A term loan is the most conventional form of business financing: you borrow a fixed amount, repay it over a set period with interest, and the payment does not change.
For businesses with steady revenue and reasonable credit, it is almost always the lowest-cost option outside of SBA programs.
How amortization affects your cost
Each payment covers interest first and principal second, so early payments reduce the balance slowly. Over a longer term the monthly payment falls but total interest paid rises.
Pick the shortest term your cash flow can comfortably absorb. Stretching to a longer term for a lower payment is defensible for cash-flow safety, but recognize it as a deliberate trade, not a free one.
Typical qualification standards
- Two or more years in business
- Consistent annual revenue with documented financial statements
- Personal credit generally in the mid-600s or better for the best pricing
- Positive cash flow with a debt service coverage ratio above 1.25
- Few or no existing short-term positions
Best uses for term debt
- Acquisitions and partner buyouts
- Major expansion, build-outs or a second location
- Consolidating expensive short-term positions into one payment
- Long-lived equipment when a dedicated equipment product is unavailable
What strengthens an application
Come with two years of tax returns, a current profit-and-loss statement and balance sheet, and a specific plan describing what the money does and what it returns. Term lenders reward clarity — a defined use of funds meaningfully improves both approval odds and rate.
Frequently asked questions
- How long does a term loan take to fund?
- Typically one to three weeks through non-bank lenders and longer at a bank, compared with 24 to 72 hours for revenue-based products.
- Can I prepay a term loan?
- Usually yes, and you save the remaining interest. Check for any prepayment penalty clause first.
- Is a personal guarantee required?
- For small business term loans, almost always. Non-recourse small business debt is rare.