As a business owner, you are always looking for opportunities to grow your company. However, even when you find that opportunity, you might not have the cash in hand to invest. That is where small business financing comes in. When the opportunity presents itself, you will probably think of taking a term loan. But before you do, first get to know what it is.
What is a Term Loan, and How Does It Work?
You know how a term loan works if you have ever taken a personal loan or mortgage. It is one-time cash you get from a lender, which you pay back over time with interest. So how does this work? You apply for the loan through a bank, online lender, or credit unit. Credit unions and banks have strict requirements, so most people have been going with online lenders. The application process is smooth, and you get approved for the loan faster.
Pros and Cons of Term Loan
Like any other financing option, term loans have some advantages and disadvantages, as seen below.
They have low-interest rates with flexible repayment plans
They can finance short-term needs such as acquiring inventory
They help build a business’s line of credit as long as you make timely monthly payments.
Some lenders may require collateral, especially if they consider your business’s financial risk.
Due to favorable interest rates and flexible repayment terms, they are hard to qualify for.
One may get charged additional fees such as origination fees.
Types of Term Loans
There are three types of loan terms, namely:
A short-term loan: A small amount with a short repayment plan such as one or two years. Ideal for a business’s day-to-day expenses.
Intermediate-term loans: These types of loans lie between short and long-term loans and are ideal for expenses like opening a new branch
Long-term loans: A long-term loan features a significant amount of money that one can take as long as 25 years to pay back. If your business has a solid financial record with excellent credit, you are likely to qualify for this type of loan.
Businesses survive and grow on term loans. However, your choice of lender is also important. If you are an entrepreneur considering a term loan, get in touch with Porter Capital Group. We have helped finance a lot of businesses and can help you as well.