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What are the Benefits of Business Term Loans?

A small business owner happily explains the pros of business term loans to an employee.

If you are looking to understand business term loans as a potential lending solution for your business, you've come to the right place! Let’s simplify the details of this financial tool, empowering you to make informed decisions. Keep reading to explore the benefits and drawbacks of business term loans and discover how they can impact your business.

Definition of Business Term Loan

A business term loan is a fixed sum of money that you borrow from a bank or lender and is repaid with interest over a specified period of time. To obtain one, a business usually submits an application to the lender, provides financial documents, and may need to offer collateral. The lender then conducts a credit check and evaluates your business's ability to repay the loan.

For more information on the basics of business term loans, check out our latest article.

Benefits of Business Term Loans

Let’s unpack the most important advantages of term loans for business. Here’s why they are a popular choice:

1. Clear Payment Game-Plan:

Term loans come with a clear and easy-to-understand repayment plan, helping businesses effectively manage their finances. By setting specific payment dates, your business can avoid cash flow issues and maintain financial stability.

2. Long-Term Money Backup:

In contrast to short-term financing choices like lines of credit, business term loans provide access to sizeable funds for a longer period. This makes them perfect for supporting your big projects, growth initiatives, or long-lasting investments like equipment or real estate.

3. Reduced Interest Charges:

Business term loans frequently have lower interest rates than other financing methods like credit cards or short-term loans. This leads to big savings throughout the loan term, helping businesses like yours allocate more resources toward development and growth.

4. Flexible Spending Options:

Term loans provide businesses with the flexibility to allocate funds as needed, whether it's for purchasing inventory, hiring personnel, or funding marketing initiatives. There are no restrictions on how your business can utilize the funds, allowing you to fund your priorities effectively.

5. Establish Your Credit Standing:

By responsibly repaying a term loan, businesses can solidify or improve their credit scores. Not only does a positive credit history boost your chances of future loan approvals, but it also opens up your access to better financing terms and chances for expansion and growth.

Drawbacks of Business Term Loans

Like any option with benefits, business term loans also have some drawbacks to consider:

1. Might Require Collateral:

Many lenders require collateral to secure a term loan, which can be a major hurdle for businesses—especially startups or those with limited assets. If your business uses collateral (like real estate or equipment) and can’t repay the loan, then you risk losing those assets.

2. Extensive Application Procedure:

The process of applying for business term loans often involves a significant amount of time and paperwork, which can delay access to funds when businesses have urgent needs. This means your plans for growth could be delayed or you could miss opportunities.

3. Rigid Repayment Structure:

While structured repayments provide stability, they can feel restrictive during periods of tight cash flow. Fixed payments can stress a business's finances, cause liquidity problems, or require extra financing to meet costs.

4. Interest Charges

Even with reduced interest rates, the overall interest accrued throughout the term of a loan can be significant, particularly for extended loan durations. You should thoroughly consider the cost of borrowing and decide whether the advantages outweigh the financial strain of having interest payments.

5. Risk of Missing Repayments:

Failing to pay back a business term loan as previously agreed can have major penalties. It may harm your business’ credit score, make it harder to borrow in the future, and even lead to losing collateral. This puts the business's assets at risk.

Where Do I Get a Business Term Loan?

At the end of the day, a business term loan can help your business consolidate debt or purchase capital and equipment, making it fitting for your long-term financial goals.

Whether you are a military spouse running a small business, a veteran starting a company, or a civilian launching a new venture, you can rely on Armed Forces Bank to offer business term loans tailored to your business needs.

Here’s what to expect when you get a business term loan with Armed Forces Bank:

  • Low interest rates
  • Longer repayment terms
  • Build business credit

Ready to start your mission? Pick where to begin:
Take Me Directly to the Application (this option is for existing clients only)
Visit Business Term Loan Page
Email Our Business Lending Team
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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.