Also known as: business term loan, installment loan
A term loan is a lump sum of capital a business borrows and repays over a fixed period — the term — through regular scheduled payments of principal and interest. It is the most traditional form of business financing, priced with an interest rate or APR rather than a factor rate, and is best suited to a one-time, defined purpose like buying equipment, funding an expansion, or refinancing costlier debt. Terms commonly run from one to several years.
You receive the full amount up front and repay it on a set schedule — monthly, weekly, or sometimes daily — until the balance and interest are paid off. Because interest accrues on the outstanding balance, paying ahead of schedule generally reduces total cost. Approval and pricing depend on credit, revenue, time in business, and often collateral; stronger profiles earn lower rates and longer terms, while higher-risk borrowers pay more or pledge assets.
A term loan differs from a line of credit (reusable, draw-as-needed) and from a merchant cash advance (a factor-rate purchase of future revenue, repaid as a share of sales). The term loan's strength is predictability: a fixed amount, a fixed schedule, and a clear payoff date, which makes it the right tool for a known, sized investment rather than for smoothing day-to-day cash flow.
Term loans are the backbone of business lending and the benchmark every other product is compared against on cost and structure. Understanding how they price and amortize is essential for anyone weighing financing options or placing deals.
A term loan is a lump sum a business borrows and repays over a fixed period with regular payments of principal and interest. It's the traditional, predictable financing structure best suited to a one-time, defined purchase like equipment or an expansion.
A term loan is a single lump sum repaid on a fixed schedule — best for a known purchase. A line of credit is a reusable limit you draw from as needed, paying interest only on what you use — best for ongoing or unpredictable needs.
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