How to Get a Business Term Loan
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Business term loans are an incredibly valuable tool you can use to boost your business’ finances for projects that require upfront cash you may not currently have. But sometimes, the process of getting a term business loan can seem daunting. Fortunately, it’s not as complicated as it may seem.
Before delving into the qualification and application processes, let’s take a closer look at what business term loans are, a few of their key pros and cons, and the three main types of term loans.
FURTHER READING: A Business Owner's Guide to Business Loans
What are Business Term Loans?
Business term loans are a specific type of loan where borrowers–typically small businesses–can receive a large sum of cash upfront in exchange for meeting particular requirements.
As with any other loan application, anyone applying for a business term loan must provide the same statements and financial proof to show their prospective lenders that they are a creditworthy business. Once they’ve done so, they will be approved for the loan and given a detailed repayment schedule. This schedule is typically limited to a specific period ranging from a few months to up to ten years and usually requires weekly, monthly, or quarterly repayments.
Additionally, term loans may have fixed or variable interest rates, depending on the loan type you receive. Fixed rates will maintain a singular rate, while variable rates may be subject to change depending on how well the market is doing.
Pros and Cons of Business Term Loans
There are many different pros and cons to investing in a business term loan. Let’s take a look at a few of the most popular pros and cons to understand their benefits and disadvantages better.
Pro: Business Term Loans Have Lower Interest Rates
Because business term loans typically have a longer duration than other business loan types, they tend to carry significantly lower interest rates than their short-term loan counterparts.
Con: Collateral is Often Required
Because term loans are most commonly unsecured, banks and other lenders prefer to have some safety measures to ensure they will recover at least a portion of their money if borrowers fail to repay their debts.
Pro: You Have a Set Payment Structure
Planning out a budget can be incredibly difficult when you don’t know your monthly expenses. Part of this stress is relieved with a business term loan because they come with predictable repayment schedules that do not excessively deviate from one payment period to the next.
Con: Business Term Loans Have Hefty Borrower Requirements
Term loans have a relatively quick approval process, but to be approved, you first have to qualify for the loan. Unfortunately, this can be difficult because term loan lenders require a higher credit score than other lender types. Additionally, they usually require proof of stability and profitability upfront.
Types of Term Loans
There are three main types of term loans, each based on that specific loan’s lifespan: short-term loans, intermediate-term loans, and long-term loans.
As their name suggests, short-term loans are the shortest-term loan available to borrowers. They can last up to eighteen months, but most max out at the one-year mark. Additionally, these loans are typically offered to those businesses that cannot qualify for a line of credit.
Running an average of one to three years, intermediate loans are typically paid in monthly installments out of a company’s cash flow. They stick to set payments throughout their lifespan, but may also operate as a balloon loan with its final payment “ballooning” up into a larger payment.
By far the longest of the term loans, long-term loans may run as few as three years or as many as twenty-five years. This loan type is far more likely to rely on heavy collateral in the form of company assets from borrowers. Also, these loans usually require monthly or quarterly payments from the borrower’s company profits. They may limit other financial opportunities and commitments the lender may engage in until the debt is repaid.
How to Get a Business Term Loan
Once you’ve decided to get a business term loan, there are a few things you’ll need to do before applying for the loan. First, you’ll want to take stock of your business to determine what financial assistance you need to achieve your desired results. Then, you need to assess the state of your finances–namely, you need to make sure you have a good credit score and can prove your business’s success and profitability.
Once you’ve completed your assessment, you will need to research and select the best lender for your needs. Then, you’ll begin your application. This process will differ drastically depending on which lender type you choose to go with. Banks are more likely to require extensive checks and documentation as well as in-person applications. Alternative online lenders usually have much more straightforward, streamlined processes, though they still require specific financial statements to ensure you qualify for the loan.
How Can You Qualify?
Qualifying for a business term loan can be a very straightforward process. You’ll need to provide primary business and personal information, including personal identification, proof of ownership, and your business license. Then, you’ll need to provide both personal and business-related banking statements, including other financial statements like balance sheets and profit/loss statements.
Your credit score and tax returns will also be required for both your personal and business finances, and proof of collateral may be necessary if you are pursuing a longer-term loan or if your lender requires it.
Where Can I Get a Business Term Loan?
Business term loans can be issued from a number of different sources, including banks, credit unions, and online lenders. They can be applied for online or in-person, depending on the loan type you pursue. This process may be straightforward if you choose an alternative online lender or if you decide to take out your loan through a bank, it may take extra time and financial checks to ensure everything is in order with your application.
At Fundid, we are committed to simplifying business finance and helping business owners access to the capital they need to unlock growth. We launched Fundid Capital to make accessing lending options simple, quick, and stress-free.
How It Works
Fundid Capital has four simple steps you can follow to make the term loan application process as easy as possible.
Apply – Fill out a straightforward, online application with a few simple questions.
Meet with an Advisor – Once your application is in, you’ll meet with a Fundid Advisor who will walk you through your different funding options.
Choose – After your meeting, you can choose the best option for your business.
Fund – In as little as twenty-four hours after choosing your financing option, you can have the capital you need in your bank account to use it for whatever your business needs are.
How Fundid Capital is Different
While there are thousands of lenders available to you online and in-person, Fundid Capital does business differently to make your borrowing process as simple and pain-free as possible.
First, Fundid is risk-free for you. In fact, you can apply for free without any obligations or damage to your credit score. Second, you don’t have to settle with one offer. Instead, Fundid provides you with multiple offers to help you determine which will be the best choice for your business. Third, Fundid isn’t a bank–like you, we’re a small business that knows what it takes to grow. And finally, we’re people, too. We’re here, ready to connect with you and guide you through the application and loan processes to make your life as easy as possible.
Get Funding Help Today!
Term loans may seem confusing at first, with their sometimes long, complicated application and approval processes, but once you understand their basic functions, they become so much easier to navigate.
If you need funding to grow your business, look no further than Fundid Capital. We’re always here to help you find out how you can get capital to grow faster.
Fundid is driven by a mission to empower business owners on their growth journeys by simplifying business finance & access to capital.
We spend our time thinking about what the world would look like if the 80% of businesses that have under 10 employees had access to the capital they needed to grow and thrive. We're solving this with our Business Capital, Business-Building Card, and Resources that include our business Grant Match Program.