A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. In exchange for a specified amount of cash, the borrower agrees to a certain repayment schedule with a fixed or floating interest rate.

Longer-term loan payments may be set up monthly. Shorter-term loans may require a daily or weekly payback structure.

Often, business term loans offer you higher funding amounts, more extended repayment periods and lower interest rates than many financing alternatives.

These loans last anywhere between 3 – 25 years. They use company assets as collateral and require monthly or quarterly payments from profits or cash flow. These loans can limit other financial commitments the company may take on, including other debts, dividends, or principals’ salaries. They may require an amount of profit set aside specifically for loan repayment.

These types of term loans may be offered to firms that don’t qualify for a line of credit. They generally run less than a year. But they can also refer to a loan of up to 18 months.

A business line of credit is a flexible loan for businesses that works like a credit card. Companies draw money from their credit lines as needed, only paying interest on the portion of money borrowed. As they repay the amount borrowed, this replenishes the funds available. Funds are often accessed using a business checking account, credit card, or mobile app.

A business line of credit is a type of revolving credit; a business can withdraw funds whenever the need arises, as long as the credit limit isn’t exceeded. Interest then accumulates on the funds that are drawn, usually at a variable rate. For these reasons, a business line of credit can be useful for small-business owners looking to cover short-term needs.

A small business loan is a lump sum of money given with a fixed interest rate and paid back through fixed monthly payments. Loan payments start immediately, whether a business uses the money right away or not

Yes. Borrowing limits are often lower on a line of credit than on a business loan. However, some lenders offer secured lines of credit, obtained by providing collateral, that offer higher limits.

In general, banks will want to understand your business’s cash flow, to determine what your capacity is. That is, whether your business has the wherewithal to repay the term loan.

Banks also want to look at personal credit scores to see if you are in the habit of paying your bills. Banks will want collateral, but they may also want a personal guarantee from you.

Both short- and intermediate-term loans may also be balloon loans and come with balloon payments. This means the final installment swells or balloons into a much larger amount than any of the previous ones. Balloon payments tend to be at least twice the amount of the loan’s previous payments.

Term Loans tend to have either a variable interest rate or a fixed one. A fixed interest rate is often tied to the Prime Rate, with the most creditworthy borrowers getting the best rate. Variable or floating interest rates are tied to a benchmark rate or index that changes. The Secured Overnight Financing Rate is one such benchmark.