Whether you are dreaming about owning a small business or if you have already started making that dream a reality, you have likely dreamed (or maybe had nightmares!) about financing. Learn Benefits of Medium-Term Loans
As a savvy business owner, you may even have researched the seemingly endless types of business loans out there. A traditional type of business loan you may have come across is the “term loan.”
Term loans are an excellent option for small businesses. Looking for a traditional loan with a set repayment time frame and payments. The type of term loan you can receive will vary based on credit rating, cash flow, and many other factors.
While definitions vary, a Mid-term loan is generally a loan with a payback period of about 1-5 years. Let’s look at a medium-term loan example.
A Medium-Term Loan Example
Maria of Maria’s Deli wants to purchase new kitchen equipment, including a new meat slicer, meat grinder, and refrigeration unit. All the upgrades to her kitchen will cost her approximately $15,000. Maria applied for and received a medium-term loan with a 9% interest rate and a 3% origination fee. Maria will need to pay the loan off in four years, so her monthly payment will be $373.28. The cost of the loan or interest is $3,367.23 unless Maria pays off the loan early.
Because of the flexibility and the ease of regular set payments, Medium term loans are the most popular type for small businesses. You may need collateral to receive the loan if you have bad credit. You may lose collateral if you don’t meet your responsibilities in paying back the loan. Also, talk with your financial institution about any penalties or fees associated with the loan.
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Medium Term Loan
A medium-term loan is a simple interest business loan with a low rate and flexible terms, ranging from one to five years, with no prepayment penalties. No need for collateral for a medium-term loan, but you need a personal guarantee.
What is a medium-term loan?
Some businesses require demand financing with a longer term. Maybe you’re looking to remodel or expand. Possibly you have an opportunity to buy out a competitor. A medium-term loan will enable you to get the capital required for your growth project and take up to five years to repay. A medium-term loan offers low rates and flexible terms and often does not require collateral.
How can I get a medium-term loan?
BitX Funding has made it faster and easier for small businesses to get a Mid-Term Loan. You can request from $20,000 to $500,000, with repayment terms of one to five years. The rates on a medium-term loan are based partly on your credit rate, so be sure you have a strong credit history of presenting. A medium-term loan is repaid through fixed weekly, bi-weekly, or monthly payments, which can help clarify your cash flow.
How can I use a medium-term loan?
You have great flexibility in how you use a medium-term loan. If you opt for a shorter term, it can be helpful for working capital, new inventory, and general cash flow needs. If you take financing for a full term, it can be used for a wide range of growth and expansion purposes.
Let’s take a look at some advantages and drawbacks of medium-term loans.
Benefits of Medium-Term Loans
Set Monthly Fees — Regular fees can be significant for businesses trying to budget fixed costs.
Fixed Interest Rates — A set interest rate on a loan helps a business owner know precisely what that loan is costing them.
Improved Credit Score — Receiving and successfully paying off a term loan will improve an owner’s credit score. As they move forward with their business, they will be more likely to get additional loans.
Many Uses Covered — Term loans can be used for various business purposes and, therefore, can be a business’s best friend.
Drawbacks of Medium-Term Loans
Longer Application Process — Because a term loan is an excellent resource for business owners, there are a lot of hoops to jump through to get one. The application process can be tedious.
Inflexible — The interest rates and other terms can be less flexible if you don’t have great credit or cash flow. They may also require collateral.
Penalties — Term loans can also have penalties, so be sure to speak with your lender to know all your obligations.
As a small business, you may find that term loans like medium-term loans are a great option when it comes time for expansion. Remember that your credit score will favour heavily in your loan terms. Talk about your options with your lender to ensure you get the best deal.
Have you ever applied for a medium-term loan? How was the application process? Would you recommend this type of loan over another to other entrepreneurs? Tell us in the comments.
BitX Funding is an online marketplace for small business owners looking to fund a project. We specialize in connecting small business owners with lenders who will compete for your business. We believe small business owners drive the economy and are passionate about helping your company reach its full potential.