What is a term loan?



  • In the case of urgent loans, you receive a lump sum payment.
  • These loans can be used for personal and business expenses.
  • Term loans are an excellent option for both short-term and long-term financing.
  • This article is for business owners who want to know if term loans are the right financing option for their business.

As a business owner, you know how important it is to invest in new growth opportunities. But you don’t always have the cash for such an investment. In this case, small business financing can be a lifesaver.

If you are looking for financing, you have probably considered getting an urgent loan. However, before undertaking this type of loan, it is important to understand what it is and how it differs from other options.

What is a term loan?

If you have ever taken out a mortgage or personal loan, then you are already familiar with how a term loan works. This is a one-time down payment that you receive from your bank, credit union, or online lender.

The lender provides the funds, and you pay off the loan with interest over several months or years. The interest rate can be fixed or variable and is usually lower than rates for other types of financing.

Term loans can be used for both personal and business expenses. Many business owners apply for an urgent loan to finance a one-off project or as a vehicle to achieve long-term business growth. [In need of a small business lender? Check out what we recommend as the best loan options for small businesses.]

How do term loans work?

You apply for an urgent loan through a bank, credit union or online lender. Banks and credit unions tend to offer the best rates, but they have more stringent requirements and may find it more difficult to qualify.

In comparison, an online lender may have higher rates, but the application process is simpler and you will often get faster approval and funding. And if you choose to apply through the lending marketplace, you will only submit your application once and receive offers from multiple lenders.

TipTip: When choosing a lender, consider how quickly you will need the money. If you need it quickly, an online lender that offers same day financing may be your best bet. However, be prepared to pay higher rates than a traditional bank.

As soon as you chose a business lender and has been approved for the loan, you must agree to the rates and terms of repayment. The rates you receive will depend on various factors, including your personal and business credit history, cash flowand time in business.

A business loan usually has a maturity of three to 10 years. If you get a loan with a fixed rate, your interest rate will remain the same for the entire term of the loan. In the case of a variable interest rate loan, your rate will change periodically.

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What is an example of an urgent loan?

There are two main types of term loans: short-term and long-term loans. The type of loan you apply for will depend on your business and your financial needs.

BUT Small Business Administration (SBA) a loan is a good example of a term loan. If you apply for a 7 (a) Standard Loan from the SBA, you can get up to $ 5 million in funding. Your lender will determine your rates, but they cannot exceed the SBA’s maximum rate.

Of course, not all businesses need this kind of funding, which is why the SBA also offers 7 (a) small loans. The maximum amount of these loans is $ 350,000. SBA credits always have fixed rates and a fixed maturity.

You can use the funds from your term loan to expand your business, purchase equipment, or fund a new marketing campaign. Term loans enable cash-strapped companies to invest in new opportunities and increase their chances of generating additional income.

What are the advantages and disadvantages of term loans?

Like all financing options, term loans have both pros and cons that you should consider before deciding on how to proceed.


  • They can fund short-term funding needs. If you need to purchase new assets or equipment for your business, an urgent loan may be a good option. You can take the opportunity to expand your business, and the income generated will help you pay off the loan.
  • They tend to have lower rates. Term loans usually offer low rates and flexible repayment terms. You can pay off the loan as soon as you need it, without putting too much of a financial burden on your business.


  • They are relatively difficult to claim. Because term loans have favorable rates and repayment terms, they are usually more difficult to obtain than other loans. You need to show excellent credit history and provide detailed financial information to your lender.
  • Some lenders will require collateral. If your lender believes your business is a financial risk, they may require you to provide some kind of collateral. This is called a secured loan, and if you cannot repay it, your personal or business assets will be at risk.
  • They may charge additional fees. Some lenders charge additional costs for term loans, such as loan origination fees. Depending on the lender, you may even get a prepayment penalty if you pay off the loan early.

Did you know?Did you know? The interest rate is not the only commission you can charge for a loan. Processing, processing and prepayment fees are all possible fees that you should take into account in the total cost of the loan.

Types of term loans

If you decide you want a loan for a term, you can apply for a short, medium or long term loan.

Short-term loans

These are loans that you can borrow for smaller amounts with shorter maturities – usually one or two years.

Short term loans are good for covering day to day working capital expenses. However, since these loans are more convenient and easier to apply, you can look forward to higher rates.

Medium-term loans

Medium-term loans are the golden mean between short-term and long-term loans. The maturity is usually two to five years and you can get up to $ 500,000.

These loans are a good option for businesses looking to open up a new location or hire more people. This type of funding can help you grow your business and start generating more income.

Long-term loans

Long term loans offer the highest amounts and the longest maturities. You can get funding in the millions of dollars, and the repayment period can be up to 25 years.

A long-term loan is a good option for a well-established business with an excellent credit history and solid financial reputation. You may want to consider one option for financing long term growth strategies for your business.

Key findingsKey takeaways: There are short-term, medium-term and long-term loans. Each type depends on how much money you can get and how long you owe it back.

When to consider a term loan

If you are considering small business financingyou have many options to consider. So how do you know if a term loan is the right choice for your business as opposed to, say, a revolving line of credit?

In general, a term loan is a good choice for a short term project or expense. For example, if you need to purchase inventory or invest in a marketing campaign, an urgent loan can help you cover those costs.

Term loans are best suited for established businesses with a proven financial track record. If you have a bad credit history or limited business experience, getting an urgent loan can be too difficult.

Finally, term loans are best for businesses that don’t need money immediately. Applying for an urgent loan can take time, especially if you want to take advantage of the low rates at a bank or credit union. So, if you need quick access to cash, an urgent loan may not be the best option.

How to apply for an urgent loan

Here are the steps you need to take when applying for an urgent loan:

1. Get your documents in order.

It is recommended that you tidy up your financial statements before applying for a loan. The exact requirements differ depending on the lender, but here’s a quick overview of the information you can expect:

2. Apply to multiple lenders.

When you apply for an urgent loan, you should always keep in mind the total cost of the loan. If interest rates are prohibitively high and you do not receive much additional income from your investments, you may end up in a loan upside down. It is a good idea to apply with multiple lenders so that you can compare rates and repayment terms to find the most affordable loan for your business.

Many lenders pre-approve a loan through a simple loan request, so you don’t have to worry about it hurting your credit score. You can also apply through the lending marketplace and get multiple offers with just one application.

3. Compare your suggestions.

Once you have received offers from multiple lenders, rate each one. It may be tempting to go to the lender that offers you the highest loan amount, but there are a few other things to consider.

Pay close attention to the Annual Percentage Rate (APR), which will help you determine how much the borrowed money will cost you. You should also familiarize yourself with the repayment terms as this will significantly affect your ability to repay the loan.

It’s also important to pay close attention to any fees the lender charges. If the loan has a low rate and flexible repayment terms, it is easy to overlook the fees, but they can add thousands of dollars to the value over the life of the loan. Here are some significant fees to look out for:

  • Registration fee: The loan disbursement fee is the amount you will pay the lender upfront to process the loan. The commission is from 1% to 5% of the total loan amount.
  • Penalty for prepayment: If you repay the loan ahead of schedule, the lender loses future interest payments, which is why some lenders charge a penalty for this.
  • Late penalty: As with most monthly expenses, you will be charged an additional late monthly payment fee.
  • One-time commission: The processing fee covers the cost of underwriting the loan.

4. Close the loan.

Once you have selected a lender and agreed to the terms and conditions, you are ready to close the loan and receive funds. Depending on the lender, you may receive funds within a day or two after the close of the deal.


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