What Is a Term Loan?
A term loan is a form of lending that is issued in one lump sum and is repaid in fixed installments, plus interest and other fees. Term loans can be as small as $1,000 or range into the millions.
How Do Term Loans Work?
Through a term loan, borrowers can access a single payment to fund their project. Once they receive the funds, they will repay the loan in fixed monthly, weekly or even daily payments. Each term loan comes with a set interest rate, which can range from as little as 7%, or as high as 99%, or more.
Types of Term Loans
There are regular term loans, as well as short term loans and Small Business Administration (SBA) loans. A regular term loan often comes with a repayment period of one to 10 years, whereas borrowers will repay their short term loans within anywhere from a few weeks to a few months. If you’re a highly qualified borrower and business owner, you might also want to consider applying for an SBA loan.
The SBA offers some of the lowest rates in the industry, as well as the most flexible repayment periods and highest loan amounts.
» MORE: Compare Types of Business Loans
When To Use Term Loans
Because many online lenders offer term loans that fund within as little as one business day, this form of financing is ideal for funding emergency or urgent expenses. Additionally, a term loan can be used to make major equipment, supply or vehicle purchases, fund large-scale renovations, or make a one-time utility payment.
Term Loan Pros:
- Usually quick to fund
- Many are offered online, through lenders
- Access to large amounts of money to fund a wide variety of business needs
- Repayments can help build business credit
- Potential for looser eligibility requirements than with traditional banks
Term Loan Cons:
- Short repayment terms may end up being more expensive in the long run if payments cannot be made in full and on time
- Less flexible form of funding than a line of credit
- Regardless of revenue, the repayment remains fixed, so even if a business has not made a large amount of money within a certain period, the payment still has to be made
- Potential UCC-1 lien, personal guarantee or collateral requirement
Best Business Term Loans for Lower Credit
Lendio
Borrowers can access up to $2 million through Lendio’s service. Their loans come with APRs ranging between 5% and 50%, and applicants should have personal credit scores above 550 to qualify.
OnDeck
OnDeck offers loans ranging between $5,000 and $500,000, with APRs starting at 16.7% with a maximum of 99.6%. Their minimum credit score requirement is just 500, so this lender can be worth looking into if you need fast cash and your credit falls short of some of its competitors’ requirements.
» MORE: OnDeck Poor Credit Business Loans
Currency Capital
Currency Capital offers equipment financing loans of up to $2 million, with APRs ranging between 6% and 24%. With some of the lowest rates in the industry, Currency is also fairly easy to qualify for, as they only require a personal credit score of 585 or above.
» MORE: Currency Capital Poor Credit Loans
Kabbage
Kabbage offers business loans with amounts ranging between $2,000 and $250,000, and APRs starting at 24% with a maximum of 99%. Their loan terms come in periods of six, 12 or 18 months, and their minimum credit score is just 560. If you need immediate access to cash, some of their loans can fund within as little as a few minutes.
» MORE: Kabbage Poor Credit Business Loans
LendingExpress
LendingExpress takes a holistic approach to its application evaluation process, and has no minimum credit score requirement. This loan marketplace connects borrowers to products ranging between $5,000 and $500,000, with repayment terms ranging between three months and 10 years.
QuarterSpot
Borrowers can access up to $250,000 through QuarterSpot, with APRs ranging between 30% and 70%. To qualify with this lender, you should have a credit score above 550 and an annual revenue of $200,000 or more.
» MORE: QuarterSpot Poor Credit Business Loans
Best Business Term Loans for Good Credit
Credibility Capital
Credibility Capital offers loans ranging between $5,000 and $400,000, with APRs starting at just 10%. To qualify, you should have a credit score above 680 and an annual revenue of $250,000 or more.
» MORE: Credibility Capital Good Credit Business Loans
SmartBiz
SmartBiz offers Small Business Administration (SBA) loans ranging between $30,000 and $350,000, with APRs starting at 9.7%, with a maximum of 11.04%. To qualify, borrowers should be able to meet all of the SBA requirements, as well as the requirements of SmartBiz. Applicants should have credit scores above 650, as well as at least two years in business.
» MORE: SmartBiz SBA Loans
FundingCircle
Funding Circle offers loans ranging between $25,000 and $500,000 to borrowers who have more than two years in business and personal credit scores above 620. This lender’s interest rates are comparable to the low rates that are offered through SBA loans, with APRs starting at just 4.99%.
» MORE: FundingCircle Business Loans For Fair Credit
StreetShares
Borrowers with personal credit scores above 600 can access loans of up to $150,000 through Street Shares. Their annual percentage rates range between 9% and 40%, and are ideal for veterans and newer businesses.
» MORE: StreetShares Business Loans Review
LendingClub
LendingClub offers loans ranging between $5,000 and $300,000, with rates starting at 9.8%. To qualify with this lender, you should have a credit score above 600, at least $50,000 in annual revenue, and more than a year in business.
» MORE: LendingClub Business Loans Review
Conclusion
Term loans can help small businesses fund a wide variety of needs and give them access to large amounts of cash. If borrowed through an online lender, these loans can also often be made available within just a few business days so can be helpful to borrowers who need to fund immediate needs. No matter what your financial qualifications look like, make sure to carefully evaluate and compare the aspects of multiple offers and lenders before making a final decision on the loan that can help your business thrive.
