Business term loans

What is a business term loan?

A term loan gives you the full amount up front, and you pay it back in fixed payments until it is gone. The rate can be fixed or variable, and the payment covers both interest and principal, so the balance falls every month. Banks, credit unions, SBA lenders and online lenders all offer them, and the same loan can cost 8% at a bank and 25% online.

It is the simplest product to understand, which is why owners ask for one even when a line of credit would fit better. If you do not know the exact amount you need, read loan versus line of credit first.

Who qualifies for a term loan?

Banks typically want two or more years in business, an owner credit score of 680 or higher, and cash flow that covers the new payment with room to spare, usually a DSCR of 1.25 or more. Online lenders are looser: one year in business, a 600 score and about $10,000 a month in deposits is a common bar, in exchange for a shorter term and a higher rate.

• Under one year in business: most term lenders decline. See financing under one year.
• Credit under 600: expect declines from banks and short terms online. Bad credit options explains what still works.
• Recent overdrafts, tax liens or a loss on last year's return are the most common reasons an otherwise healthy business is turned down.

What does a term loan really cost?

The rate is only part of it. Most lenders also charge an origination fee of 1% to 5%, taken out of the funds before they reach you, and some online lenders charge the full interest even if you pay off early.

A typical example: you borrow $100,000 over five years at 12% APR with a 3% origination fee. You receive $97,000. The payment is about $2,224 a month, and you pay roughly $33,500 in interest over the five years, plus the $3,000 fee. The same loan at a bank at 8% costs about $2,028 a month and roughly $21,700 in interest. Run your own numbers in the business loan calculator.

How do you qualify, and what documents do you need?

Lenders want to see that the business can carry the payment. For a bank, that means two years of business tax returns, year to date financial statements, three to six months of bank statements, a debt schedule and a personal financial statement for every owner with 20% or more. Online lenders usually need only three to six months of bank statements and a tax return for larger amounts.

Before you apply, pull the full list from our document checklist, check your business credit score, and resolve any open tax balances. A clean, complete file is the single biggest thing you control.

How long does a term loan take?

Online lenders typically decide in one to three days and fund within a week. Banks and credit unions typically take two to eight weeks, longer if real estate is involved or the committee meets monthly. SBA backed term loans run 30 to 90 days.

The slow part is almost always documents, not the lender. Missing statements, an unsigned return or an unexplained large deposit each add days. Our guide to how long a business loan takes breaks the timeline down by lender type.

When should you choose something else?

Choose a line of credit if the need is recurring or the amount is uncertain, because you only pay interest on what you draw. Choose an SBA 7(a) loan if you can wait 60 to 90 days and want a longer term and a lower rate on a larger amount. Choose equipment financing if the purchase is a machine or vehicle, since the asset itself secures the loan and approval is easier.

Avoid a term loan when you are using it to cover losses. A fixed payment on a business that is shrinking is how owners end up stacking short term loans a year later.

How do you apply for a term loan?

Apply once on this site and your application reaches term lenders, banks and SBA lenders that fit your profile, along with every other category that matches. It is free for your business, and we are paid the same whichever lender you choose. If you would rather not fill forms, ask your AI assistant to apply for you through our MCP server: it can read your statements and returns, complete the application and submit it. Offers come back to one place either way.