A Guide to Business Term Loans

A lump sum of capital typically used to finance specific, one-off investments such as real estate purchases, business expansions, and debt refinancing.
Last updated Dec. 9, 2024
Advertiser Disclosure

Business Term Loans at a Glance

Max AmountUp to $5 million
Loan Term6 months to 7 years
Interest Rates6% to 99%
Funding SpeedAs fast as 1 day

How a Business Term Loan Works

A business term loan is a lump sum of capital that you pay back with regular repayments at a fixed interest rate—this type of traditional financing is what most people think of when it comes to small business loans. The “term” in “term loan” comes from its set repayment term length, which can range from several months to several years depending on the type of loan.
Generally, business owners use term loans to finance specific, one-off investments for their small businesses such as real estate purchases, business expansions, debt refinancing, and more.
Business term loans can be issued by banks, credit unions, and online lenders. In general, banks and credit unions offer the most ideal rates and terms, but they also require top qualifications and are slower to fund. Online lenders, on the other hand, offer greater flexibility and faster funding times, but they’re likely to be more expensive and have shorter terms.

How much do you need?

No cost to you

Your credit score won't be impacted

Compare multiple lenders with one application

When to Consider a Business Term Loan

One of the benefits of business term loans is that they can be used for a variety of business financing purposes, including:
  • Purchasing equipment or inventory.
  • Working capital.
  • Refinancing other business debts.
  • Hiring staff.
  • Meeting payroll or tax obligations.
  • Financing business expansions.
  • Purchasing real estate.
  • Funding general long-term investments.

Types of Business Term Loans

Short-term business loans have repayment periods of up to two years. These loans are usually issued by online lenders, have the most flexible qualifications, and are the fastest to fund. Short-term loans, however, are also typically the most expensive type of business term loan.
Medium-term business loans have repayment periods of two to five years. These loans are available from online lenders, as well as banks and credit unions. Although these products may have higher requirements and be slower to fund than short-term loans, they’re usually much more affordable.
Long-term business loans are generally those with terms longer than five years. Some of the most notable long-term loans are SBA loans—with terms of up to 25 years. Long-term loans require top borrower qualifications and are often slow to fund, but they also offer the lowest interest rates. These term loans are most often issued by traditional lenders like banks and credit unions.

Pros and Cons of Business Term Loans

Term loans aren’t the only form of financing for small businesses. From lines of credit to asset-based financing, there are a variety of types of small business loans you might consider. Review these pros and cons to help determine if a term loan is right for your business needs.

Pros

Regardless of the repayment length of your loan, you receive a set payment schedule and know exactly how much you owe with each payment. In this way, term loans are one of the most predictable forms of business financing—making it easy to understand the total cost of the debt, as well as the payments. Plus, with these predictable payments, it’s much easier to manage your cash flow and other business finances.
In general, most term loan lenders have very few restrictions on the way you can use your loan. The length of your term, however, will play some role in the way you can use your loan. For example, a medium-term loan is more suitable for large equipment purchases, whereas a short-term loan is better used for small working capital needs.
Although business term loans can be issued by banks and credit unions in addition to online lenders, online term loans can be a top option for businesses that are looking for speed and flexibility. Overall, online lenders can offer streamlined applications, more flexible requirements, and faster funding times in comparison with banks.
For medium- and long-term loans, you’ll find no better way to finance a large business investment. Overall, these term loans are some of the most affordable financing products on the market—especially bank and SBA loans—and they give you access to large amounts of capital to finance bigger investments over time. Plus, if you make your payments responsibly, term loans are great for building or improving business credit.

Cons

Although not all lenders charge these fees, some enforce prepayment penalties to ensure they receive the interest they’re owed, even if you pay back your loan early. Before you agree to work with a term loan lender, you should always ask about their prepayment policies.
Online term loans are almost always more expensive than their bank counterparts. This isn’t to say that you can’t find affordable business term loans. But it’s important to remember that short-term loans, in particular, can be expensive—especially for less-qualified borrowers. Therefore, as you explore your business term loan options, take care to evaluate the total cost of the debt and ensure that it’s something your business can afford.
Almost all business term loans are secured—they require physical collateral or a personal guarantee. Additionally, some lenders take out a UCC-lien on your business assets as another form of security. In general, however, the better your business’s qualifications, the more leeway you’ll have in negotiating collateral requirements.

Qualifying and Applying for a Business Term Loan

As you compare different lenders, you first want to evaluate your business to determine what products you can actually qualify for. Bank and SBA loans require the highest level of qualifications, whereas short-term loans offer greater flexibility.

Qualifications for a Business Term Loan

*Based on past short-term loan Fundera customers
Dollar bills with pink background.
Annual RevenueOver $100K
Calculator and invoice with pink background.
Credit Score600+
Invoice with blue background.
Time in BusinessOver 1 year
Once you’ve determined where you’re likely to qualify, you’re ready to start preparing your business loan application.
The application process largely depends on the lender—alternative lenders typically offer online-based, streamlined applications with minimal documentation, whereas banks are more likely to require extensive documentation and an in-person or paper application. Overall, however, you should expect to provide some (if not all) of the following when applying for a business term loan:
  • Basic personal and business information
  • Personal and business bank statements
  • Financial statements such as your balance sheet and profit and loss statement
  • Personal and business credit score
  • Personal and business tax returns
  • Proof of collateral (if required)
Many lenders also require that you sign a personal guarantee for your loan, whereas others may take out a UCC-lien on your business’s assets. Before signing any agreement, thoroughly review all of the details to ensure you understand the terms, fees, and liabilities.
Use our guide for more information on how to apply for a business loan.

Fundera Can Help

We’re here to take some of the work of finding a business term loan off your plate.
You can answer these few questions—with no impact to your credit score and free of obligation—to see which business term loans you qualify for. One of our trained sales associates will personally advise you through the entire loan process, from comparing options to signing your agreement.
Let’s get you funded!

How much do you need?

No cost to you

Your credit score won't be impacted

Compare multiple lenders with one application