Business Term Loan
Fixed Payments. Fixed Rate. No Surprises.
A fixed amount upfront, a set monthly payment, and a clear payoff date — terms from one to ten years, rates from 7% APR.
What Is a Business Term Loan?
A business term loan delivers a lump sum to your account at closing and sets a fixed repayment schedule — typically monthly principal plus interest — over a defined period. The rate, payment amount, and payoff date are all established at signing. No surprises.
Unlike a line of credit (which you draw against repeatedly) or a merchant cash advance (which repays via fixed daily ACH debits), a term loan is a single event: one disbursement, one repayment schedule, one end date.
Term loans range from 6-month online products at higher rates to 10-year bank and SBA loans at competitive rates. The right structure depends on your credit, timeline, the size of the investment, and how long you need to spread the repayment.
Loan amounts
$25K – $5M+
Funding speed
1 day – 8 weeks
Loan terms
6 months – 10 years
How a Term Loan Works
Four steps from application to paid off.
Apply and submit documents
Online lenders need 3–6 months of bank statements and basic business info. Banks and SBA lenders need tax returns, P&L, balance sheet, and a statement of loan purpose.
Underwriting — credit, DSCR, collateral
Lenders evaluate your credit score, Debt Service Coverage Ratio, revenue trend, time in business, and whether collateral is available. This determines approval, rate, and term.
Lump sum disbursed at closing
Once approved and documents are signed, the full loan amount is deposited to your business account. Online lenders fund in 1–5 days; banks take 3–8 weeks.
Fixed monthly payments until payoff
Your amortization schedule sets the same payment every month — principal plus interest — until the loan balance reaches zero on the maturity date.
Four Types of Business Term Loans
Same basic structure — lump sum, fixed payments, set term — but rate, speed, and qualification requirements vary significantly by lender type.
Online Term Loan
Offered by alternative lenders with short applications and decisions in as little as 24 hours. Higher rates than banks, but accessible to businesses with shorter history or imperfect credit. Amounts typically $5K–$500K.
Rate
15–40% APR
Term
6 months–5 years
Funding speed
1–5 days
Min. credit score
550+
Traditional Bank Term Loan
Conventional loans from banks and credit unions with the lowest rates in the category. Require strong financials, 2+ years in business, and a thorough underwriting process.
Rate
7–12% APR
Term
1–10 years
Funding speed
3–8 weeks
Min. credit score
680+
SBA Loan
Government-backed loans that let lenders approve businesses that wouldn't qualify for conventional financing. Longer terms, lower down payments, and competitive rates — but the most documentation-intensive process.
Rate
Prime + 2.25–4.75%
Term
Up to 10 years (25 for real estate)
Funding speed
45–90 days
Min. credit score
650+
Equipment Loan
Specifically structured for purchasing machinery, vehicles, or technology. The equipment itself serves as collateral, which reduces lender risk and typically results in lower rates than unsecured term loans.
Rate
6–15% APR
Term
2–7 years
Funding speed
3–14 days
Min. credit score
600+
Real-World Cost Example
A manufacturer compares a 5-year term loan to rolling short-term financing.
A manufacturing company needs $250,000 to purchase equipment that will increase production capacity by 40%, adding roughly $480,000 in annual revenue at a 20% margin ($96,000 in additional annual profit). They compare two financing paths.
5-Year Bank Term Loan
- Amount$250,000
- Rate8% APR (fixed)
- Term60 months
- Monthly payment$5,070
- Total interest paid$54,200
- Annual loan cost$60,840
Rolling Short-Term Loans (5 renewals)
- Amount$250,000
- Rate~25% APR avg.
- Term12-month renewals
- Monthly payment$7,396
- Total interest paid$193,760
- Annual loan cost$88,752
Interest savings with term loan: $139,560 over 5 years
Monthly cash flow improvement: $2,326/month lower payment
Net annual benefit (term loan): $96,000 additional profit – $60,840 loan cost = $35,160/year
The bank term loan costs $139,560 less over 5 years and reduces monthly payments by $2,326. The tradeoff is an 8-week approval process vs. 1–5 days for the online lender. For a planned equipment purchase with no urgency, that wait is worth it. For an emergency repair or time-sensitive opportunity, an online term loan or merchant cash advance makes more sense.
What Term Loan Lenders Actually Look At
Term loans are more underwriting-intensive than revenue-based products. Here is what drives approval and pricing.
Credit score — personal and business
Personal credit score is the lead factor for most lenders. Business credit (Dun & Bradstreet Paydex, Experian Business) matters for bank and SBA applications. A score below 650 will typically redirect you to online lenders with higher rates; 700+ unlocks the best bank pricing.
Debt Service Coverage Ratio (DSCR)
Lenders calculate your DSCR as net operating income ÷ total annual debt service (including the proposed new payment). Most banks require a DSCR of 1.25x or better — meaning your business generates $1.25 for every $1.00 it owes in debt payments. Below 1.0x means the business cannot service the debt on paper, and most lenders will decline.
Time in business
Online lenders typically require 6–12 months. Banks want 2+ years. SBA programs are more flexible on time in business but compensate with more documentation requirements. The longer your operating history, the more data lenders have to underwrite confidently — which translates to better rates.
Revenue and revenue trend
Most lenders set a minimum annual revenue threshold ($100K+ for bank loans, $50K+ for many online lenders). More important than the absolute level: whether revenue is growing, flat, or declining. A business with $400K in annual revenue trending downward for 12 months is riskier than one with $200K trending up.
Collateral
Larger term loans — particularly from banks and SBA — often require collateral: business equipment, real estate, or a personal guarantee. Collateral reduces the lender's risk and unlocks lower rates. Unsecured term loans (common from online lenders) are available but priced accordingly.
Loan purpose
Banks and SBA lenders want a clear, documented purpose for the loan — equipment purchase, acquisition, expansion. Vague "working capital" purposes without specifics are harder to approve for larger amounts. Online lenders are generally less restrictive on use of funds.
Tell us your loan amount, credit score, and time in business — we'll show you which loan type you qualify for and what it will cost.
Get a Free EstimateTerm Loan vs. Other Business Financing
A term loan is one tool. Here is how it stacks up against the alternatives.
| Term Loan | Line of Credit | SBA Loan | Equipment Loan | MCA | |
|---|---|---|---|---|---|
| Funding structure | Lump sum, one time | Revolving draw & repay | Lump sum, one time | Lump sum for asset | Lump sum, one time |
| Typical rate | 7–40% APR | Prime + 3–8% | Prime + 2.25–4.75% | 6–15% APR | 1.15–1.50x factor |
| Speed to fund | 1 day–8 weeks | 3–7 days | 45–90 days | 3–14 days | Same day–48 hrs |
| Min. credit score | 550–680+ | 620+ | 650+ | 600+ | ~500+ |
| Collateral | Varies | None | May be required | Equipment | None |
| Best for | Defined investments | Ongoing cash flow | Long-term growth | Asset purchases | Fast, flexible capital |
Who Uses Business Term Loans
Any business making a defined, large investment with a clear ROI and a stable enough revenue base to carry fixed monthly payments.
Manufacturing
Manufacturers use term loans to purchase equipment, upgrade production lines, or expand facilities. The fixed monthly payment structure aligns with the predictable revenue that comes from increased production capacity.
Equipment financing for manufacturersProfessional Services
Law firms, accounting practices, and consulting businesses use term loans to finance office expansions, technology infrastructure, or acquisitions of other practices — with longer repayment terms matched to the useful life of the asset.
Get a term loan quoteRetail
Retailers finance new location buildouts, store renovations, and major inventory expansions with term loans — using predictable fixed payments against the expected revenue lift from the investment.
Need revolving capital instead? See LOCTransportation & Logistics
Fleet expansions and warehouse acquisitions are term loan territory — capital-intensive, long-lived assets that justify multi-year repayment terms matched to the vehicle or facility's useful life.
Equipment financing for fleetsContractors & Construction
General contractors use term loans to purchase heavy equipment, fund bond requirements, or finance the gap between project start and first draw. Longer terms align with multi-year project revenue streams.
Need faster capital? See MCA optionsHealthcare
Medical practices and outpatient facilities finance equipment (imaging, dental chairs, EHR systems) and facility expansions with term loans — predictable payments against a stable patient revenue base.
SBA loans for healthcare businessesBenefits & Considerations
Term loans are the lowest-cost structured financing in this category — but they come with conditions.
Benefits
- Rates from 7% APR for qualified borrowers — significantly lower than online lenders or MCAs
- Fixed monthly payments make cash flow planning straightforward
- Longer terms spread large investments over multiple years
- Builds business credit when reported to credit bureaus
- One application, one closing — no ongoing renewal process
- Larger amounts available than most short-term products
Considerations
- Fixed payments continue regardless of revenue — no built-in flex during slow months
- Bank and SBA loans take weeks to months from application to funding
- Collateral may be required, putting business or personal assets at risk
- Prepayment penalties can apply — especially on longer-term bank and SBA loans
- Not revolving — need more capital mid-term means a new application
- Higher credit and revenue thresholds than revenue-based alternatives
Frequently Asked Questions
Free Tools to Help You Prepare
Run the numbers before you apply.
Business Loan Calculator
Model your monthly payment across different amounts, rates, and terms before you commit.
Break-Even Calculator
See how many sales you need to cover a new fixed loan payment before you borrow.
Financial Ratios Calculator
Calculate your DSCR and other metrics lenders use to approve term loan applications.
Financial Health Checklist
A 24-point self-assessment to see how lender-ready your business is before you apply.
See What Your Business Qualifies For
No hard credit pull. Tell us your revenue, credit score, and loan amount — we will match you to the right product and lender tier in minutes.