Term Loans – The Classic Way to Fund Your Business

A term loan is the kind of loan most people imagine: you borrow a set amount of money, then pay it back in fixed amounts over time, with interest. It’s a simple, straight-up loan.

Small businesses often use term loans for expansion, renovations, hiring, or buying inventory.

How Term Loans Work

You borrow a lump sum (example: $50,000)
Repayment is fixed (you pay the same every month)
Loan term: From 1 to 10+ years
Interest: Fixed or variable (changes with the market)

Short-Term Loans (1–2 Years)

Best for: Immediate needs like restocking, covering seasonal gaps, or marketing
Funding time: Often just a few days
Interest rates: Higher than long-term loans
Tip: Only borrow what you really need — the short payback time makes high payments.

Example: A coffee shop borrows $20,000 to buy new espresso machines. They repay it over 18 months.

Long-Term Loans (3–10+ Years)

Best for: Big investments like opening a second location or buying out a partner
Funding time: Takes longer (weeks or months)
Interest rates: Lower, since risk is spread out
Collateral: Often needed — like real estate or equipment

Example: A clothing brand borrows $200,000 to open a new retail store. They repay it over 7 years.

What Lenders Look For

Before they approve a term loan, lenders usually want:

Strong credit score
Proven business income
Detailed business plan
Collateral (especially for larger loans)

Pros

Clear monthly payments
Good for building credit
Often lower rates than credit cards or MCAs

Cons

Slower approval than online loans
Harder to qualify if your credit is poor
May require personal guarantee

Tips for Using Term Loans Wisely

Know your numbers. Can your business afford the monthly payments? Use a loan calculator.
Compare lenders. Banks, credit unions, and online lenders all offer term loans.
Plan for ROI. Only borrow if you know how it’ll help you earn more money in the long run.

Final Thoughts

Term loans are best when you have a specific goal and a plan to repay the loan over time. They’re not as flexible as a line of credit, but they offer stability and clear terms.

If your business is ready to level up and you’ve got steady revenue, a term loan could be the boost you need.