While owning a business is great, you will need capital to sustain growth and expand your business. For instance, you may need to increase your inventory, purchase new equipment, support your payroll or get a new location for your business. For some people, saving will be the option to raise the capital they need. Getting funding can help you receive the money you need today instead of waiting for months or years.
These days, businesses have access to many financing options unlike several years back. There many lenders who are willing to provide funding for 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. The rate of interest could be fixed or floating.
Terms loans are mainly used for purchasing equipment, inventory, and real estate. Term loans could also be used for monthly expenses. However, many terms are secured and you will, therefore, need collateral 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. For new businesses or those that lack an established credit, collateral would be required.
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. You should, therefore, consider the length of a term loan. It is not just the total amount that is important since making higher repayment would mean lower interest.
There are different types of term loans. You can, therefore, choose the term loan that is more appropriate for your business. They can be short term loans, medium term loans, and 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. If you want a fast loan repayment and minimize the interest, short term loans would be perfect.
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. Although you will be making lower repayments, the total amount paid will be higher. They have a length of 10-25 years. Before you take a term loan, consider talking to a financial advisor.