How a Term Loan Can Help Your Small Business

Your business’ bank account plays a key role in your company’s daily operations. It allows you to make deposits, send payments, pay employees, and more. As your business grows and evolves, so do your banking needs.

Small business loans do a lot for businesses—and it’s more than just launching start-ups and expanding current operations. Business loans can also solve cash flow issues and consolidate debt, among other things.

There are several financing options out there for small business owners, but term loans are one of the most popular loan options for borrowers. Whether you’re purchasing inventory in bulk or considering expanding to a second location, term loans can provide you with the funds to make a long-term investment in your business possible.

What is a business term loan?

A term loan, offered by traditional banks or alternative lenders, provides a lump sum of capital upfront, which is then paid back at fixed intervals (weekly, bi-weekly, monthly) over the life (term) of the loan. They’re called term loans in reference to the length of the repayment term.

Term loans are designed for more established businesses, typically with at least two years of operating history. Due to the larger dollar amount, and the fact that business term loans are delivered in one lump sum, these loans are often used for growth investments versus covering day-to-day operating expenses.

Unlike other types of loans, term loans offer some of the lowest interest rates, making them an attractive option for those who can navigate the application process and qualify.

What can I use a small business loan for?

Growing your business

When you find the perfect piece of real estate, you have to move fast. This could mean a new office space for your growing team, or a second storefront for your business. With a small business term loan, you can get a large lump sum of funds, quickly, which makes bringing your physical expansion visions possible.

Terms loan shine as a long-term financing option for small business owners. So, using a term loan to fund a purchase that is going to be a massive benefit to your business over the next 20+ years – such as real estate – could be in your best interest.

Refinancing debt

For most business owners, the road to success usually requires investments and borrowing. But if the weight of your business’ debt is impacting your ability to pay bills and manage your business operations, it’s time to consolidate and refinance.

Too many small business owners are drowning in high interest rate debt because they previously used business credit cards or were unable to get loans with attractive terms due to poor credit history. For small business owners who have rehabilitated their credit scores, a term loan is an excellent way to roll higher-interest rate debt into a lower monthly payment with a fixed interest rate.

Hiring and training new employees

When your business is growing, meeting rising customer demand often hinges on the quality of your staff. If you need to expand your team, a business term loan can help cover the expenses of recruiting and training new employees, as well as meeting payroll without putting a dent in your working capital.

If, on the other hand, you want to fund a business expansion, you may need to hire staff. As with inventory purchases, look for a loan length that makes sense.

Buying inventory or equipment

Equipment may be essential to keep your business running but replacing it can be expensive. Term loans allow you to repair or replace equipment for your business as needed, whether it’s a point-of-sale system for your retail store, kitchen equipment for your restaurant, or a specialized piece of manufacturing equipment for your custom shop.

Your equipment needs may also include vehicles or heavy equipment. Buying vehicles for your business can also be pricey, but it may be an unavoidable expense if you operate a food truck or rely on delivery trucks to get your products out to your customers. An intermediate or long-term loan could make sense for those purchases.

Improving cash flow

If you’re struggling to balance your business’ cash flow, you can use your loan to pay employees and vendors while you’re waiting for customers to pay invoices and accounts receivable. Then, once you receive your customer payments, you can repay the loan. By getting upfront cash, your working capital woes will become a thing of the past.

Developing new products

Business term loans can also be useful for expanding your product line if you need to cover the initial costs of production or market research. A term loan can help you get your new product to market without draining your cash reserves.

Tax benefits

In some cases, a small business loan can help reduce your business’ tax obligations. Your business can use the interest paid on loans to lower its taxable income. Each business’ financial situation is unique, so be sure to consult with a tax professional.

What are the benefits of a term loan?

There are a number of reasons that term loans are so popular among small business owners. Here are a few advantages of business term loans: 

Lower interest rates: Due to their longer repayment terms, term loans are typically available at lower interest rates than short-term borrowing options like a line of credit or a business credit card.

Flexibility in use: Business term loans can also offer flexibility in that lenders may offer a range of loan repayment terms to choose from. You can then select the term that best fits your timeline and budget for repayment. The flexibility associated with term loans is also evident when it comes to how they can be used. A term loan can satisfy several funding needs for your business.

Predictable payment structure: With a small business term loan, your repayment schedule is set once you sign your offer at a predetermined cadence for a fixed amount of time. This means your weekly, bi-weekly, or monthly payment will be the exact same every single time. Term loans can be the best business loans for your business, especially when you work with iBank Corp. Contact us today – we want to help you grow with one of our Small Business Loans.