It feels great when you own a business but capital will be required to grow and sustain your business. Some of the things that will need capital are such as new equipment, new location, supporting payroll, and more inventory. For some people, saving will be the option to raise the capital they need. Since there are financing options available, you don’t have to wait for years to get the money you need.
These days, businesses have access to many financing options unlike several years back. There many lenders who are willing to provide funding for businesses. One financing option that can give you fund you need is term loans. Terms loans have specific amounts and a determined repayment schedule. They could also have a fixed or floating rate of interest.
In most cases, businesses will use term loans for real estate, inventory, or equipment. 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.
Term loans would have varying repayment periods. For instance, some loans have a duration of 12 months and others could be repaid over 25 years. You should, therefore, consider the length of a term loan. Rather than focus on the amount you owe, higher repayment might mean less interest.
There are different types of term loans. Therefore, you need to consider the most appropriate term loan for your business. The different categories are short term, medium term, as well as long term loans. The repayment duration for short term loans is 3-12 months. They are more ideal when you need a short-term investment with immediate return. They are also suitable when you need to repay the loan fast and lower the interest.
Medium term loans have a length of 2-5 years. When a business wants to expand or grow its service, medium term loans are more ideal. For instance, when a business wants to expand its market reach or access more customers, medium term loans would be a good option.
For long term loans, they are for established businesses planning to make big investments but limit the repayments. The repayment amount is lower but you will have paid more over the length of the loan. The duration is 10-25 years. Involving a financial advisor would great when applying for a term loan.