4 Things You Need To Know About Term Loans

If you’re a successful business owner, you probably will be making financial decisions having to do with borrowing money as you start to scale. There are many alternatives to choose from, each with advantages and disadvantages. One solid option for financing is a term loan. It’s a time-honored way to infuse much-needed cash into your enterprise. Here are a few key things to know about term loans and how to obtain them. 

1. What Are They?

A term loan is a basic, standard type of commercial loan. Term loans are usually used to finance a major business acquisition or investment. They almost always have fixed interest rates, with a predetermined maturity date and quarterly or monthly repayment schedules. They can either be long- or intermediate-term. Term loans are a strong option for well-established small businesses, and require collateral and an extensive approval process. 

2. How Do You Get Them?

While major banks actively lend to small businesses, don’t discount local community banks. They may give you more flexibility in the approval process. Check around in your business community to get recommendations. Establish a relationship with your preferred bank and build trust before you approach them for a loan.

3. What About SBA Loans?

They’re a good option, too. You will probably be able to secure better terms through the SBA (Small Business Administration), and you’ll get plenty of support in the process. It might be the best choice if you want some general advice for growing your company. SBA loans are for all types of businesses, not just the ones that are unable to get funding in other ways.

4. What Are Banks Looking For?

When it comes to term loans, banks look for four main things. The first is credit: The bank will go through a full analysis of your credit, including personal finances and your business’s financial statements. The second is character, or your level of business experience and how well you’ve managed other loans. The third is collateral, or your main source of repayment. Its value needs to be larger than the amount you want to borrow. The fourth is capital — what assets you have that might be an alternate source of repayment should you default on your loan. The fifth is your business plan. Is it thorough, complete, and realistic? 

Term loans are a strong option for business financing. Keep these points in mind as you choose.