What Is a Business Term Loan and How Does It Work?
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How much do you need?
What is a business term loan?
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?
- 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.
Types of business term loans
| Type of business term loan | Pros | Cons |
|---|---|---|
| Short-term loans (6 months to 2 years) |
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| Medium-term loans (2 to 5 years) |
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| Long-term loans (5+ years) |
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Best business term loan options
Why trust NerdWallet
250+ small-business products reviewed and rated by our team of experts.
80+ years of combined experience covering small business and personal finance.
50+ categories of the best business loan selections.
Objective and comprehensive business loans ratings rubric. (Learn more about our star ratings.)
NerdWallet's small-business loans content, including ratings, recommendations and reviews, is overseen by a team of writers and editors who specialize in business lending. Their work has appeared in The Associated Press, The Washington Post, MarketWatch, Nasdaq, Entrepreneur, ABC News, MSN and other national and local media outlets. Each writer and editor follows NerdWallet's strict guidelines for editorial integrity to ensure accuracy and fairness in our coverage.
| Product | Max Term Length | Max Loan Amount | Min Credit | |
|---|---|---|---|---|
 SBA 7(a) loan with Fundera by NerdWallet | 25 years | $5,000,000 | 650 | with Fundera by NerdWallet |
 Fora Financial - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 18 months | $1,500,000 | 570 | with Fundera by NerdWallet |
 National Funding - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 24 months | $500,000 | 600 | with Fundera by NerdWallet |
| SBA Express loan with Fundera by NerdWallet | 25 years | $500,000 | 650 | with Fundera by NerdWallet |
 Bank of America Business Advantage Unsecured Term Loan Nerdwallet Rating with Fundera by NerdWallet | 5 years | Undisclosed | 700 | with Fundera by NerdWallet |
 Accion Opportunity Fund Small Business Working Capital Loan Nerdwallet Rating with Fundera by NerdWallet | 5 years | $350,000 | 600 | with Fundera by NerdWallet |
 iBusiness Funding - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 5 years | $500,000 | 660 | with Fundera by NerdWallet |
 altbanq - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 24 months | $10,000,000 | 650 | with Fundera by NerdWallet |
 OnDeck - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 24 months | $250,000 | 625 | 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
How to apply for a business term loan
- 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.
Alternatives to business term loans
- 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?
What is an example of a business term loan?
What are the three types of business term loans?
Article sources
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Methodology
NerdWallet’s review process evaluates and rates small-business loan products from traditional banks and online lenders. We collect over 30 data points on each lender using company websites and public documents. We may also go through a lender’s initial application flow and reach out to company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.
Our star ratings award points to lenders that offer small-business friendly features, including:
Transparency of rates and terms.
Flexible payment options.
Fast funding times.
Accessible customer service.
Reporting of payments to business credit bureaus.
Responsible lending practices.
We weigh these factors based on our assessment of which are the most important to small-business owners and how meaningfully they impact borrowers’ experiences.
NerdWallet does not receive compensation for our star ratings. Read more about our ratings methodology for small-business loans and our editorial guidelines.
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What is a business term loan? -
How do business term loans work? -
Types of business term loans -
Best business term loan options -
Pros and cons of business term loans -
Minimum qualifications for a business term loan -
How to apply for a business term loan -
Alternatives to business term loans -
Frequently asked questions
