generally offer lower interest rates, the application process is more involved, and the qualification criteria are stricter. For example, SBA loans and conventional bank loans typically require a longer period of operation, higher credit scores, and higher annual revenues.
In contrast, non-bank lending resources provide a simpler process. Huddle Business Capital, for instance, offers business term loans of up to $300,000 from a reputable lender we work with, featuring a straightforward application process and more lenient qualification standards.
Preparing your loan application.
Each lender has its own qualification requirements for the business term loans offered, but there are several key steps and requirements that you should keep in mind before applying for a loan. First, request a credit report from one of the major credit reporting agencies so you can view your credit score and identify any inaccuracies in your report. Next, gather your business's financial statements, including balance sheets, income statements, and cash flow reports.
Finally, consult with your lender to find out what is required as part of the loan application package. This may include a business license, tax returns, bank statements, and other relevant documents.
Disclaimer.
This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind. Huddle Business Capital is not affiliated with nor endorses the Small Business Administration (SBA).
