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What is a Business Term Loan and How Does It Work?

A young man chats with coworkers in the office about business Term loans and how they work.

If you are a business owner looking to expand, manage cash flow, or invest in new equipment, you might have come across the phrase “business term loan.” This type of loan provides a financial boost for your business, helping it grow and succeed. But what exactly is a business term loan and how does it work? Let’s break it down in simple terms.

What is a Business Term Loan?

A business term loan is a type of financing where a lender provides a lump sum of money to a business, which is then paid back over a set period of time (with interest). It is similar to a personal loan but specifically designed for business purposes. The fixed repayment schedule makes it easier for businesses to plan their finances and manage their debt.

Business term loans are used for various business needs, such as purchasing equipment, expanding operations, and improving cash flow. They can also come in handy for companies that face seasonal fluctuations, such as landscaping businesses, healthcare and pharmaceutical companies, and others. These industries often experience shifts in revenue and demand throughout the year, which is why these business loans are valuable tools for navigating slower periods and also preparing for future peak seasons.

How Does a Business Term Loan Work?

  1. Application Process: To get a term loan for your business, you need to apply through a bank or alternative lender. The application process typically involves the borrower providing financial statements, business plans, and sometimes personal guarantees.
  2. Approval and Terms: If approved, the lender will offer terms that include the loan amount, interest rate, repayment schedule, and any fees.
  3. Receiving Funds: Once you agree to the terms, the lender provides the lump sum into your business bank account.
  4. Repayment: You will start making regular payments according to the agreed schedule. These payments include both the principal and interest.
  5. End of Loan Term: When you have made all the payments, the loan is fully repaid, and your obligation to the lender ends.

Is a Business Term Loan Right for You?

Consider a business term loan if you need a significant amount of money for a specific purpose. It’s a good option for long-term investments like purchasing equipment, expanding your operations, or refinancing other debts.

Before committing, make sure to compare different lenders (like Academy Bank), understand the terms, and ensure that your business can manage the repayment schedule.

At Academy Bank, we offer competitive term loans for businesses that are tailored to meet your specific needs. Our personalized service and flexible terms ensure you can get the best financing solution for your business. Contact our business bankers at Academy Bank, or visit a local banking center to find out how we can help your business succeed.

Looking for more options? Compare business loans today!

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All loans and lines of credit are subject to credit approval and require automatic payment deduction from an Academy Bank business checking account. Origination and annual fees may apply. Terms, conditions, and loan product eligibility applies.