As a small business owner, you’ve likely heard of term loans and may even have considered taking out one. Term loans can be a great way for businesses to finance their operations and build credit. A term loan is a loan from a bank for a specific amount with a specified repayment schedule and a fixed or variable interest rate. The loan period is usually between 1 and 10 years.
The advantage of a term loan is that it gives the borrower predictable payments over the life of the loan. The borrower knows exactly how much they need to repay each month, making budgeting easier. Term loans also usually have lower interest rates than credit cards or lines of credit.
Types of term loans
- Short-Term Loan: Short term loan is typically given for 6 months to a year and is often used to bridge financial gaps during temporary cash flow shortages. Short-term loans are usually unsecured, meaning they don’t require collateral to be put up as security.
- Medium-Term loan: Medium term loan is typically given for 1 to 5 years and are often used to finance larger purchases such as equipment or inventory. Medium-term loans are usually secured, meaning collateral must be considered a security.
- Long-Term Loan: Long term loan is typically given for 5 or more years and are used to finance long-term investments such as real estate or property. Long-term loans are usually secured, meaning collateral must be considered a security.
- Bridge Loan: Bridge loans are short-term loans typically given for 6 months to a year and are used to bridge the gap between purchasing one asset and selling another. Bridge loans are usually unsecured, meaning they don’t require collateral to be put up as security.
Benefits of term loans
- Longer repayment terms: Term loans typically come with a longer repayment period than other types of short-term business financing, such as lines of credit or merchant cash advances.
- Large loan amounts: Term loans can provide businesses with larger loan amounts than other types of financing, allowing businesses to make larger purchases or investments in their business.
- Lower interest rates: Term loans typically come with lower interest rates than other types of financing, making them more affordable in the long run.
- More secure financing: Term loans are typically more secure than other types of financing, as they are backed by collateral, such as real estate, equipment, or inventory.
- Flexible repayment schedules: Term loans offer flexible repayment schedules, allowing businesses to make payments on their schedule instead of adhering to a pre-set timeline.
4 major reasons how term loans can work for your business
- Flexible Repayment Terms: One of the major advantages of taking out a term loan is the flexibility of repayment terms. Term loans typically have a fixed interest rate, allowing you to plan your cash flow and budget accordingly.
- Longer Loan Terms: Another advantage of taking out a term loan is that you can take out a loan with a longer term, which can help you manage your cash flow better. Longer loan terms also mean that the amount of money you need to repay each month is less.
- Access to Working Capital: Term loans are often used to give a business the additional working capital it needs to grow. This can be especially helpful for businesses just starting and needing a cash boost to launch their operations.
- Low-Interest Rates: Term loans typically have lower interest rates than other business loans. This can help you save money in the long run and make it easier to stay on top of your loan payments.
How can a term loan calculator help your business?
A term loan calculator can be very helpful for your business in several ways. It can provide you with an estimate of the loan amount you may qualify for, the total interest and fees associated with the loan, and an estimated repayment schedule.
A term loan calculator can help you accurately compare different loan options side-by-side and identify which loan best fits your financial goals. By inputting the loan amount, interest rate, and loan term, you can easily calculate the monthly payments and total cost of your loan. This will help you make an informed decision about which loan is best for your business.