Business Term Loans with a Clear End Date

How a business term loan works

A business term loan is the most familiar kind of business borrowing. The lender advances a set amount, and the business repays it with interest over an agreed term until the balance reaches zero. Repayments are usually the same each time, so the cost is easy to plan around.

Term loans come in two broad types. Secured loans are backed by property or business assets and tend to be cheaper, with longer terms. Unsecured loans rely on the strength of the business and a director's guarantee, move faster and cost more. Which makes sense depends on the amount, the purpose and what the business is prepared to put up.

What businesses use them for

What lenders look at

Time in business

Many lenders want at least 12 months of trading, and some specialist lenders will consider six. Under that, the options narrow sharply.

Turnover and cash flow

Lenders want to see repayments sitting comfortably inside what the business earns. Bank statements show them how money actually moves, month to month.

Purpose

A clear use for the money, with a cost that matches the loan, makes for a stronger application than a general request for cash.

Security

Property, business assets or none. Security changes the rate, the term and how much the lender will advance.

Credit history

Both the business and the directors. A recent default, or a tax debt with no payment plan in place, will narrow the panel.

Typical terms

Common ranges, not promises. Every lender sets its own policy.

• Amount: from a few thousand dollars on smaller unsecured loans to seven figures with property security.
• Term: unsecured loans commonly run from a few months to three or five years. Secured loans can run longer.
• Repayments: weekly, fortnightly or monthly. Some short-term lenders debit daily, which is worth knowing before you sign.
• Rate: fixed or variable. Unsecured rates sit well above secured ones, reflecting the extra risk the lender carries.
• Fees: establishment or origination fees are common. Some short-term loans charge a fixed amount of interest up front, so paying early saves little.
• Early payout: often allowed, sometimes with a break cost on a fixed rate or an exit fee. Check before you sign rather than after.

An example repayment

Term loan, line of credit or equipment finance?

What to have ready

• ABN, company details and the directors' details
• Six to twelve months of business bank statements
• Recent BAS, plus financials or tax returns for larger amounts
• What the money is for, with quotes where you have them
• Details of any property or assets offered as security
• A list of current business debts and their repayments

Business term loan questions

Looking at something else? See the business line of credit for money you draw as you need it, invoice and debtor finance if the gap is unpaid invoices, equipment finance for machinery and vehicles, or business loans for the full picture.