How does business term loan work?

If you’re a business owner looking for financing quickly a business term loan is probably the best option for you. These loans are great for businesses that are looking for fast financing. You can use it as a bridge for an upcoming project, expansion or payroll for example. They are structured very similarly to any other business loan with a fixed rate and payback period.

These loans are used well to fund a project or a business opportunities that are in need of financing. It’s the quickest way to get financing. At Creditfy, we can get the funds in your account within 24-48 hours of when you apply. Just like with the fast funding process, the repayment terms are shorter than more traditional financing. The terms typically range from 3-18 months. As a result of the easy application and fast funding process these loans have higher interest rates than traditional loans. Having said that the total cost of the loan may actually be less than a long-term loan. Mainly due to accruing less interest over a shorter period of time. 

How do I qualify for a business term loan?

The good news is that most businesses are able to qualify for these loans. The lenders are not typically as focused on your credit score as much as for a traditional loan. The main things that they review is recent cashflow, credit and time in business. Although a lot of businesses that receive these types of loan have strong credit and time in business, some lenders will allow for as low as 6 months in business and a 500 FICO score. You can also be approved as long as you are depositing at least $10,000 per month. One of the benefits of this financing is that they typically have very little restrictions with the use of funds.

What are the terms and how much can I be approved for?

Typically, these loans range from $5,000-$1,000,000. The rates typically begin at around 10% but can be as high as 80% for poor credit and high risk. When determining what loan option is best for you it’s important to consider the total cost of the loan. Even though business term loans will be at higher interest rates, they accumulate interest for a shorter period of time. As a result, the total cost of the loan is frequently lower than a long-term option. Due to the short-term nature of these loans that are typically at 18 months maximum the lenders commonly outline the cost by a “factor rate” instead of APR. This is a decimal number such as a 1.16 which would mean you would pay back $11,160 on a $10,000 loan. 

What documents do I need to submit to apply? 

One of the best parts about these products is that the application process is very simple unlike applying for a traditional loan where a huge amount of paperwork is required. The documentation you need to submit depends on the product you are applying for which include a line of credit, term loan, merchant cash advance or invoice financing. Having said that for most of these products the lender will typically just require 3 months of recent bank statements and a signed application for an approval. Some lenders can issue an approval is as little a 2-3 hours from when the application is submitted.

After you have received an approval if you decide to move forward with the financing, the lender will typically require some additional documents needed to fund. These are basic documents such as a driver’s license and voided check for smaller loans and possibly a Tax Return, Profit and Loss and Balance Sheet for larger loan amounts over $150,000.

Is a business term loan the best option for me?

A business term loan is one of the most popular types of financing that business owners choose. Depending on the use of funds it may be a better option for you than a long-term loan. If you’re using the financing to purchase inventory, equipment or for payroll this is likely the best option for you. The reason is that these are typically smaller investments, so you want the interest to be accruing over a shorter period. This is same reason people want car loan over a few years and not 20 years like a long-term SBA loan. 

Many businesses turn to online lenders instead of banks for these business term or short-term loans. According to a Forbes article, small business loan applicants hit a record high approval rates in March of 2019. Having said that the approval rate was still low at 27% vs. 57% for online or alternative lenders. Although these loans are a great option for businesses that just need quick funding. It’s also a perfect option for businesses that didn’t qualify for a long-term bank loan. Some businesses start with a short-term loan from an online lender and reapply for a bank loan once they become more established. 

A lot of lenders will report your repayment history to credit bureaus so good repayment will increase your credit score. So, these loans can help you execute fast on that great business opportunity to increase your revenue and improve your credit score. If you did not qualify for a bank loan initially, hopefully this financing act as a bridge to get you to a longer-term traditional loan, if that is what you want. 

Conclusion 

If you’re a business owner who needs funding quickly, this is probably the best option for you. With so many different loan options on the market it can be difficult to know which one is right for your business. We are here to help if you have any questions on different loan options or would like to apply for one. We will handle the application and funding process so you can focus on what you do best, growing your business. At Creditfy, we combine our talents with our technology that enables us to provide fast funding. We can provide the capital to you with as little as 1-2 business days, apply when you’re ready!