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Business Term Loans and How They Work

Business owners review the contract for their new business term loan to find out how it works.

If you are a business owner looking to grow, maintain cash flow, or invest in new equipment, you may have heard the term “business term loan.” This financial tool can offer the needed backing for your business to expand and succeed. But what exactly are business term loans and how do they work? Let’s simplify it.

What are Business Term Loans?

Business term loans are a form of financing where lenders offer a lump sum of money to businesses. This money is repaid over a set period with interest. It is similar to a personal loan but tailored specifically for business purposes. Plus, the fixed repayment schedule makes it easier for companies to plan finances and manage debt.

Term loans for businesses can be used for a variety of purposes, including equipment purchases, operational expansion, and improving cash flow. They are also helpful for businesses that experience seasonal ups and downs, making it easier to manage times of lower revenue or higher demand.

How Do Business Term Loans Work?

  1. Application Phase: Applying for a business term loan involves submitting financial statements, business plans, and occasionally personal guarantees to a bank or alternative lender.
  2. Approval and Terms: Upon approval, the lender offers terms that involve the loan amount, interest rate, repayment schedule, and any associated fees.
  3. Receiving Money: Once the borrower agrees to the terms, the lender deposits the lump sum into their business bank account.
  4. Settle the Loan: Repayment starts according to the agreed-upon schedule and covers both the principal and interest.
  5. Conclude Loan Term: Once the borrower has completed all the payments, the loan is fully repaid, and the business’s obligation to the lender ends.

Is a Business Term Loan Right for My Business?

Consider a business term loan if your business needs significant funding for a specific purpose (and can manage regular repayments). It’s an excellent choice for long-term investments like purchasing equipment, expanding operations, or refinancing debts. Before making a decision, compare loan options from different lenders.

As a trusted military bank, Armed Forces Bank provides competitive business term loans specifically tailored to the needs of businesses owned by military personnel, veterans, their spouses, and civilians. Our personalized solutions help you secure the best financing for your business. Work with Armed Forces Bank today to discover how we can support your business success. Compare your business loan options today!



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All loans and lines of credit are subject to credit approval and require automatic payment deduction from an Armed Forces Bank business checking account. Origination and annual fees may apply. Terms, conditions, and loan product eligibility applies.