Once you have successfully gotten your business off the ground, oftentimes, your next agenda is continuous growth. That would mean aiming to serve more customers and employing more workers.
However, to fuel this growth, funding is necessary.
If a quick infusion of capital is what you need, then business term loan is just what you are looking for.
What is a business term loan?
In essence, a business term loan is used for diversification, modernization, and expansion projects. This type of loan is sometimes referred to as project financing. Term loans are typically provided by banks and other financial institutions and are repayable in periodic installments.
What are the basic features of a business term loan?
Repayment of capital and payment of interest is obligatory on the borrower’s part. In other words, regardless if your business is doing well or not, you would need to provide payment as agreed. Generally, a business term loan is repayable in installments over a period of 5 to 10 years.
Term loans are convertible into equity depending on the terms and conditions set by the financial institution.
As a medium-term financing source, business term loans often have a maturity period of 5 to 10 years and is repaid through installments.
Term loans generally have a fixed rate of interest. This rate however will be agreed upon by both the lender and the borrower.
Apart from asset security, the lender may impose other restrictive covenants such as repayment of existing loans and maintaining minimum asset base to name a few.
Term loans are classified as secured loans. That means current company assets can serve as collateral security while assets financed through the term loan will serve as primary security.
What are some of the advantages of business term loans?
Flexible. Term loans are often negotiable. In most cases, terms and conditions are not often strict so the borrowers enjoy a certain level of flexibility.
Affordable. Business term loans are considered an affordable and easy-to-obtain source of financing.
Tax benefit. Interest that goes to paying a term loan is considered tax deductible expenditure.
Control. Interest of equity shareholders are not diluted in term loans as it is debt financing.
When do you need a business term loan?
- When you need operational financing. If you would need to hire seasonal help or purchase a new piece of equipment to cover a large client order, then a term loan would be ideal.
- When you need to pay for emergency repairs. Businesses will have to deal with unexpected issues from time to time. It could come in the form of malfunctioning equipment or a computer server crash.
Whatever it may be, it is imperative that you have the emergency fund needed so you can get everything back on track the soonest possible time.
- When you need funding for seasonal gaps in payables and receivables. Term loans are highly beneficial for businesses that are cyclical in nature.
For instance, if you are running a flower shop, you might have to purchase at least triple of your usual monthly inventory to cover a high demand on Valentine’s Day.
With a term loan, you can pay in advance and take advantage of possible supplier discount while waiting to clear your account receivables.
If you want your business to succeed, you need to always have funding to fuel its growth. Fortunately, with business term loans, you now have the necessary financing source to take your business to the next level.