There are numerous business loan terms to choose from when you are seeking financing. You can choose between a short-term loan or a long-term loan, the length of the repayment can be either a few months or last over 20 years. Depending on the situation your business is in and what your business needs are, you need to determine which type will best suit your business. Read on to learn more about the most common business loan types and terms.
Some common business bank loans that you might be interested in seeking are:
Each of these loans have different terms which we will dive into next.
SBA loans are government-backed loans and they are the most affordable and accessible business loans out there. They also offer the longest terms on the market with the following repayment term lengths:
Term loans can be short, medium, or long-term. These have fixed interest rates and either monthly or quarterly repayment schedules and a set date. If you are a small business, this could be the best option for you especially if you are using the funds for construction, capital improvements, and more. However, it is important to note that term loans have a rigorous approval process and require collateral, so it is important to be okay with this at first before deciding to move forward with the term loan. The term loans have a repayment period of one to five years.
Short-term loans are meant to be repaid in 3-18 months. These offer quick funding, small loan amounts, and a lower cost of capital.
Equipment loans have a repayment period of 1 to 5 years. With equipment financing, the equipment financing is secured by the equipment. This is less risky for lenders, so they offer repayment terms up to only 5 years. You can get equipment financing through conventional and alternative lenders.
The repayment terms for a business line of credit varies by lender. With a conventional bank you can get longer terms of up to 5 years. With alternative online lenders, you might get terms of 6 months up to 2 years.
Invoice financing is a short-term funding option designed to provide you an advance of funds to help you while you wait for your customers pay for their accounts receivable. Repayments are typically completed in less than 3 months.
Microloans are valued at $50,000 or less and you can pay it back in 6 years or less. Many microloans can be paid off in less than a year and the average term is 40 months. Microloans can be used for working capital, inventory, equipment, or other business projects.
In order to improve your chances of qualifying for a term loan, banks consider the following:
If you plan to go through a conventional bank for a business loan, you will need to meet the following:
Repayment terms for business loans can range from a several months to a few years. By now you should be familiar with the types of loans available and their repayment terms and determine which might be a good fit for you. It is recommended that you determine the loan amount you will need and the repayment period you are comfortable with.