In business loans, the word “terms” refers to the period you have to repay the borrowed debt. Usually, the business loan terms can be as quick as a few weeks or stretch from two to twenty-five years. A term loan is suitable for a standard and well-established business with some solid financial statements. Business owners want to know the company “terminology” to better understand loan terms before signing a loan agreement.
What is meant by the Loan Repayment Term?
A loan repayment term is a duration in which a borrower has to pay back all the loans. These business term loans vary depending on the Lender, business requirements, and financing type.
Understanding of Term Loans
If you want to expand your business operations and need to take a debt on, but you don’t want loan payments to consume your cash flow, then a personal term business loan is a wise choice.
A term loan is for the expansion of your business or working capital. You can quickly repay all the loans in installments. Generally, a small business uses the cash from the term loan to purchase solid assets or its production process. Many banks and online lenders have established term loans to help the companies.
The term loan has a variable or a fixed interest rate, depending on the benchmark rate. A benchmark rate is a monthly or quarterly repayment plan with a specified date. If the loan income is used to buy an asset, that asset can affect the repayment schedule. This loan demands collateral and diligent approval. This is the risk if a borrower fails to pay all the money. Interestingly, there are no penalties on the term loans if they are ahead of schedule.
Categories of term-loans
Term loans come in different varieties, but they usually depend on the timespan of the repayment.
Short-term loan:
A short-term loan offers small loan amounts and a lower cost of capital. This loan is for those businesses that don’t qualify for a line of credit and don’t get approval for a long-term loan. It usually expands in less than a year and can go to eighteen months.
Mid-term loan:
The span period of the middle-term loan is more than one year but less than three years. This loan is paid back in affordable monthly installments
Long-term business loan:
The duration of this loan is from two to twenty-five years. It requires monthly installments and uses company assets as collateral. This loan limits the other financial commitments the business takes on, and they also require an amount of profit set for the repayment of the loan.
Small Business Administration loans:
SBA is the small business administration. SBA offers several loan programs to assist small business owners. These loans are the most affordable business loans in the market. The most popular SBA loans provide a variety of options for long and short-term loans. The time of repayment of these loans depends on the program you choose.
A business line of credit:
Business lines of credit can either be short, medium, or long-term business loans. The duration of a business line of credit is from six to five years. These are the best options for businesses that want the flexibility to access funding regularly.
Invoice Financing:
It is a short-term solution for various businesses. Invoice financing allows businesses to approach funding by their outstanding invoices. Business loans depend on how long a customer takes to fulfill the invoice. Most companies accept those invoices that have a duration of three to six weeks.
Equipment Financing:
This type of financing is acquired with the purchasing of equipment. Standard business loan terms are longer for this funding option. There is less risk with equipment funding because of built-in collateral. For this reason, the Lender offers a repayment plan that lasts one to five years. You can access this financing through alternative lenders.
Merchant Cash Advance:
A merchant cash advance is when the borrower makes the loan payments and allows the Lender to access his credit facility. When a borrower purchases something, the Lender takes a certain amount of the proceeds. The borrower has to pay through a daily percentage of business card income. Merchant cash advance companies claim the daily rate until the business’s total debt is fully repaid.
How much can you borrow?
The amount of capital you borrow depends on different factors, such as the loan term, credit history, and financial statements. If your business has strong credentials, your business loan will be flexible and have a high funding amount.
The more high and strong your credit history, you can qualify for more favorable business loan terms. But sometimes, some business loans are better for specific projects. For instance, capital-intensive initiatives require long-term business loan terms best suited for an SBA loan.
Quick wrap-up!
Finding the correct business loan term is not an easy task because it is securing the money that you’re growing business needs. That is why BitX funding makes small business loan terms simpler and more accessible for the borrower. If you need quick cash or long-term loans, BitX funding will help you and provide you with the right financing option.
