Every business at some point will likely need additional funds to operate and grow. Term loans are the frequently used go-to solutions for funds.
What are Term Loans
Term loans are loans that provide borrowers with an upfront payment of cash. These loans are usually granted to established businesses that have sound financial statements. The borrowed amount is paid back according to an agreed-upon schedule with payments typically made each month including the contracted interest.
There are several types of term loans. Short-term loans generally run less than a year, although they can extend up to 18 months. Intermediate-term loans generally run from one to three years. And long-term loans can run from three to 25 years. Each type will carry either a fixed or variable interest rate.
Term loans are offered by banks, credit unions, and online lenders.
How Can Term Loans be Used
Term loans are acquired to be used to acquire working capital, purchase equipment or inventory, hire additional employees, purchase real estate, expand to a new location, renovate an existing location, or refinance existing debt to secure better debt payment terms.
Advantages and Disadvantages of Term Loans
• Loans can provide the means to secure additional income.
• Getting a term loan with monthly payments can help a business buy more assets without exhausting cash flow.
• Businesses can borrow large amounts of money to fuel their growth.
• Longer repayment periods can make big investments more affordable.
• Making on-time loan payments can build business credit.
• There is no loss of ownership control with term loans.
• Term loans can be difficult to obtain from banks and credit unions.
• Collateral is often required.
• Banks may require variable interest rates, which can prove to be expensive.
Term Loans: How to Apply
First, evaluate your qualifications. Second, compare lenders. Third, prepare the required documentation. And fourth, complete and submit the application.
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