Updated: Sep 1, 2020
A traditional term loan is a common business funding source. There are many different types of term loans, but what distinguishes them the most is the length of the term. Depending on what you plan on using the loan for, there are three basic categories. Let's briefly summarize the basic terms and when they are typically utilized.
Short term loans typically have a repayment timeline of 3-18 months. While interest rates are usually significantly higher with a short-term loan, the approval time can be very quick, and may have less requirements for approval. Short term loans are often utilized for unforeseen business expenses, immediate assistance with cash-flow or for a time sensitive investment opportunity. Always weigh your options, you can call local money lenders near you or search on online platform like Fundera to find the best option.
Medium term loans usually have a repayment period of 2-5 years. Typically to be eligible for a medium term loan, your business should be active, producing revenue and have at least average credit. If borrowing through a bank, some sort of collateral may be required. This kind of loan is usually pretty flexible with what it can go towards and small businesses looking to grow often go this route. Banks are often a good place to start but online funding has become more popular recently and rates through online lenders are often similar to bank rates Fundera can help connect you to a great online mid term lender.
Long term loans offer potential for the lowest interest rates. A long term loan requires strong qualifications. Business history and credit play a major role in approval and startups will typically not be approved. Long term loans are often used to purchase expensive equipment, machinery, buildings or pay for renovations of buildings or property. While online funding companies can work well for small or medium term loans, long term loans are usually acquired through banks, it is recommended to start looking for a long term loan though your business's main financial institution, and then go from there, shop around and thoroughly weigh your options.
Hopefully our rapid read provided some you with some helpful information, to learn more about term loans you can visit Fundera's Term Loan Page.