A Traditional Term Loan is a monetary cash allotment borrowed from a financial institution and granted to a sole proprietor or business entity. After the terms and conditions are ironed out and the paperwork has been processed and signed, the business can begin to use the funds, if the funding is for immediate needs. The business can use this money to pay for immediate or long-term expenses, materials, or raw materials. The length of these loans are long-term, which gives you time to pay back the lender without having to dwell on payback terms. The only caveat is this long-term debt will subsequently bring down your FICO because it becomes revolving debt, and it may be more difficult to get another financing opportunity, if creditors see that a large portion of the debt is still lingering and only the minimum payment is made. Although you have a longer term and more flexible terms, keep in mind that you want to pay this off, so it will not send your FICO into a downward trajectory. Our advice is to pay it off as soon as possible, so you can focus on your next big business project. Financial institutions like to see that their money is paid back as soon as possible. In turn, the quicker you pay it back, the more trust you can gain with future prospective lenders. Once they see you can handle a certain amount of debt and still maintain your monthly revenue, they will offer you more– building trust with creditors is essential to healthy business growth. It takes money to make money– we have all heard that adage. 

Building  and maintaining relationships with financial lenders are essential, so be sure to do your due diligence and pay it back to increase the trustworthiness of your business enterprise. Once it’s paid back, you may find the marketplace has another financial opportunity for you to consider—another term loan for double the previous amount, for example.  

However, the interest rate on a Term Loan may not be fixed, but it is a common occurrence for an interest rate to be considered “floating.” A floating interest rate means the interest rate can fluctuate and/or change due to the uncertainty of the economic climate and other mitigating factors. factors. There are many advantages to a term loan, especially if a business owner needs to secure immediate capital. In order to secure immediate capital, we have other options including a financing option called an MCA (Merchant Cash Advance). For example, a hurricane has swept through your town, and there is a hole in the roof of your restaurant and you just got a new stock of food that will go bad if you do not open. However, you cannot open your doors because it’s against your health permit stipulations. We are here to help you get your roof fixed. We supply business owners with a marketplace of different financial options for alternative funding. There are options out there to fix your roof and we can supply you with the best available financial options. 

Similarly to an auto loan payment, you must process a payment every month to the financial institution in order to remain in good standing. It is important that you have to pay to the creditor diligently each month, a term loan is structured the same way– the process is the same. The consumer agrees to a number of financial terms and conditions upon a stipulated contract. The financial institution is taking a risk on you, and they assume all liabilities if the monetary allotment cannot be paid back. There are also other advantages, especially if your FICO is good to excellent, the rates are very fair. 

Common examples of term loans include: auto loans, home loans, education loans, personal loans, business loans. 

Overall advantages to a term loan:

  • Application process is simple
  • Offered cash upfront for an immediate business project 
  • Payments are fixed 
  • Interest rates are lower

Traditional Term loans have multiple options, depending upon what is best for your business: 

  1. Short term loan:
    1. Less than one year – 18 months to pay back
    2. These types of loans are eligible for business that may not qualify for a LOC
  • Intermediate-term loans:
    • 1-3 years 
    • Paid in monthly installments
    • Based on a business’s cash flow and monthly revenue
  • Long-term loans:
    • Three to 25 years
    • Payments must be made monthly or quarterly
    • Collateral is needed 
    • They financing company may indicate any other financing until the money is paid back to the creditor, such as other financial commitments, other debts, dividends, or principals’ salaries
    • The creditor may ask you to put aside funds to pay back this loan in order for loan repayment.