What Is a Business Term Loan and How Does It Work?

Business term loans can be among the least expensive forms of business financing and are good for making long-term investments in your business.

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Updated Aug 15, 2025 · 3 min read

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If you need capital for your company, you might consider a business term loan. Term loans are one of the most common forms of business financing — in fact, 50% of small businesses use a term loan on a regular basis, according to data from the Federal Reserve's 2024 Small Business Credit Survey.

Business term loans can be a good option for a variety of purposes, including working capital needs, real estate purchases and debt consolidation.

How much do you need?

We'll start with a brief questionnaire to better understand the unique needs of your business. Once we uncover your personalized matches, our team will consult you on the process moving forward.

What is a business term loan?

A business term loan is a lump sum of money that’s repaid over a set period of time, plus interest. Because they typically come with fixed interest rates and set monthly payments, term loans can be one of the most affordable types of small-business loans. They are offered through banks, credit unions, online lenders and other non-bank alternative lenders.

Business term loan basics

Loan Amount

$5,000 to $5 million

Terms

6 months to 7 years

APR

6% to 99%

Funding Speed

1 day to several weeks

How do business term loans work?

Business term loans can range in size from $5,000 to $5 million, with annual percentage rates (APRs) falling anywhere between 6% to 99%. These loans often have fixed interest rates, but you may find some lenders charge a variable rate that changes based on the market. Additional fees, like closing and origination fees, may vary based on the lender and the type of term loan.

Like mortgages and car loans, small-business term loans usually follow an amortization schedule. This means most of your payment goes toward paying interest at the beginning of the loan, and more toward principal near the end. Business term loans can often be repaid early to save on interest, although some lenders may charge a prepayment penalty.

You can use a business term loan for a variety of purposes, including:

Purchasing equipment or inventory.
Renovating an existing location or expanding to a new location.
Buying commercial real estate.
Hiring new employees.
Working capital.
Refinancing existing debt.

» MORE: Best commercial real estate loans

Types of business term loans

Type of business term loan	Pros	Cons
Short-term loans (6 months to 2 years)	Usually fast to fund (typically through online lenders). Can be easier to qualify for than some other business term loans.	Often have higher interest rates. Typically larger payments required on a daily or weekly basis.
Medium-term loans (2 to 5 years)	Available from online lenders, as well as banks and credit unions. More affordable interest rates than short-term loans.	Stricter qualification requirements than short-term loans.
Long-term loans (5+ years)	Offer low interest rates. Can be ideal for financing large projects.	Usually slow to fund. Tend to be more difficult to qualify for.

» MORE: Compare the best low-interest business loans

Best business term loan options

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Product	Max Term Length	Max Loan Amount	Min Credit	Learn more
SBA 7(a) loan Apply now with Fundera by NerdWallet	25 years	$5,000,000	650	Apply now with Fundera by NerdWallet
Fora Financial - Online term loan Nerdwallet Rating 4.7 Apply now with Fundera by NerdWallet	18 months	$1,500,000	570	Apply now with Fundera by NerdWallet
National Funding - Online term loan Nerdwallet Rating 4.3 Apply now with Fundera by NerdWallet	24 months	$500,000	600	Apply now with Fundera by NerdWallet
SBA Express loan Apply now with Fundera by NerdWallet	25 years	$500,000	650	Apply now with Fundera by NerdWallet
Bank of America Business Advantage Unsecured Term Loan Nerdwallet Rating 5.0 Apply now with Fundera by NerdWallet	5 years	Undisclosed	700	Apply now with Fundera by NerdWallet
Accion Opportunity Fund Small Business Working Capital Loan Nerdwallet Rating 4.9 Apply now with Fundera by NerdWallet	5 years	$350,000	600	Apply now with Fundera by NerdWallet
iBusiness Funding - Online term loan Nerdwallet Rating 4.2 Apply now with Fundera by NerdWallet	5 years	$500,000	660	Apply now with Fundera by NerdWallet
altbanq - Online term loan Nerdwallet Rating 5.0 Apply now with Fundera by NerdWallet	24 months	$10,000,000	650	Apply now with Fundera by NerdWallet
OnDeck - Online term loan Nerdwallet Rating 4.8 Apply now with Fundera by NerdWallet	24 months	$250,000	625	Apply now with Fundera by NerdWallet

Pros and cons of business term loans

Pros

You can borrow large amounts of money to finance expansion or growth.

Long repayment terms can make big investments more affordable.

Repaying term loans on time may help you build business credit.

Loans from online lenders can be approved and funded quickly, usually within a few days to a week.

Qualification requirements for online lenders may be looser than those for traditional banks.

Cons

Less flexibility than business lines of credit, as payments begin immediately after funding.

Shorter term loans may carry high costs and frequent repayments, although this depends on the lender.

Collateral — an asset, such as equipment or real estate that the lender can sell if you can’t make payments — may be required.

Recurring repayments may constrict cash flow if you borrow too much or have inconsistent sales.

Minimum qualifications for a business term loan

⏱️ Time in business: 6 months to 2 years

A two-year minimum is standard for many lenders, especially banks, but many online lenders ask for just one year in business. A few, like Fora Financial and National Funding, require only six months.

💳 Credit score: 550 to 700

Alternative lenders like Fora Financial and OnDeck tend to have lower credit score requirements, while more traditional lenders like Bank of America will require good to excellent credit.

📈 Annual revenue: $50,000 to $250,000

It’s fairly uncommon to find business term loans with annual revenue minimums below $100,000. However, iBusiness Funding and Accion Opportunity Fund require only $50,000 in annual revenue for their business term loans.

How to apply for a business term loan

If you think a business term loan is right for your financing needs, you can follow these steps to apply:

Evaluate your qualifications. Check your credit score, annual revenue and time in business. These are three of the key business loan requirements lenders will look at to determine whether you qualify for financing.
Compare lenders. Decide which type of lender is best for your needs. Online lenders may have more flexible qualifications and faster funding times, but the trade-off is typically higher interest rates. Banks, credit unions and SBA lenders can offer more affordable rates, but their products can be harder to qualify for.
Prepare your documentation. Once you’ve decided which lender is right for you, prepare the documentation for your application. Commonly required documents include business financial statements, business and personal tax returns, business and personal bank statements, and business legal documents. (Some online lenders require only minimal documentation to apply.) As much as you can, keep up-to-date financial records and meet with your business accountant on a regular basis.
Complete and submit the application. Follow the lender’s instructions to complete the application and provide all necessary documents. Take advantage of any assistance the lender offers to guide you through the application process.

🤓 Nerdy Tip

Want to compare multiple loan options without impacting your credit score? Consider using a business lending marketplace, such as Fundera by NerdWallet. You can submit one application and get matched with potential lenders based on your needs.

Alternatives to business term loans

If you’re unsure whether a term loan is right for your business, or you’re having a hard time qualifying for one, consider these alternatives:

Business lines of credit. Instead of borrowing one lump sum of cash and paying it off over a set period, business lines of credit allow you to continue to borrow funds on an as-needed basis, up to a predetermined amount. Once you repay the initial amount borrowed, you can take more money out. This gives business owners a bit more flexibility, especially when covering short-term or unexpected needs.
Invoice factoring or invoice financing. If you run a business-to-business company and have cash tied up in unpaid invoices, you may be able to leverage those invoices for a cash advance. While invoice financing allows you to use invoices as collateral for a business loan, invoice factoring involves selling your invoices to a factoring company at a discount. These tend to be best for business owners who need money quickly and can’t qualify for more traditional financing, like a term loan or line of credit.
Merchant cash advances. If you can’t qualify for other types of business financing and have consistent credit card sales, a merchant cash advance (MCA) may be an option. MCAs serve as an advance on funds, which you repay using a percentage of future debit or credit card sales. NerdWallet recommends exhausting all other financing options before turning to MCAs, since they’re expensive and not federally regulated.

Frequently asked questions

Is a term loan right for your business?

A business term loan can be a good option for a variety of financing needs, including purchasing equipment or inventory, renovating or expanding, buying commercial real estate and refinancing debt, among others. If you want more flexibility — to use your funds as needed — a business line of credit may be a better fit.

» MORE: Business loan vs. line of credit

What is an example of a business term loan?

SBA 7(a) loans are a good example of a business term loan. These loans have terms up to 25 years and funding amounts up to $5 million. The repayment terms and loan amount you receive vary based on your use case and your qualifications.

SBA 7(a) loans are well-suited for long-term investments in your business.

What are the three types of business term loans?

Business term loans can be categorized into the following three types: short-term loans, medium-term loans and long-term loans.

Article sources

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1. Federal Reserve Banks. 2025 Report on Employer Firms: Findings from the 2024 Small Business Credit Survey.

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About the authors

Randa Kriss Randa Kriss is a senior writer and NerdWallet authority on small business. She has nearly a decade of experience in digital content. Prior to joining NerdWallet in 2020, Randa worked as a writer at Fundera, covering a wide variety of small-business topics and specializing in the lending and banking spaces. Her work has been featured by The Washington Post, The Associated Press and Nasdaq, among others. Randa earned a bachelor's degree in English and Spanish at Iona University (formerly Iona College). See full bio.

Karrin Sehmbi Karrin Sehmbi is an editor and content strategist on the small-business team. She has covered small-business software and lending since 2022 and has more than fifteen years of editorial experience See full bio.