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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Editor & Content Strategist 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 most recent Federal Reserve 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.
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Tell us how much you need and see your options in minutes.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.
Common use cases for a business term loan
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.
Types of business term loans
| Type of business term loan | Pros | Cons |
|---|---|---|
| Short-term loans (6 months to 2 years) |
|
|
| Medium-term loans (2 to 5 years) |
|
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| Long-term loans (5+ years) |
|
|
Best business term loan options
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| 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 |
 Bank of America Business Advantage Unsecured Term Loan Nerdwallet Rating with Fundera by NerdWallet | 5 years | $100,000 | 700 | with Fundera by NerdWallet |
 altbanq - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 24 months | $10,000,000 | 650 | with Fundera by NerdWallet |
 Fora Financial - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 24 months | $1,500,000 | 570 | with Fundera by NerdWallet |
| SBA Express loan with Fundera by NerdWallet | 25 years | $500,000 | 650 | with Fundera by NerdWallet |
 National Funding - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 24 months | $500,000 | 600 | with Fundera by NerdWallet |
 Accion Opportunity Fund Small Business Working Capital Loan Nerdwallet Rating with Fundera by NerdWallet | 3 years | $250,000 | 620 | with Fundera by NerdWallet |
 OnDeck - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 24 months | $400,000 | 625 | with Fundera by NerdWallet |
 iBusiness Funding - Online term loan Nerdwallet Rating with Fundera by NerdWallet | 5 years | $500,000 | 660 | with Fundera by NerdWallet |
Pros and cons of business term loans
Pros
Let you borrow large amounts of money to finance expansion or growth.
Long repayment terms can make big investments more affordable.
On-time payments may help you build business credit.
Fast funding from online lenders — usually within a few days to one week.
More flexible eligibility from online lenders compared with traditional banks.
Cons
Less flexible than a line of credit, since payments start right away.
Shorter-term loans can be costly, with frequent repayments, depending on the lender.
Collateral, such as equipment or real estate, may be required.
Frequent payments can restrict cash flow if sales fluctuate or you borrow too much.
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:
- If you want ongoing access to funds. 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.
- If you run a business-to-business company and have cash tied up in unpaid invoices. Using invoice financing or factoring, you may be able to leverage your 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.
- If you have strong credit card sales, but can’t qualify for other types of financing.. For businesses with 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 my 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.
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- 1. Federal Reserve Banks. 2025 Report on Employer Firms: Findings from the 2024 Small Business Credit Survey. Accessed Jan 5, 2026.
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On this page
- 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
