Owning a business comes with so much excitement but you need capital for sustained growth and to expand the business. Some of the things that will need capital are such as new equipment, new location, supporting payroll, and more inventory. Some people opt to save for several years or months to get the capital. Getting funding can help you receive the money you need today instead of waiting for months or years.
Unlike some years back, businesses have many financing options today. There are a variety of lenders who want to extend their services to businesses. A term loan is an option that can help you get the funding you need. Terms loans come with specific loan amounts, as well as set repayment schedules. Also, the interest rate could be floating or fixed.
Terms loans are mainly used for purchasing equipment, inventory, and real estate. Businesses can also use term loans to support their month-to-months operations. In most cases, however, term loans will need collateral as a security for the loan. The collateral or property used will be the guarantee for the loan. When you fail to pay the loan back, the property is used to recover the loan balance. Secured term loans are mainly for new businesses and businesses without established credit.
On the other hand, term loans have various repayment periods. For instance, some loans have a duration of 12 months and others could be repaid over 25 years. The repayment period is, therefore, worth considering. You should not just look at the total amount you owe because higher repayment would result in lower interest.
Term loans would be divided into different options. Depending on your business, you can choose the more appropriate one. They can be short term loans, medium term loans, and long term loans. In the case of a short term loan, the repayment period is 3-12 months. This loan type would be ideal when you need to make a short-term investment that will give an immediate return. They are also suitable when you need to repay the loan fast and lower the interest.
For medium term loans, the repayment period is 2-5 years. When a business wants to expand or grow its service, medium term loans are more ideal. Medium term loans can help your reach new market or access new customers.
The long term loans, on the other hand, are designed for established businesses that want to make major investments and limit their repayments. The repayment amount is lower but you will have paid more over the length of the loan. They have a length of 10-25 years. Involving a financial advisor would great when applying for a term loan.