When most people picture a business loan, they’re thinking of a term loan. You borrow a fixed amount, pay it back over a set period with interest, and that’s it. Simple in concept — but the details matter enormously when your cash flow and credit are on the line.
What Is a Business Term Loan?
A term loan is a lump-sum advance from a lender that you repay in regular installments — usually monthly — over a defined repayment period. Terms typically range from one year to ten years, though some real estate-backed loans stretch to 25 years. Interest rates can be fixed or variable. Compare small business term loan lenders, rates, and approval requirements here.
There are two primary categories:
Short-term loans (3–18 months): Faster to obtain, higher interest rates, usually used for working capital or urgent needs. Repayments may be weekly or even daily with some online lenders. Long-term loans (2–10+ years): Lower rates, more stringent qualification requirements, better for large investments like equipment, real estate, or significant expansion.
What Do Term Loans Cost?
Interest rates on term loans vary widely based on lender type, your credit profile, and loan purpose:
- Bank term loans: 6%–13% APR for well-qualified borrowers
- SBA loans (bank-backed): 10.5%–16.5% variable, but with favorable terms
- Online lender term loans: 15%–45% APR depending on risk profile
- Short-term loans: Effective APRs can exceed 80% when fees are annualized
Always ask for the APR — not just the “factor rate” or flat fee — so you can compare apples to apples. Use our free loan calculator to convert factor rates to effective APR and compare total repayment cost across different term lengths and lender types before you apply.
Who Qualifies?
Lender requirements vary, but typical minimum thresholds for traditional term loans include:
- Credit score: 650+ for bank loans; 580–620 for online lenders
- Time in business: 2+ years for banks; 6–12 months for online lenders
- Annual revenue: $100,000–$250,000 minimum, depending on loan size
Startup businesses with less than a year of operating history will find term loans from banks nearly impossible to obtain and will likely need to look at SBA microloan programs or alternative lenders. Read our guide on how your credit score affects business loan approval to understand exactly what you can qualify for at each credit tier.
When a Term Loan Makes Sense
Term loans are ideal when:
- You need a large, one-time capital investment (equipment, renovation, acquisition)
- You have predictable monthly revenue to service regular payments
- You want to build business credit with a structured repayment history
- You’re refinancing existing higher-rate debt at a lower rate
They are not the right tool for businesses with irregular cash flow, those needing revolving access to capital, or owners who need funds within 24–48 hours. For those situations, a business line of credit or a working capital loan is the more appropriate product.
How to Apply
- Check your credit: Pull both personal and business credit reports. Dispute any errors before applying.
- Gather documents: Tax returns (2 years), bank statements (3–6 months), P&L statements, and business licenses.
- Know your number: Borrow what you need — no more. Lenders view overborrowing as a risk signal.
- Compare at least three lenders: Banks, credit unions, and one online lender to benchmark rates.
- Read the fine print: Check for prepayment penalties, origination fees, and balloon payments.
Term loans remain one of the most cost-effective ways to fund business growth when you qualify for them. The key is entering the process prepared.
Frequently Asked Questions
What are the main types of business loans available?
The main types are term loans, lines of credit, SBA loans, equipment financing, invoice financing, and merchant cash advances. Each serves a different need — the right choice depends on your use of funds, timeline, and business profile.
What is the difference between a term loan and a line of credit?
A term loan is a one-time lump sum repaid on a fixed schedule. A line of credit revolves — draw, repay, draw again. Term loans suit specific investments; lines of credit suit recurring gaps or unpredictable needs.
How do I choose between a fast online loan and a traditional bank loan?
Online lenders fund in one to three days, accept lower credit scores, but charge higher rates. Banks offer lower rates but take weeks and reject more applicants. Qualify for a bank loan? Take it. Need speed or do not qualify? Go online.
What is a secured vs unsecured business loan?
Secured loans are backed by collateral and offer lower rates and higher amounts. Unsecured loans need no collateral but require a personal guarantee. Most fast online loans are technically unsecured but still include a personal guarantee.
What is the easiest type of business loan to get approved for?
MCAs are the most accessible — approval is based on revenue and card volume with no credit score minimum. Revenue-based lenders like Fundivi and Credibly are similarly open. Both carry higher costs than selective products.
Can I have multiple business loans at the same time?
Yes. An equipment loan alongside a line of credit is common. Lenders evaluate your total debt load, so multiple obligations reduce your approval odds. Stacking high-cost products like MCAs is particularly risky.
How do I know if I am getting a fair rate on a business loan?
Always ask for the APR so you can compare across products on the same basis. SBA and bank loans: 7 to 15%. Online term loans: 15 to 45%. MCAs: often 50 to 200% or higher when annualised. A lender reluctant to share the APR is a warning sign.
