Term loans can sound intimidating. They are the classic types of loan taken out by small business loans. They’re flexible, and you can use them for almost anything, including working capital, buying equipment, servicing debt, etc.
Many industries realize that getting working capital is beneficial, and critical. Working capital is super beneficial and many lenders have emerged that are willing to give out business term loans. It means you have a lot of choices, which is great when you’re looking for the best possible deal.
How much can you borrow with a small business term loan?
In today’s environment, you can get a business loan for as little as 00 to millions of dollars. Most lenders cap their minimum for a small business term loan to 00-00. You’ll generally find that the maximum you can get is $25000 to $500000. You can definitely get more money if you need it as well. For example, it’s possible to get a small business term loan for up to million – but it will likely be much harder. The amount you can borrow for a business term loan depends on your business profile, and the lender’s terms. Businesses who have a high credit rating, good history of borrowing, and strong annual revenue, can borrow more than a business that has been around for only a year, and doesn’t have much revenue.
What is the speed of funding?
One of the great things about term loans is you can qualify for them faster than other types of small business loans. Online business lenders usually can process applications faster than other small business loans. You can apply in less than 1 minute, and get funded the same day. Some lenders have technology to fund you instantly. If you’re approved for a small business loan, the funds you get can be placed into your account FAST. If you apply for a term loan through a traditional bank, it will take longer than that to get your funds. You’ll usually have to apply in person or over the phone. Banks also have a considerably longer application process and underwriting process.
What documents do you need?
Term loan approvals vary from lender to lender. You’ll start by completing the application online. Each lender has different requirements; most however ask for your business credit score, proof of time in business, and basic business finance information. If you’re applying for a secured business loan, like an auto loan, or a real estate loan, you’ll need to send documents about the collateral you’re offering for the loan. Typically, when you get a small business loan.
- P/L statement
- Business bank statements
- Credit score
- Business and personal returns
- Drivers license
- Voided business check
Who can get a business term loan?
Every lender has a different set of criteria for who can get a small business loan. Generally speaking, you can get a term loan if you have the following:
- Business for over 3 years
- Credit score of 680 or higher
- Revenue of $300,000 or more
If you don’t meet these requirements, you’ll still have a chance. Many lenders have lenient requirements, and some specifically cater to business owners who have bad credit, or startups who have been in business for less than two years. Many lenders specialize in industries like lawyers, gambling, etc. If you’re a minority, you might qualify for a business loan which which comes with a lower rate, or offers longer terms.
What’s the cost of funding for a business loan?
The interest rate you pay on a small business loan is the majority of the cost associated with borrowing. You’ll get a lower interest rate if your credit, and cash flow, is strong, and you’ve been in business for several years. You’ll also get a better rate if you offer collateral to get the small business loans. Typically, business term loans have either a fixed, or variable rate. The advantage of a fixed rate business term loan is you know exactly how much you’re paying every month. There’s literally no surprises and you don’t need to worry about having to pay more if the PRIME rate changes overall.
Variable rate term loans can literally change every year, every quarter, or month. Even with a variable rate, you’ll probably have a fixed margin rate, which is added to the benchmark rate. Typically the final cost of your loan is determined by thee fees, and penalties, the lender is charging you.
Here are some of the most common fees to look out for
Origination fee: This is 3-5% of the loan, and it is very common. It covers your cost of processing the loan, and includes a full credit check. The fee can be added to the overall cost of the loan.
Late payment fees: This is usually a % or a flat dollar amount. You get charged this penalty any time the payment is late, or gets returned.
Prepayment penalties: These can vary. Some lenders will charge you a penalty if you pay back the entire loan before the end of the term.
Closing fees: These range from as little as $500 to $5000. If you’re taking out a secured business loan, you might have to pay closing costs, or other legal fees, in order to cover the cost of underwriting the business loan, or other legal expenses associated with the small business loan.
Payback: One great thing about business term loans is they come with a long repayment term. Typically, short term loans can have a range of a few weeks, to 1-2 years. Most term loans have a term of 1-7 years. Long term business loans have a term between 3 and 25 years. Usually lenders want you to make arrangements for a payment every month, but it can vary depending on who you’re working with. Some lenders let you choose between either a monthly, or biweekly, payment. If you take a short term business loans, it’s likely you’ll be making payments every week, or every day.
Apply now for a small business loan
Business Line of Credit
This article will tell you all you need to know about business lines of credit. Business lines of credit are a great alternative to getting a business loan. This gives you access to a pre-approved source of funds, which you can draw on whenever you need. You only need to repay the amount you borrow, and the rest of the funds wait – ready to be tapped when needed.
The business line of credit can be secured against collateral, or it can be unsecured. You can even get a revolving line of credit, or non-revolving LOC. The revolving line of credit lets you borrow from the line of credit as soon as you pay it back. Once you pay back the line of credit, you can take out an additional sum of money. This funding option is great because it makes sure you always have enough funding available when you need it. Some lenders will cap the number of times you can withdraw money, even for revolving lines of credit. For example, you might be able to take only 2-4 draws. Other lenders offer unlimited draws. The business line of credit is one of the most flexible funding options. There are no restrictions. You can use it for just about anything.
How much can you get: Each lender has its own minimum and maximum when it comes to how much you can borrow. Most lenders have a minimum of $1000, while others have a maximum of millions. How much you can get depends on whether you have a revolving or non-revolving line of credit.
Speed of funding: Approval for a business line of credit is very fast. It’s faster than getting a traditional business loans. Online lenders traditionally use online technology so it’s possible to get an approval in literally 5 minutes. Some banks, and even online lenders, can take weeks to process your application. The more you want to borrow, the longer the repayment term.
Required documents: Traditional banks usually ask for the same level of documentation they’d ask for a traditional term loan. Online lenders usually have a very streamlined approach. You’ll need to complete the online application, show proof of good credit, show business borrowing history, and more, in order to qualify. Many online lenders will automatically connect into your bank accounts, in order to process your application faster. Typically, most technology savvy lenders will scan your accounts to assess your business. You’ll also need to provide the following documents to get this type of small business funding:
- Drivers license / voided check
- Bank statements, P&L, Balance Sheet
- Credit history
- Business, and personal, tax returns