Key takeaways
- You get one lump sum and pay it back on a fixed schedule.
- Best for one-time investments with a clear payoff.
- Compare total cost, not just the monthly payment.
Best for
Established businesses funding a one-time project with a clear return.
How it works
You receive a single amount up front and repay it, plus interest, in regular payments over a set term. Terms can be short (months) or long (several years) depending on the lender and product.
Because payments are predictable, term loans are easy to plan around in a budget.
What lenders typically review
Time in business, revenue, cash flow, credit history, and existing debt. Some loans require collateral or a personal guarantee.
Common uses
Expansion, renovations, hiring, large inventory purchases, or refinancing more expensive debt.
Pros and cons
Advantages
- Predictable payments
- Can fund larger projects
- Builds business credit history
Things to weigh
- Paperwork can be heavier
- You pay interest on the full amount from day one
- May require collateral
Frequently asked questions
How is a term loan different from a line of credit?
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A term loan gives you all the money at once with fixed payments. A line of credit lets you draw funds as needed and pay interest only on what you use.
Can I pay off a term loan early?
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Often yes, but some lenders charge a prepayment penalty or keep fees already charged. Check the agreement before signing.
Do term loans require collateral?
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Some do and some don't. Larger amounts and longer terms are more likely to require collateral or a personal guarantee.
This guide is general educational information, not financial, legal, or tax advice. Terms, requirements, and availability vary by lender and your situation.