Acquire More Cash with Term Loans
Whether equipment acquisition, inventory expansion, or a new location, term loans can help you reach your goals.
A Term Loan Is Most Often Used For:
- Purchase or renovation of a business property
- Purchase, installation, or modernization of business equipment or another capital asset
- Refinancing of existing debt in order to streamline cash flow and manage payments
What is a Term Loan?
If your business is in need of immediate, one-time cash, or if you wish to purchase a large asset, you will likely want to consider a term loan application.
Generally, a term loan will provide a lump sum payment to you up front, and it will then require regular payments spanning a set time, such that the loan is paid back plus interest for the lender. This is a common way for established businesses to acquire more cash than they might otherwise have been able save on their own, all while ensuring their cash flow stays healthy.
Secured Term Loans with Collateral
You might have the option of borrowing funds without being required to provide any collateral. Such an arrangement is called an unsecured loan.
Other term loans, called secured loans, will be enforced through collateral, including, but not limited to, a vehicle, existing equipment, or commercial real estate. Sometimes, loans that are secured by real estate can be made available for business purposes besides just buying the collateralized property.
Short-Term Loans, Medium-Term Loans, and Long-Term Loans
In the recent past, the majority of term loans, with the exception of those secured by real estate, have typically been for lengths of two to five years. However, now, there are short-term loans for only a year or less, in addition to traditional long-term loans, which can span up to 25 years. The SBA 7(a) loan, for financing commercial real estate, is one such example of a 25-year loan. Ultimately, a loan’s term is matched up with its purpose and the collateral type.
If you are aiming for a short-term goal or you need cash for something which you think will provide an immediate return on a large investment, banks could potentially offer you a loan to be repaid over a short term. If your goal is instead long-term, with an expected extended return on investment, such as the purchase of a building, then a bank may possibly offer a loan with a much longer term, allowing you to match the repayment period to the extended period.
Short-term loans can have a term as short as six months. These can be very useful if you need to finance a large-scale business need immediately, and they may also be used to help establish or re-establish a business’ credit. Short-term loans will sometimes require daily or weekly payments, which allows the debtholder to pay down their balances quickly, helping to reduce the total cost of financing.
Medium-term loans typically have two- to five-year term lengths. Securing these can be done with an owned asset, with the purchased item, or the loan could be unsecured (i.e., no collateral required). These are the best loans for companies in “growth mode,” i.e., those with bright prospects, good revenue, and also a pressing need to purchase equipment and other tangible assets. This loan type can help business owners to accelerate plans they may have. Instead of saving money gradually, perhaps for years, a business can finance the specialized truck, X-ray machine, or restaurant equipment they need today. Plus, there are accounting and tax benefits for ownership of these loans which may help offset the sometimes-high interest costs. Unsecured loans, which are not tied to an asset, are approved based only on the credit-worthiness of the business and the owners.
Long-term loans can have terms of 10, 15, or even as many as 25 years. These loan amounts can range from only a few thousand dollars all the way up to millions of dollars. This term length depends on the loan needs — be it simply needing enough for a smaller purchase, new locations, major expansions, or purchasing a building. In most cases, these long-term loan funds are tied to a particular purchase. Long-term loans of this type can be used in numerous business applications, including for the purchase of machinery, equipment, inventory, construction, real estate, and business expansions.
We understand that running a business isn’t easy — but you’re not alone. Here at Your FundingTree, you have a financial partner who will help you to get out ahead of the pack. With us, you can cover your operational expenses, any property improvements, new equipment costs, and much more through a business term loan. Whatever your business needs, we’re here to ensure you get them filled.
Features & Benefits:
- Competitive rates on a wide range of different business expenses, including:
- Working capital
- Facility improvements
- Loans starting at $20,000
- Customizable repayment terms
- Fixed payments monthly
MORE ABOUT TERM LOANS
A term loan is a monetary loan that has a specified repayment schedule which spreads the repayments over a set duration of time. This set duration of time usually ranges between one and ten years, and even up to twenty-five years in some cases.
DURATION OF TERM LOANS
Term loans are classified based on the length of the loans’ repayment schedule periods. There are three types of term loans:
- Short-term loan
- Medium-term loan
- Long-term loan
These various types of term loans have their unique qualities, features and benefits that are designed to suit individuals or companies and their needs. At Your FundingTree, we believe that learning more about these types of term loans will assist you in selecting the best choice to meet your requirements, depending on your business’s circumstances.
TYPES OF SHORT-TERM LOANS
The repayment schedule periods for short-term loans vary, and typically range from three months to twelve months. Here we will discuss the top five types of short-term loans:
- Invoice Financing: Invoice financing is commonly referred to as a way for a business to borrow money against the amounts of money due from its customers. This type of short-term loan is completed by way of business accounts receivables. It includes invoices that are yet unpaid by customers. The lender loans the money and charges fees, based on the whole variety of circumstances surrounding the invoices, including the length of time that invoices stay outstanding. Invoice financing assists businesses in improving cash flow, reinvesting in operations, and paying employees and suppliers, among others.
- Online or Installment Loans: Due to the advancement in technology, and the unique features of short-term loans, it is relatively easy to get term loans where everything is done online – from application to approval. It is very fast, for example, the money loaned is wired to the borrower’s bank account within minutes of the loan’s approval.
- Lines of Credit: A line of credit is a financing arrangement whereby a financial institution determines in advance, the highest loan quantity for a particular borrower. The financial institution’s decision about the borrower’s loan worthiness, is totally dependent on the borrower’s creditworthiness. Applying for a line of credit is very similar to applying for a business credit card account. Generally, a deposit restriction is set, and the commercial enterprise is able to tap into the line of credit as needed. One unique advantage of line of credits over business credit cards is the ability to decrease the annual percentage rates (APRs).
ADVANTAGES OF SHORT-TERM LOANS
- Lower interest expenses: The total interest paid on a short-term loan tends to be low, because the term of the loan is brief.
- Quick funding: It’s quick and easy for the lender that is underwriting the loan, to process the loan. This is because: 1) short-term loans are less risky when compared to other types of loans; and 2) the maturity date is relatively brief – one year or less.
- Easy to acquire: For small businesses with less than stellar credit scores, short-term loans are like lifesavers. The requirements of short-term loans are easy to meet. This makes these types of loans easy to acquire.
TYPES OF MEDIUM-TERM LOANS
The standard medium-term loan repayment schedule typically ranges between two and five years. We will be discussing three major types of medium-term loans:
- Asset-Based Lending: This type of term loan is always secured by an asset. We can define it as the business of loaning money via an agreement that is secured by the borrower’s collateral. Good examples of collateral offered in exchange for a medium-term loan are: real estate, inventory, accounts receivable, equipment, etc.
- Equipment Financing: This type of term loan is specifically and uniquely made for small business owners that are finding it difficult to successfully obtain necessary equipment. It can only be used to finance a physical asset. It is the use of a loan to purchase or borrow equipment for a business.
- Unsecured Business Loan: This business funding solution requires no personal or business asset as collateral. It only requires that the borrower present a detailed cash flow analysis, which will indicate the borrower’s capability to make regular monthly payments (including interest) during the stipulated loan period.
ADVANTAGES OF MEDIUM-TERM LOANS
- Repayment rate is predetermined: The terms and conditions of this type of loan are fixed. You will know in advance, how much the monthly payment will be each month, so that you can budget for it in advance.
- Credit score upgraded: Borrowing a medium-term loan and making timely payments on the loan every month, will help you improve your credit score. Before you can apply for a medium-term loan, you must have a credit score of at least 600. You can consider a medium-term loan, a steppingstone to a long-term loan.
- Purpose flexibility: With a medium-term loan, you are not bound by any requirement to use the credit only for specific areas such as leasing, equipment buying, inventory purchases, or renovations. You can use medium-term loans for any purpose you wish.
- Longer repay period: The medium-term loan repayment term always requires a longer period of time than short-term loans do.
- Fixed terms and conditions: Your FundingTree can help you make wise decisions about the loan length, interest rate, and repayment amount. These decisions can be fixed in a written agreement.
TYPES OF LONG-TERM LOANS
The repayment schedule for a long-term loan typically ranges from five years to twenty-five years. Here’s the most popular type of long-term loan:
Small Business Administration Loan: A Small Business Administration Loan is a business loan that is guaranteed by the Small Business Administration to help a business owner or principal start, buy or expand a business. The borrower must be able to demonstrate excellent personal credit, strong business financials, and provide adequate collateral, in order for the borrower to qualify for the SBA loan.
ADVANTAGES OF LONG-TERM LOANS:
- Cash flow: Long-term loans give room for flexibility of an investor’s limited capital by allowing for its distribution over different investments and reducing the current impact on operational cash flow.
- Lower interest rates: Lenders usually offer the lowest interest rates on long-term loans, because the term is so long that the total interest paid is larger, than for short-term loans or medium-term loans.
- Minimize investor interference: Long-term loans help you minimize investor interference by allowing you to finance potential investments without the need for angel investors or venture capitalists. With long-term loans, you will still maintain and control your company.
- Build credit: A long-term loan is just like a commercial loan because of the two types of collateral that the lender asks for. A long-term loan is designed to meet all the payment capabilities of the borrower, regardless of any emergency events. Every business owner must strive to build his or her business’s credit by making regular on-time payments on long-term loans.
Which of these term loans should you go for?
There are certain types of term loans that are a perfect fit for certain types of businesses. Here are some examples:
Seasonal companies and construction businesses do well with short-term loans. This is because of the cyclical nature of these markets and the need for crucial supplies, in order to keep these businesses running smoothly.
Export and import businesses are often advised to go for this type of term loan because they endure economic or political uncertainty and frequently need money to pull themselves through dips in the ever-changing world markets.
Business acquisitions, commercial real estate purchases, commercial real estate refinancing, and construction loans are types of business transactions that benefit from commercial loans and long-term loans. These types of businesses and transactions are less seasonal and less global than the businesses that benefit from loans with shorter terms.
How do you decide which term loan is best for you?
Are you in the process of selecting the best term loan to suit your needs? If so, you should consider the answers to the following questions before coming to a conclusion:
- How much funding is needed, and how often?
- How fast do you need funding?
- What is your credit score and history?
- How quickly will you be able to pay off the loan?
When choosing a term loan type, it’s wise to reach out to an experienced firm like Your FundingTree. We want to learn about the nature of your business, and how we can best help you secure the type of loan that’s right for you and your business.