Term Loans
Your business, your terms.
Term Loans
What is a business term loan?
Term loans for businesses are one of the most straightforward types of business financing. These loans provide a lump sum of capital upfront, which businesses can use for a variety of purposes, including expanding operations, purchasing equipment, or making capital improvements. The borrower agrees to pay back the principal amount along with interest over a fixed term, which can range from a few months to several years depending on the loan agreement.
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Types of term loans
Term loans are typically categorized into short-term, medium-term, and long-term loans:
- Short-term Loans: These usually have terms of one year or less and are often used for immediate cash flow needs or small-scale expansions.
- Medium-term Loans: These often extend from one to five years and are suitable for larger investments such as buying machinery or minor renovations.
- Long-term Loans: With terms that can extend beyond five years, long-term loans are generally used for significant business investments like purchasing real estate or funding substantial expansion projects.
Term loans can be secured or unsecured. Secured loans require collateral, such as real estate or other assets, to back the loan and typically come with lower interest rates. Unsecured loans do not require collateral but usually have higher interest rates due to the increased risk to the lender.
Overall, term loans are favored by businesses that need predictable repayment schedules and are planning significant, one-time investments. They are less flexible than lines of credit but are beneficial for long-term planning and substantial capital investments.
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