Loan type
Business term loans: the plain version, and how the price varies by lender
A lump sum, a fixed schedule, a finish line. The structure is simple; the price varies by more than forty percentage points depending on who writes it.
At a glance
| Typical amount | $10,000 to $5 million |
|---|---|
| Rate | 9.0% - 45.0% APR |
| Term | 6 months to 10 years, depending entirely on the lender type |
| Payments | Fixed monthly, or daily/weekly with some online lenders |
| Collateral | Often a blanket lien on business assets; sometimes unsecured at higher cost |
| Personal guarantee | Almost always |
| Time to funding | 1 day to 6 weeks |
A good fit when
You have a specific one-time expense with a known cost, and predictable payments are worth more to you than flexibility.
A poor fit when
Your need is recurring or unpredictable. That is a line of credit, and paying term-loan interest on idle money is waste.
One product, three completely different markets
"Business term loan" describes a structure, not a price. The same phrase covers a 9% seven-year bank note and a 45% nine-month online loan with daily debits. Knowing which market you are shopping in matters more than anything else on this page.
| Bank or credit union | SBA-backed | Online / fintech | |
|---|---|---|---|
| Typical rate | 9% to 14% APR | 10.0% - 14.0% APR | 20% to 45%+ APR |
| Term | 3 to 7 years | 10 to 25 years | 6 months to 5 years |
| Speed | 2 to 6 weeks | 30 to 90 days | Same day to 3 days |
| Minimum revenue | Often $250,000+ | Varies | Often $100,000 to $250,000 |
| Time in business | 2+ years | 2+ years | 6 to 12 months |
| Credit floor | 680+ | 650 to 680+ | 550 to 625 |
| Payment frequency | Monthly | Monthly | Often daily or weekly |
The daily-payment trap
Many online term loans debit your account every business day rather than monthly. Two things follow. First, the effective cost is higher than the same nominal rate paid monthly, because you lose the use of the money sooner. Second, and much more importantly, a daily debit against a business with lumpy receipts creates overdrafts, and overdraft fees on twenty-two debits a month add up faster than most people model.
What to negotiate, and what is fixed
- Negotiable more often than people think
- Origination fee, prepayment penalty, the blanket lien's scope, personal guarantee limits on multi-owner deals, and covenant thresholds.
- Sometimes negotiable
- Rate, if you have a competing written offer. Term length, if you can show the longer amortization improves coverage.
- Rarely negotiable
- The requirement for a personal guarantee at all, and the lender's minimum credit score.
The single most valuable thing you can do is get two written offers. Not two conversations — two documents. Lenders behave differently when a competing term sheet exists.
Prepayment: read this clause before you sign
Term loans differ enormously here.
- Simple interest, no penalty. You pay off early, you save the remaining interest. Best case.
- Prepayment penalty. A percentage, usually declining over the first few years. Priceable.
- Fixed total repayment. You owe the full agreed payback whenever you settle, so paying early saves you nothing at all. Common on short-term online loans, and it makes the effective cost of early repayment enormous.
That third category is why refinancing a short-term online loan is often worse than it looks. You do not escape the interest; you just stop paying it in instalments.
Questions people actually ask
What credit score do I need for a business term loan?
Banks generally want 680 or better. SBA lenders commonly sit at 650 to 680. Online lenders will go to 600, and some to 550, at a price that reflects the risk. Below 550 you are into merchant cash advances and secured products.
Can I get a term loan without a personal guarantee?
Rarely, and essentially never as a small business. Exceptions exist for larger, established companies with strong standalone balance sheets, and for loans fully secured by specific high-quality collateral. Assume you will sign one.
Is a term loan or a line of credit better?
Term loan for a one-time known cost — a piece of equipment, a build-out, an acquisition. Line of credit for recurring or unpredictable needs, because you only pay for what you draw. Many established businesses carry both, deliberately.