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Business Term Loans: Everything You Need to Know

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Running a business requires constant investment, from purchasing equipment to expanding your operations. But where do you get the capital to fuel this growth? Finding the right financing solution can be a challenge. 

Business term loans are a popular option for businesses seeking a predictable and structured way to access capital. They provide a lump sum of money upfront that you repay with fixed interest over a set term (length of the loan). These loans offer several advantages, including predictable budgeting and potentially lower interest rates than other financing options. 

Whether you’re looking to purchase new equipment, renovate your space, or simply cover working capital needs, a business term loan might be the perfect fit for your business.

What is a Business Term Loan?

In its simplest form, a business term loan is a financing option where a lender provides a business with a lump sum of cash up front. This cash injection acts as a capital boost, but unlike a grant, it comes with the expectation of repayment over a predetermined period, known as the term. Here’s what makes business term loans distinct:

• Fixed Repayment Schedule: Unlike credit cards with fluctuating minimum payments, business term loans offer predictability. You’ll repay the loan with fixed installments (usually monthly) throughout the entire term. This fixed structure makes budgeting and cash flow management significantly easier.
• Interest Rates: Business term loans can come with either fixed or variable interest rates. Fixed rates offer certainty in your repayment costs, while variable rates can fluctuate based on market conditions. The interest rate you qualify for will depend on various factors such as your creditworthiness, loan amount, and loan term.

It’s important to differentiate business term loans from other financing options. Lines of credit, for example, provide ongoing access to capital up to a certain limit, but don’t offer a single lump sum upfront. Short-term loans, on the other hand, typically have much shorter repayment terms (often under a year) and may be best suited for immediate, one-off expenses.

The Benefits of Business Term Loans

Small businesses have a variety of ways to access capital—some more readily available than others. When it comes to buying goods or paying for services, a credit card can suffice. Larger purchases or cyclical expenses may require a business line of credit . 

Business term loans fill the biggest needs and can be incredibly helpful in growth, expansion, and even acquisition. Here’s a look at why a business term loan might be the ideal solution for your financing needs:

• Predictability and Budgeting: Business term loans shine in terms of predictability. The fixed repayment schedule allows you to accurately forecast cash flow and budget for loan payments with ease. This stability is crucial for making informed financial decisions and ensuring your business operations run smoothly.
• Access to Larger Capital: Compared to other financing options like credit cards with lower limits, business term loans allow you to access a larger sum of money upfront. This makes them ideal for financing significant expenses such as purchasing new equipment, funding expansion projects, or covering a bulk inventory order.
• Potentially Lower Interest Rates: While interest rates can vary depending on your situation and the lender, business term loans often offer more competitive interest rates compared to other short-term financing options like credit cards or merchant cash advances. This translates to significant cost savings in the long run.
• Versatility in Use: The beauty of business term loans lies in their flexibility. They can be used to address a wide range of business needs. Need to upgrade your machinery? Considering a renovation project? Facing temporary cash flow shortages? A business term loan can be your one-stop solution for various capital requirements.

Common Uses of Business Term Loans

As mentioned, there are some business expenditures that are just too big to put on a credit card or revolving line of credit. Let’s delve into some of the most common ways businesses leverage business term financing to achieve their goals:

• Equipment Purchase or Machinery Upgrade: Perhaps your business relies on specialized equipment to operate. A business term loan can provide the capital needed to purchase that essential new printing press, industrial oven, or software program. Upgrading outdated equipment can increase efficiency, improve product quality, and boost your production capacity.
• Expansion or Renovation Projects: As your business grows, you might need to expand your physical space or renovate your existing location to accommodate increased operations or a growing team. A business term loan can be a strategic tool to finance these expansion or renovation projects, allowing you to invest in your future growth.
• Working Capital Needs: Every business experiences fluctuations in cash flow. Unexpected expenses or seasonal slowdowns can create temporary cash flow shortages. A business term loan can bridge these gaps, ensuring you have the necessary funds to cover payroll, inventory purchases, or other operational expenses until your cash flow stabilizes.
• Debt Refinancing: Consolidating existing high-interest debt into a single business term loan can be a smart financial move. By securing a potentially lower interest rate with a business term loan, you can streamline your debt obligations and potentially save money on interest payments in the long run.

How to Qualify for a Business Term Loan

Securing a business term loan will require you to demonstrate your creditworthiness and your business’ stable financial health. Here’s a glimpse into what lenders typically consider when evaluating loan applications:

• Creditworthiness: Just like any loan, your business credit history plays a significant role in determining your eligibility and interest rate for a business term loan. Lenders will assess your business credit score and report to gauge your ability to repay the loan.
• Business Plan: A well-crafted business plan serves as a roadmap for your business’s future. It showcases your financial projections, growth strategies, and overall business viability. A strong business plan demonstrates to lenders that you have a clear vision and a solid plan for utilizing the loan funds effectively.
• Financial Statements: Lenders will closely examine your business’s financial statements, including your balance sheet and income statement. These documents provide a snapshot of your company’s financial health, profitability, and overall debt situation. Strong financial performance increases your chances of securing a favorable loan.
• Collateral: While not always required, some lenders might ask for collateral to secure the loan. Collateral can be any asset your business owns, such as property or equipment. Having collateral can improve your chances of qualifying for a loan and potentially lead to more favorable loan terms.

The specific documentation required for a business term loan application can vary depending on the lender. However, common documents might include tax returns, business licenses, and bank statements.

What is the Average Business Term Loan Rate?

The world of interest rates can feel complex, and business term loans are no exception. While a definitive “average” rate is difficult to pinpoint due to several factors, there are some indicators that can help in determining a general range to set your expectations against. 

Based on current market trends ( as of April 2024 ), most small business owners can expect average business term loan rates to fall somewhere between 6% and 36% . This range applies to fixed-rate loans from traditional banks. Some lenders offer business term loans with variable interest rates that, while initially lower, can become higher than average purely based on economic conditions. 

The specific interest rate you qualify for will depend on several factors, including:

• Creditworthiness: Businesses with strong credit history receive lower interest rates.
• Loan Amount: Smaller loan amounts might come with higher interest rates.
• Loan Term: Longer loan terms often translate to slightly higher interest rates.
• Lender: Different lenders have varying risk assessments with differing interest rates.

To secure the most favorable interest rate, it’s crucial to shop around and compare offers from multiple lenders. Focus on your creditworthiness by maintaining a healthy business credit score and prepare a strong loan application package that showcases your financial health and business plan.

Considerations Before Taking Out a Business Term Loan

While business term loans offer numerous advantages, it’s crucial to carefully consider all aspects before committing. Here are some key points to ponder:

• Impact on Cash Flow: Business term loans come with fixed repayment obligations. It’s essential to thoroughly analyze how these repayments will impact your business cash flow. Ensure you have sufficient funds to comfortably cover the loan payments alongside your regular operating expenses.
• Prepayment Penalties: Some business term loans come with prepayment penalties. This means you might incur a fee if you choose to pay off the loan early. Factor in potential prepayment penalties when evaluating loan options and choose a term that aligns with your repayment goals.
• Collateral Requirements: As mentioned, some lenders might require collateral to secure the loan. Pledging collateral puts those assets at risk if you default on the loan. Carefully evaluate if you’re comfortable with the potential implications of using collateral before proceeding.

Where to Get a Business Term Loan

If a term loan sounds like the best course of financing for your business, the next step is applying for one. Here are some of the common avenues for obtaining a business term loan:

• Traditional Banks: Brick-and-mortar banks have been a mainstay for business financing for decades. They offer competitive rates and potentially longer loan terms, but the application process can be more rigorous and time-consuming. Strong credit history and a well-established business are typically prerequisites for securing a loan from a traditional bank.
• Online Lenders: The rise of online lending platforms has revolutionized the business financing landscape. Online lenders often offer a faster and more streamlined application process compared to traditional banks. However, they might have stricter eligibility requirements or higher interest rates for borrowers with less established businesses.
• Small Business Administration (SBA) Loans: The SBA, a government agency, offers loan programs specifically designed to support small businesses. SBA loans often come with more favorable terms, including lower interest rates and longer repayment periods. However, the application process for SBA loans can be more complex and may require additional documentation compared to other options.
• Alternative Lenders: Alternative lenders encompass a wide range of non-bank financial institutions that offer business financing solutions. This can include merchant cash advances, invoice factoring, and equipment financing. While these options can provide quick access to capital, they often come with higher interest rates and fees compared to traditional loans.

To secure the best business term loan for your company, carefully compare factors like interest rates, loan terms, eligibility requirements, and application process complexity across different lenders. Finding the right fit involves balancing these considerations to ensure you get a competitive rate, a suitable repayment schedule, and a smooth loan application experience.

Apply for a Business Term Loan Today

Business term loans can be a powerful tool for fueling your business growth. They offer predictable repayment structures, access to larger sums of capital, and the potential for competitive interest rates. For many businesses, they’re the best answer for securing critical capital for big-time projects. 

If you’re set on getting a business term loan, NorthOne is ready to help. With loan amounts available from $10-$250k, we help account holders get an infusion of cash now, so they can repay it over time in monthly payments. Apply for a NorthOne business term loan today and fund the next step in your business’ journey!

Frequently Asked Questions (FAQs)

Have more questions about business term loans? Here are some of the most frequently asked questions (and their answers) from other small business owners. 

What is a term loan for a business?

A business term loan is a lump sum of money repaid with fixed installments over a set term.

What is the longest term for a business loan?

The longest term for a business loan can vary depending on the lender, but it typically falls between 6 and 10 years, or even up to 20 years for some loans.

What is the average business term loan rate?

The average business term loan rate, as of April 2024, ranges from 6% to 12% for fixed-rate loans from traditional banks.

How long is a short-term business loan?

A short-term business loan typically has a repayment term under one year, and may be best suited for immediate business expenses.

Justin Adler

Related posts, business term loan vs. line of credit: how to choose, what is the average business loan term, the 16 pros and cons of a business line of credit, short-term business loan: definition and how it works.

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Business term loans allow businesses to borrow funds that are repaid in installments over a set period of time with a fixed interest rate.

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As a business owner, there are multiple ways to obtain necessary funding for your business. One of the most common types of business loans available is the business term loan. A business term loan offers access to borrowed funds that are repaid over a fixed period of time. 

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What is a business term loan.

A business term loan allows a business to borrow funds that are repaid in installments over a set period of time. Interest rates for term loans are usually fixed and do not change. This type of loan differs from other common types of business funding such as a business line of credit, which generally has varying payment amounts depending on your use of credit. The length of a business term loan can range from months to years, with one to five-year medium-term loans being the most common type. 

Business term loans provide a predictable repayment schedule and often have favorable interest rates, making them a popular choice with many businesses. Term loans can be used to fund a variety of business needs, such as purchasing real estate, expanding a business, purchasing inventory or equipment, hiring new employees, refinancing debt, or performing renovations. 

How does a business term loan work?

Once you are approved for a term loan, you will receive the entire amount of funds in a single payment. The repayment schedule of a business term loan depends on the lender and type of loan. Loans are typically divided into short-term, medium-term, and long-term. Repayment is usually weekly, biweekly, or monthly; for short-term loans, repayment may be required daily. 

• Short-term loans typically last up to a year or 18 months and can be as short as three months. Businesses may need a short-term loan for handling an unexpected emergency or cash flow issue. Most often available from online lenders, short-term loans may require daily, weekly, or monthly payments. Fees and interest rates are usually higher for short-term loans. 
• Medium-term loans are the most common type of business term loan, with a typical repayment period of one to five years. These loans are available from banks, credit unions, and online lenders and are typically more affordable than shorter-term loans. 
• Long-term loans are those with a repayment schedule of more than five years and can be as long as 25 years. These loans are available in larger amounts and can be useful for business planning to undertake a major investment or project. 

Interest rates for business term loans depend on the length of the loan and the type of lender, as well as your credit score, business revenue, and length of time you have been in business. Rates can range from three percent to 30 percent. Most lenders offer fixed interest rates, but occasionally, business term loans may have variable interest rates. It’s important to be aware of this as it means that your payment amounts could vary. 

When evaluating your business for a loan, lenders typically consider your personal credit score, business credit score, revenue, and time in business. It may be more difficult to obtain a loan for businesses that have been operating for less than two years.

Where can you obtain a business term loan?

There are several main sources of business term loans. These include: 

• Banks and credit unions. Banks and credit unions usually offer lower interest rates and fees, but they typically have fairly strict requirements for qualification, requiring businesses to have strong credit scores, successful revenue, and a longer time in business. 
• Small Business Administration (SBA) loans. The SBA does not grant loans itself but guarantees loans from other lenders. SBA term loans often have low interest rates and offer long terms (up to 25 years). The agency also secures microloans for small businesses. SBA loans typically have stricter qualification requirements for businesses. The approval process for SBA loans may be lengthier than other loans. 
• Online lenders. Online lenders are frequently able to approve loans more quickly and with less stringent requirements than other lenders, and they offer short-term loans that are not typically available from other sources.

Compare Lenders

There are a variety of loan options and lenders in the market, and it may be difficult sorting through all of the options. AdvisorSmith analyzed over 30 different lenders and determined the top lenders for small businesses . To determine the best lenders, AdvisorSmith considered a number of factors, including financial strength ratings, customer satisfaction data, complaint ratings from the Better Business Bureau, available terms and loan amounts, and availability of information and ease of use of the lender websites.

What are the benefits of a business term loan?

Business term loans are common sources of funding for businesses. There are several benefits to this type of loan:

• They have lower interest rates. Because they are paid off over a long period of time, business term loans may have lower interest rates than other types of business financing. 
• They are flexible. Business term loans can be used for most business purposes, including expanding your business, renovating, purchasing new locations, equipment, or inventory, hiring new staff, and debt refinancing. There are few restrictions on how you can use the capital from your term loan. 
• They are stable and predictable. The set payment structure of a business term loan means that you will always know how much you owe each month. It is easy to financially account for this type of loan. 
• They can improve your business credit. A strong history of on-time payments can improve your business’s credit score, making it easier for you to obtain other loans or financing in the future. 
• Longer-term loans can help you fund large investments. A loan with a long repayment period can provide a large amount of funds that can be used for major investments. 

What are the drawbacks of business term loans?

There are some disadvantages to business term loans. 

• Startups and new businesses are often ineligible for business term loans. Business term loans typically require your business to have been operating for at least one to two years and have a certain amount of revenue. If you are starting a new business, this type of loan would not be suitable.
• There may be penalties for early repayment. Some lenders will not allow you to repay your loan early, and extra charges may be due if you do so. Other lenders will allow early repayment, so you will need to be aware of the rules of your loan. 
• Short-term loans are often more expensive. Short-term loans typically offer higher interest rates and fees, making them more expensive than longer-term loans. 
• Collateral or personal guarantees may be required. Many lenders require you to provide collateral or personal guarantees before lending to you. They may take a lien on your business assets. However, it may be possible to obtain an unsecured loan from some lenders. 

Expert Commentary 

Starleen Van Buren, MBA, is the director of El Camino College Small Business Development Center in Hawthorne, California. Larry Johnson, MBA, is the lead business advisor for the El Camino College SBDC. They provided answers and advice for business owners considering a term loan. 

When is a term loan preferable to other types of finance? 

Starleen Van Buren: Term loans are good for borrowers who have a one-time need for funds and want a fixed rate and term so that the payment doesn’t vary as it can with lines of credit. The borrower will know exactly when the loan will be paid off without having to worry about fluctuating payments.

Larry Johnson: Short, medium, and long-term loans are all designed to match certain asset lives and business cash flow realities. The nature of the funding need and the source of debt service payments should determine the nature of the funding instrument.  If you are funding accounts receivable, it would be wise to select a loan structure that matches the asset you are financing. Receivables typically turn within 30 to 90 days; as such, the borrowing need will fluctuate over time. The outstanding principal will rise and fall, so a short-term facility is most desirable, perhaps a 90 or 120-day revolving credit. Even though the rate will be variable, the outstanding principal will be declining during the term and the impact of a variable rate is mitigated. 

If you are funding a building or piece of heavy-duty equipment, your funding vehicle should be matched with the useful life of the asset, such as a 25-year commercial mortgage or a 10-year term loan for machinery, based upon a fixed rate of interest. Some assets or business needs may be more immediate or have a short life. 

Many entrepreneurs use short-term loans (one to five-year maturity) for times when they need quick solutions to pressing circumstances. So whether you need to pay for unexpected expenses, hire new staff, endure a sales slump, replace a broken piece of equipment, or take action on an exciting business opportunity, a short-term loan can be a solid option, whereas longer-term, more permanent financing could be employed at a later date.

Are online lenders safe? How do they compare with traditional banks?

Larry: Online lenders offer a useful service for borrowers whose needs are straightforward and where the borrower is well versed in the instrument to be used and its terms.  If you require significant support and hand-holding during the process, an online lender is not for you. A good analogy is the difference between making a hardware purchase at an old-fashioned neighborhood hardware store like Ace Hardware or buying your item on Amazon. The online purchase offers you significant cost savings, but with minimal support. 

Starleen: As with anything, due diligence is important when seeking an online lender. It’s important to do some research into the online lender’s reputation for customer service and also do a comparison for rates, terms, fees, etc.

Online lenders are sometimes hard to contact, whereas a traditional bank usually has a brick-and-mortar location you can visit. So if there is a technical issue with your application or funding, it may be harder to get it resolved when you’re working with an online lender. Online lenders may have more competitive rates and terms because they don’t have the same overhead as a bank with a physical location.

Do you have any tips for people looking to receive first-time business loans?

Starleen: Maintain your business records and keep accurate track of your expenses and income. You may need a business plan, financial statements, and tax returns. Maintain your credit and pay your bills on time—that is so important. 

Also, seek no-cost help from the SBA partners such as the Small Business Development Centers, Women Business Centers, and Veteran’s Business Centers. They offer no-cost assistance to help you get your business plan (if applicable), loan application, and documentation ready. They want to make sure you are bankable before visiting a lender. You can find the assistance closest to you at SBA.gov .

Larry: Take the time to keep your financial, accounting, and tax records up-to-date and accurate. Make sure your business has a system in place to keep everything organized. 

Banks have different credit requirements, and good credit is an essential part of the process. Understanding the type of loan that works best for you is imperative. Banks want to see that you have demonstrated cash flow sufficient to make your monthly loan payments.

When you run a business, there are many situations where a loan is necessary. It’s important to understand the types of loans available to you and pick the option that works best for your business. Term loans are a common and flexible type of loan that can assist your business in many situations, whether you’re renovating your location, acquiring another company, purchasing new equipment, or need funds to deal with a sudden emergency. 

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How To Write A Business Plan for A Bank Loan (3 Key Steps)

Wondering how to create a business plan that will wow your banker.

You're not alone.

Most entrepreneurs see writing a business plan as a gargantuan task – especially if they've never written one before.

Where do you start?

How do you calculate the financials?

How can you be sure you're not making a mistake?

And if you need a business plan for a bank loan, getting this document right is absolutely essential.

So here's what we recommend: simplify the planning process by breaking the work up into manageable, bite–sized steps. That way, you can focus on one section at a time to make sure it's accurate.

Here's a quick overview of the step–by–step process we guide entrepreneurs through when they sign up for LivePlan.

Step 1: Outline The Opportunity

This is the core of your business plan. It should give loan officers a clear understanding of:

• What problem you're solving
• How your product or service fits into the current market
• What sets your business apart from the competition

There are three key parts to this step:

The Problem & Solution

Detail exactly what problem you are solving for your customers. How do their lives improve after you solve that “pain point” for them?

We recommend actually going out and chatting with your target audience first. That way, you can validate that you're solving a real problem for your potential customers.

Be sure to describe your solution in vivid detail. For example, if the problem is that parking downtown is expensive and hard to find, your solution might be a bike rental service with designated pickup and dropoff locations.

Target Market

Who exactly are you selling to? And roughly how many of them are there?

This is crucial information for determining whether or not your business will succeed long–term. Never assume that your target market is “everyone.”

For example, it would be easy for a barber shop to target everyone who needs a haircut. But most likely, it will need to focus on a specific market segment to reach its full business potential. This might include catering to children and families, seniors or business professionals.

Competition

Who are your direct competitors? These are companies that provide similar solutions that aim to solve your customers' pain points.

Then outline what your competitive advantages are. Why should your target market choose you over the other products or services available?

Think you don't have any competition? Think again. Your customers are likely turning to an indirect competitor that is solving their problem with a different type of solution.

For example: A taco stand might compete directly with another taco stand, but indirectly with a nearby hot dog vendor.

Boost your chances of securing a loan

See how LivePlan can help you write a fundable business plan

Step 2: Show how you'll execute

This is where the action happens! Here you'll get into the details of how you'll take advantage of the opportunity you outlined in the previous section. This part demonstrates to banks that you have a strong plan to achieve success.

The three main components of this step include:

Marketing & Sales Plan

There can be a lot of moving parts to this one, depending on your business model.

But most importantly, you'll need to fully explain how you plan to reach your target market and convert those people into customers. A few example of what should be included:

• Positioning strategy. What makes your business both unique and highly desirable to your target market?
• Marketing activities. Will you advertise with billboards, online ads or something else entirely?
• Pricing. What you charge must reflect consumer demand. There are a few models to choose from, including ‘cost–plus pricing’ and ‘value pricing.’

This is the nuts and bolts of your business. It's especially important for brick–and–mortar companies that operate a storefront or have a warehouse.

You may want to explain why your location is important or detail how much space you have available. Plan to work at home? You can also cover your office space and any plans to move outside your house.

Any specialized software or equipment and tools should also be covered here.

Milestones & Metrics

Lenders and investors want to be confident that you know how to turn your business plans into financial success. That's where your milestones come in.

These are planned goals that help you progress your company. For example, if you're launching a new product your milestones may include completing prototypes and figuring out manufacturing.

Metrics are how you will gauge the success of your business. Do you want to generate a certain level of sales? Or keep costs at a certain level? Figuring out which metrics are most important and then tracking them is essential for growth.

Step 3: Detail your financial plan

This is the most crucial – and intimidating – part of any business plan for a bank loan. Your prospective lender will look especially close at this section to determine how likely your business is to succeed.

But the financial section doesn't have to be overwhelming, especially if you break the work into smaller pieces. Here are 3 items that your plan must have:

Simply put, this is your projections for your business finances. It gives you (and the bank) an idea of how much profit your company stands to make. Just a few items you'll need to include:

• Revenue. List all your products, services and any other ways your business will generate income.
• Direct costs. Or in other words, what are the costs to make what you sell?
• Personnel. Salaries and expenses related to what you pay yourself, employees and any contactors.
• Expenses. Things like rent, utilities, marketing costs and any other regular expenses.

Exactly how will you use any investments, loans or other financing to grow your business? This might include paying for capital expenses like equipment or hiring personnel.

Also detail where all your financing is coming from. Lines of credit, loans or personal savings should be listed here.

Bankers will be giving this section a lot of attention. Here's what you'll need:

• Profit & Loss. This statement pulls in numbers from your sales forecast and other elements to show whether you're making or losing money.
• Projected Balance Sheet. This is likely the first thing a loan officer will look at: it covers your liability, capital and assets. It provides an overview of how financially sound your business is.
• Projected Cash Flow. Essentially, this statement keeps track of how much money you have in the bank at any given point. Loan officers are likely to expect realistic monthly cash flow for the next 12 months.

Don't forget the Executive Summary

The Executive Summary is the first section of your business plan, but we recommend you tackle it last.

It's basically an introduction to your company, summarizing the main points of your plan. Keep it to just one or two pages and be as clear and concise as possible.

Think of it as a quick read designed to get the lender excited about your business.

If you need help writing your plan

Not everyone feels confident writing a business plan themselves, especially if it's needed to secure a bank loan.

And although you don't need an MBA to write one, getting your business plan right often does require quite a bit of work. So if you need help writing your plan, here are two options to consider:

• Hire a professional business plan writer to do it for you. This is typically the most expensive route, but worth it if you're pursuing $100,000 or more in capital.
• Sign up for LivePlan. It's business planning software that walks you through a step–by–step process for writing any type of plan. It's an affordable option that also gives you an easy way to track your actuals against your business plan, so you can get the insights you need to grow faster.

LivePlan makes it easy to write a winning business plan

No risk – includes our 35-day money back guarantee.

How to Write a Business Plan for a Loan

Business plans are often required when applying for funds from venture capitalists or other private investors, but even if you are seeking a bank loan for your company it is very helpful to prepare one since the lender wants to be confident that he is taking on an investment with growth potential so that you can repay the loan.

In this article, you will learn about the types of business loans, the importance of the business plan in your application for a loan, and how to write a business plan that will help you get the funding you need for your company.

Download our Ultimate Business Plan Template here

What Is a Business Loan?

A business loan is funding that is provided by a financial institution to a company for it to carry out its day-to-day operational activities. It also supports the purchase of equipment, refinancing of debt, and other purposes. Small businesses might need these loans because they may not have enough funds to buy equipment, refinance debt, or because they encounter financial difficulties.  

Your Loan Application

You can apply for a commercial loan with your local bank, credit union, Small Business Administration (SBA) lender, or community development financial institution like Capital Impact. You should expect that the lender will ask you detailed questions about all aspects of your business to ensure that he or she is lending you money that will be repaid.

In addition, if you are looking to purchase a business or commercial real estate, the lender may ask for additional information and documentation to assess your qualifications and ability to repay the loan.

Before applying for a business loan it can be helpful to research different types of loans so you understand what is available and what you will need to pay attention to in your loan proposal.

Common Types of Business Loans

There are many types of loans for small businesses, including:

• lines of credit
• commercial mortgages
• equipment financing

Contact different lenders in your area to see what kind of loan terms they offer and if their interest rates are within your budget.

What is a Business Plan?

A traditional business plan is a document that provides an analysis of the present situation and future financial projections for a company. It includes details about the owners, management team, customers, location of the business, finances, marketing plan, and other information.

A comprehensive and well-researched business plan will help lenders make informed decisions about providing a loan for your business.

To help you get started, you can download our sample business plan for bank loan pdf .

Why Do You Need a Business Plan to Get a Business Loan?

A loan proposal business plan is your opportunity to show the lender you understand your business, its capabilities, and how it operates within the industry in which it competes. By putting together a clear and concise document that outlines all of this information, the lender should have a much easier time understanding how you have arrived at your numbers and where you are going in the future.

A business plan is also helpful to the lender because it provides an opportunity for him or her to ask you questions, further clarifying details that might not be clear from your application materials alone. This way the lender can walk away from the meeting with a good understanding of what he or she is loaning money to and how likely it is he or she will see the loan repaid.

How to Write a Business Plan to Get Approved for a Loan

Different lenders may ask for different sections of your business plan, but most require some combination of the following key elements.

1. Executive Summary

The Executive Summary is the first section of your business plan that a lender will read, but typically the last section written. It is very important because it acts as a snapshot of your business plan and allows the person reading to get an overview of what you are proposing.

The summary should include:

• A statement about why you need the business loan
• Details on how much money you want to borrow, when you will repay it, and interest rates
• A description of how the proceeds from the loan will be used
• Your business’s historical and projected financial information (again)
• The expected impact on your company and the industry as a whole if you are successful.

2. Company Description

In the Company Description, you should include basic facts about your company such as:

• What is the business structure (corporation, partnership, limited liability company (LLC), etc.)?
• How long has your company been in operation?
• What is the size of your workforce?
• What accomplishments or milestones have you achieved within the last year?

This section should also include information about your future business plans.

• How do you plan to expand, if at all?
• Who are your main competitors and how is your company different from them?
• What changes will you make to excel against these competitors?

3. Industry Analysis

In the Industry or Market Analysis, you should include information about your industry in general.

• What are the strengths and weaknesses of your industry?
• How will your company compete in it?
• What trends within the industry affect its future success or potential struggles?

You may also include information about your specific niche in the market. If your company operates in a very specific area of the industry, be sure to highlight it.

4. Customer Analysis

The Customer Analysis section of your business plan helps a lender understand who your customers are and why they will buy from you.

In this section, you should include information on the following:

• Your target audience and the individual customer segments
• How many potential customers you have within your target market
• How much your customers typically spend, and how much you expect them to spend in the future
• What has caused these changes or trends to occur and how they will impact your business

5. Competitive Analysis

This section should show the competitive landscape and how you plan to compete against your competitors.

• What are their strengths?
• Where do they fall short?
• What changes will you implement to get ahead of them?
• What are your company’s competitive advantages over these competitors?

6. Marketing Plan

This section should include a detailed description of the marketing strategy you plan to implement.

• What is your customer acquisition cost? How much will it cost you to bring in one new customer?
• How will you reach these potential customers? Be specific about your marketing strategy, advertising methods and costs.
• Who is responsible for implementing each part of the marketing plan and how much it is expected to cost?

7. Operations Plan

Your Operations Analysis should describe the way your company currently operates and how it will operate with the help of the loan.

• What are your company’s strengths? Weaknesses?
• What have you implemented in the past 12 months that has led to increased revenue, decreased costs, or improved efficiency?
• How will you continue to operate efficiently with the proceeds?

8. Management Team

In the management section, you should describe your business in terms of its personnel structure.

• What are the responsibilities of each person on your team?
• Who are they? What are their qualifications?
• How will their roles change when you receive the loan proceeds?

9. Financial Plan

This section should include your company’s financial statements include the projected income statements, projected balance sheet, and cash flow statements for the next 3 – 5 years.

You can assume that you will receive loan proceeds in 20XX, so plan accordingly.

Include a five-year break-even analysis and an explanation of how you arrived at your income statement and cash flow projections. Don’t forget to include interest and loan payments in your financial projections.

10. Appendix

In this section, you will include the supporting documents for the claims within your business plan. This section should include:

• A loan agreement
• A list of all applicable business licenses, permits, etc. that your company holds or has applied for

You may also include:

• An organizational chart for your company
• The resumes of the members of your management team
• The resumes of any employees who will be making a significant impact on your business with the loan money
• Copies of contracts, leases, and other agreements that are relevant to your business plan
• Complete financial statements and projections if you only include a summary in the Financial Plan section

These documents should be attached to your business plan in a separate file if they are not included and may need to be submitted with the final small business loan application.

Tips for Writing a Business Plan for a Loan

To have a successful business plan and loan application, you need to know exactly what information your loan officer is looking for and how to find it.

• Before you submit your application, be sure to carefully edit and proofread it for errors. Errors in a business plan may lead a lender to question your attention to detail, so make sure it is polished and error-free.
• Always be sure to include an executive summary of the main points of your plan at the beginning, as some loan officers may not read all of the details.
• Be sure to keep your tone professional and business-like.
• Include detailed financials, market analysis, and other crucial information.
• Remember that any omission or inaccuracies will be carefully scrutinized by a lending officer, so be sure you have all of the necessary documents before submission.
• Finally, remember that lenders often appreciate creativity and outside-the-box thinking when it comes to business plans, but don’t let it distract from the necessary information for your application.

Writing a good business plan is one of the most important and necessary steps toward securing a loan or other source of capital.

Use our proven business plan template provided below, and you’ll be able to give your lender all of the information they need to make an informed decision.

The key is to do it right. By following the steps outlined above and including all of the necessary documents (and editing/proofing your application), you should significantly improve your chance of securing a loan for your business.

How to Finish Your Business Plan in 1 Day!

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With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

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Personal Loan: How to choose the right payment plan? Here are some essential points to keep in mind

S electing the optimal payment plan for your personal loan entails evaluating various factors to determine the option that aligns best with your financial circumstances and objectives. Here’s a breakdown of essential points to keep in mind:

Interest rate and loan term

• Lowest interest rate : Aim for a personal loan with the most competitive interest rate to reduce the overall cost of borrowing throughout the loan duration.
• Loan term consideration : Opting for a shorter loan term results in higher monthly payments but reduces the total interest paid. Conversely, a long-term loan yields lower monthly payments but increases the total interest paid over time.

Striking a balance

• Assess your budget : Take stock of your monthly earnings and expenditures to establish a manageable monthly payment . Overextending yourself could result in financial stress.
• Evaluate prepayment options : Check if the loan permits early repayment with minimal or no penalties. This grants you the flexibility to expedite loan repayment if you come into extra funds.

Other considerations

• Loan amount : The total borrowed amount influences both your monthly payment and overall interest expense. Borrow only what’s necessary.
• Additional fees : Be aware of potential processing fees and other charges like origination fees. Include these in your comprehensive loan comparison.

Here are steps to help you find the ideal payment plan:

• Explore options : Compare rates and terms from various lenders.
• Utilise a personal loan calculator : These tools assist in estimating monthly payments for different loan amounts and terms.
• Assess your objectives : Determine if your focus is on swift loan repayment or maintaining low monthly payments.

By taking these factors into account, you can select a personal loan payment plan that aligns with your budget and supports your financial objectives.

Frequently Asked Questions ( FAQs )

Q. What paperwork is required for a personal loan application?

The required documents for a personal loan application can differ based on the lender, but here’s a general checklist:

Proof of identity

• Driver’s License
• Voter Identification Card
• Aadhaar Card (India)

Proof of address

• Utility bill (electricity, water, phone) - Not older than three months
• Passport (address is mentioned)
• Leave and license agreement

Proof of income

• Salary slips (latest three months) for salaried individuals
• Bank statements (latest three months) showing salary credit
• Income Tax Returns (ITRs) for self-employed individuals or businesses
• Audited financials for businesses (if applicable)

Additional documents

• Passport-sized photographs (requirements may vary by lender)
• Employer contact information (for salaried individuals)
• Proof of office address and ownership (for self-employed individuals)
• Proof of business existence (for businesses)

Optional documents ( depending on lender )

• Proof of investment (if any)
• Co-signer information (if applicable)

Q. What’s the usual timeframe for personal loan approval?

The approval duration for a personal loan can vary based on the lender and your specific circumstances, but it generally falls into these categories:

• Quick approval ( as fast as a few hours ): Online lenders or banks with whom you have a strong existing relationship may provide rapid approvals, sometimes within the same business day. This is often the case for smaller loan amounts and when you have a well-established credit history with the lender.
• Standard approval time ( One to three business days ): This timeframe is typical for many lenders. They typically conduct a thorough review of your application, including verifying your information and running a credit check, before making an approval decision within a few business days.
• Extended approval time ( up to a week or more ): In certain situations, the approval process may take longer, especially if your application requires additional review. This could be due to factors like complex income structures (such as freelancers or business owners), a lower credit score necessitating manual verification, or incomplete documentation.

Q. What other options exist besides personal loans?

There are various alternatives to personal loans that you might consider, each with its own advantages and drawbacks:

Credit cards

• Pros : Widely accepted, may offer rewards, may have introductory 0% APR periods.
• Cons : High interest rates after introductory periods, the potential for overspending, requires good credit.

Home equity loans or HELOC

• Pros : Potentially lower interest rates, good for larger financing needs.
• Cons : Requires homeownership and equity, puts your home at risk if you default, complex application process.

Salary advance

• Pros : Quick access to cash, helpful for emergencies.
• Cons : High fees, temporary solution, may not be available from all employers.

Peer-to-Peer ( P2P ) loan

• Pros : Competitive rates, may be an option for those with less-than-perfect credit score.
• Cons : Interest rates can vary, less predictable approval compared to traditional lenders, platform fees.
• Pros : No interest charges, readily available if you have savings.
• Cons : Not immediate, reduces emergency fund if used.

Credit union loans

• Pros : Competitive rates, flexible terms, easier qualification if a member.
• Cons : Requires credit union membership, may have eligibility criteria, not as widespread as banks.

The best option for you depends on factors like the amount needed, interest rates, repayment terms, and risks. Consider your specific needs and financial situation before deciding.

Q. What minimum credit score is required to be eligible for a personal loan?

While there isn't a universal minimum credit score requirement for personal loan approval in India, most lenders seek credit scores ranging from 720 to 750 and higher to grant favorable interest rates and loan conditions.

Q. What effect does applying for a personal loan have on my credit score?

Applying for a personal loan can impact your credit score in a few ways, both positive and negative. Here's a breakdown of what to expect:

Hard inquiry

Every time you formally apply for a loan, including a personal loan, the lender performs a hard inquiry on your credit report. This inquiry can cause a temporary dip in your credit score, typically by a few points. It's important to note that multiple hard inquiries within a short period (usually considered within 30 to 45 days) can have a more significant impact on your credit score compared to a single inquiry. This is because lenders might view this as you being “credit hungry” and potentially a higher risk borrower.

Obtaining a new loan, such as a personal loan, is categorised as "new credit" by credit agencies and is incorporated into your credit score.

Potential positive impact

Regular and timely payments on your personal loan can notably boost your credit score over time, showcasing responsible credit handling and enhancing your creditworthiness. Also, maintaining a balanced mix of credit types, including installment loans like personal loans and revolving credit such as credit cards, can have a positive effect on your credit score according to certain credit scoring models.

The short-term decrease caused by a hard inquiry typically has minimal impact and rebounds within a few months, especially with a strong credit history and responsible credit management. Over time, the potential benefits of timely payments and a diverse credit portfolio can surpass the temporary dip from the hard inquiry.

Home > Finance > Loans

Short Term Business Loans: A Complete Guide

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Short-term loans are a specific kind of business loan that you have to pay back sooner than other business loans (usually within six months to three years). Generally, they have lower loan amounts and higher interest rates than traditional long-term loans―but they’re also easier to qualify for and faster to get.

Want more info? Let’s dive in and talk more about what short-term business loans are, how to qualify for one, and where to find one for your small business.

Short-term business loan table of contents

What is a short-term small-business loan, borrower requirements for short-term small-business loans.

• Deciding if a short-term loan works for your business
• How to get a short-term business loan
• Alternatives to short-term business loans

The takeaway

Like we said, short-term business loans are just term loans with shorter repayment terms (the time you have to repay the loan) than traditional business loans.

But let’s get more specific about what kind of repayment schedules, loan amounts, and interest rates you can expect.

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Repayment schedule

Short-term loans come in a range of term lengths, from a few months on the short side to three years on the long end. We most commonly see repayment terms of six months, one year, or two years.

But with short-term loans, you need to consider more than just how long you have to repay the loan. You also need to pay attention to how often you make payments. 

See, traditional long-term loans usually come with a monthly payment schedule. But short-term loans often have a weekly payment schedule—sometimes even a daily repayment schedule.

That can cause problems for businesses with uneven cash flow, like B2B businesses that tend to wait on invoice payments. Put simply, it can be harder to find the money for loan payments during a lean week than the week your customers all pay their invoices. Monthly payments are often easier to plan around.

It may help to know, though, that your weekly (or daily) payments will be smaller than typical monthly payments. After all, you’re dividing a typical monthly loan payment over four or five payments. 

Loan amounts

Because short-term loans have such brief loan terms, they come in smaller loan amounts than long-term business loans . 

Banks and online lenders offer traditional business loans in loan sizes up into the millions of dollars. Don’t expect to get that much for a short-term loan, though. Most short-term business loans max out around $500,000. In fact, many lenders don’t offer short-term loans over $250,000. Keep in mind, too, that you’ll need top-notch borrower qualifications to get that maximum loan amount.

(Some exceptions? Hard money loans and bridge loans are both short-term real estate loans. But those aren’t what most people mean when they talk about short-term small-business loans.)

But these lower loan amounts make it possible to repay a short-term loan in a matter of months or a couple years. Most business owners wouldn’t have enough cash flow to repay a $1 million loan in two years―but $100,000 is much more manageable. 

Smaller loan sizes do mean short-term loans won’t work for some big business expenses. Still, you can do a lot with smaller loans, making short-term loans a fine choice for everything from inventory purchases to hiring plans to marketing campaigns.

Interest rates

Short-term loans tend to have higher interest rates than long-term loans do. That’s partly because more online lenders offer short-term loans than traditional lenders (banks and credit unions) do―and online lenders usually cost more than traditional lenders. 

So while you can find long-term bank loans with starting interest rates around 5%, short-term loans start a bit higher, around 8% on the low end. 

Likewise, while traditional term loan rates top out around 30% (from traditional lenders), you can find short-term loans with interest rates well over 50%.

The good news? That doesn’t necessarily make a short-term loan more expensive overall. Interest accrues over time, after all.

So imagine you have a $100,000 loan. With a 5% rate and a five-year term, you end up paying a bit over $13,000 in interest. Make it a 10% interest rate and a two-year term, and your loan costs less than $11,000 in interest. (You can play around with our business loan calculator to see how different interest rates and loan terms affect your overall costs.)

Put simply, expect to pay a higher interest rate on your short-term business loan―but don’t assume you’ll pay more overall. 

Now you know that short-term business loans have brief repayment terms, low maximum loan amounts, and potentially high interest rates. But what does it take to get one?

We have more good news for you: Short-term business loans have lower borrower requirements than traditional term loans do.

For example, minimum business loan requirements for a bank loan would include the following:

• Personal credit score in the high 600s
• Business age of two or three years (at least)
• Annual revenue over $200,000

But for a short-term loan, you can find lenders willing to accept much lower borrower criteria:

• Credit score as low as 600
• Business age of just one year
• Annual revenue around $100,000

These qualifications make short-term loans a way more accessible financing option for many business owners. You don’t need a perfect credit score or very mature business to qualify.

How to decide if a short-term business loan is right for your business

As you’ve probably already noticed, short-term business loans have some real upsides―but they have just as many downsides.

On the upside, many business owners who can’t qualify for traditional business loans can still qualify for short-term loans. So if you have less-than-perfect credit or a young business, you might like a short-term loan.

Plus, because short-term loans don’t pose as much risk to lenders, you can get approved for short-term loans very quickly. Many lenders offer same-day approval on their short-term small-business loans, and plenty go on to fund you within just one or two business days. If you’re in a hurry to get funding, a short-term loan business loan could help.

And many different lenders offer short-term loans, giving you plenty of lender options to choose from. You can go with an online lender focused on short-term loans (like OnDeck ) or a lending marketplace that can match you with various lenders (like Lendio ). You may even find your payment processor can offer you a short-term loan (like Square Loans ).

Short-term business loan pros and cons

That said, pay attention to the downsides. If a higher interest rate is a dealbreaker, short-term loans probably won’t work for you. 

Likewise, if you want a monthly payment schedule, you may have trouble finding a short-term lender offering one. 

And if you prefer a long term that lets you spread low payments over many years, a short-term loan definitely isn’t the financing option you want. 

Overall, we say short-term business loans work best for business owners who can’t qualify for more traditional funding options or who need fast funding to take advantage of a short-term opportunity.

Sound like your situation? Then let’s talk about how (and where) to get a short-term business loan.

How to get a short-term small-business loan

It only takes a few simple steps to apply for a short-term business loan:

• Pick a lender.
• Fill out your lender’s application.
• Provide any necessary documents (like bank statements or tax returns).
• Wait to hear back on your loan application.
• Get approved and funded.

Obviously, these steps take time and require you to do some work. Even so, most online lenders try to have simple applications that you can finish within an hour. They make things as easy on you as possible. And if you need more guidance, we have a guide that explains how to apply for a business loan online .

So really, the hardest step will be picking a lender.

Where to get a short-term business loan

As we said earlier, you’ll generally need to turn to online lenders (aka alternative lenders) to find short-term loans.

We’ve rounded up a few of our favorite short-term lenders in the table below. You can read more about them in our guide to the best short-term business loans .

Compare the best short-term business lenders

Data as of 6/2/22. Offers and availability may vary by location and are subject to change.

We think most business owners should try getting a short-term loan through Lendio . It’s a lending marketplace, which means Lendio hooks you up with partner lenders rather than giving you a loan itself. Lendio tries to match you with the best loans possible, giving you all the benefits of shopping around with way less work on your part.

But plenty of other lending companies, including the ones we listed above, offer short-term loans. You’ve got options.

And if you have trouble finding a short-term loan lender you like, you can always consider some alternative funding solutions.

Lendio partners with over 75 lenders, which improves your odds and efficiency to get the funding you need.

Qualifications:

$50k in revenue

6 mos. in business

560 credit score

Alternatives to short-term small-business loans

Not convinced you want a short-term business loan? No problem. We have a few alternative options you can consider:

• Business line of credit . A line of credit gives you revolving credit (like a credit card), which means you can use it over and over. Online lenders offer accessible business credit lines with very fast funding times.
• Merchant cash advance. We dislike merchant cash advances , since they cost a lot and have confusing fees. But they do have very low credit requirements, making them both easy and fast to get.
• Business credit card. If you can repay your purchases very quickly so you don’t get charged interest, a business credit card can offer an accessible way to pay for smaller business expenses.

For more short-term loan alternatives, check out our list of the best small-business funding options .

Short-term loans let you borrow money for a short amount of time―usually somewhere between six months and three years. They tend to come in low loan sizes with high interest rates and frequent payment schedules. 

But short-term loans have some notable perks, like their relaxed borrower requirements and fast funding times. Plus, short-term loans give you enough flexibility to use them on all kinds of business costs.

If that sounds tempting to you, we suggest turning to online lenders to get a short-term loan.

With any luck, you’ll be surprised at how quickly you can get approved and funded.

Before you apply for a loan, make sure you can qualify by checking your credit score with one of the best credit monitoring services for business owners .

Related reading

Best Small Business Loans

• Best Fast and Easy Business Loans in 2023
• Square Capital vs. PayPal Working Capital vs. Stripe Capital
• How Long Does It Take To Get a Business Loan?
• What Is APR?

Short-term small-business loan FAQ

Proper record-keeping for small businesses makes the process easier and keeps you compliant with the law. You never want to waste time chasing down last month’s missing invoice, and you certainly don’t want to find yourself in trouble with legal requirements. Visit SBA.gov to find out more about how small businesses can stay legally compliant .

What is the easiest SBA loan to get?

SBA microloans are the easiest SBA loan to get, since their smaller loan amounts let lenders accept lower credit scores and younger businesses.

How long are short-term business loans?

Short-term business loans can range from three months long to three years. In most cases, you’ll get a loan term between six months and two years.

What is the shortest term for a loan?

The shortest term we’ve seen for a business loan is three months.

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Long-term mortgage rates retreat for second straight week, US average at 7.02%

FILE - Townhouses under construction are shown in Cranberry Township, Pa., on March 29, 2024. On Thursday, May 16, 2024, Freddie Mac reports on this week’s average U.S. mortgage rates. (AP Photo/Gene J. Puskar, File)

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The average rate on a 30-year mortgage in the U.S. fell for the second straight week, giving some relief to home shoppers already facing sky-high prices and a shortage of supply.

The average 30-year rate fell to 7.02% from 7.09% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.39%.

The recent pullbacks followed a five-week string of increases that pushed the average rate to its highest level since November 30. Higher mortgage rates can add hundreds of dollars a month in costs for borrowers, limiting homebuyers’ purchasing options.

“The decrease in rates, albeit small, may provide a bit more wiggle room in the budgets of prospective homebuyers,” said Sam Khater, Freddie Mac’s chief economist.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also declined this week, trimming the average rate to 6.28% from 6.38% last week. A year ago, it averaged 5.75%, Freddie Mac said.

Mortgage rates are influenced by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

Treasury yields have largely been easing since Federal Reserve Chair Jerome Powell said earlier this month that the central bank remains closer to cutting its main interest rate than hiking it.

Still, the Fed has maintained it doesn’t plan to cut interest rates until it has greater confidence that price increases are slowing sustainably to its 2% target.

Until then, mortgage rates are unlikely to ease significantly, economists say.

After climbing to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage stayed below 7% this year until last month.

Last month’s rise in rates were an unwelcome development for prospective homebuyers in the midst of what’s traditionally the busiest time of the year for home sales. On average, more than one-third of all homes sold in a given year are purchased between March and June.

Sales of previously occupied U.S. homes fell in March as homebuyers contended with elevated mortgage rates and rising prices.

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What Is a Business Auto Loan?

Main features of a business auto loan, how to apply for a business auto loan, tips for improving your chances of getting approved, best business auto loan providers, alternatives to a business auto loan, the bottom line, what is a business auto loan how to finance company vehicles.

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A business auto loan is a type of secured loan that companies or individual owners can use to purchase vehicles for business purposes. A business auto loan can be less expensive than an unsecured loan, and its interest costs may be tax-deductible. Business auto loans are also referred to as commercial auto loans.

Key Takeaways

• Business auto loans are available for financing company vehicles.
• Like consumer auto loans, they are secured, with the vehicle serving as collateral.
• When shopping for a business auto loan, compare interest rates, loan lengths, down payment options, and eligibility requirements. 
• If a business auto loan isn't right for you, you have some other alternatives.

These are some of the key features to consider when shopping for a business auto loan.

Interest Rates

The interest rates for business auto loans can be fixed or variable and will vary from lender to lender. The rate you'll qualify for will depend on factors such as the loan amount and the credit history of the business.

Loan terms, or lengths, for business auto loans can span several years. For example, you may be able to find a loan for a 24-month term or one stretching out as long as 84 months. The longer the loan term, the lower your monthly payments could be, but the more you'll end up paying overall.

Eligibility Requirements

Qualifying for a business auto loan is much like qualifying for a consumer auto loan, but with some additional requirements. Those often include:

• The vehicle needs to be for business purposes. 
• Your business must have been in existence for a certain period of time.
• The business must also meet the lender's income and credit requirements.

You will most likely have to provide documentation such as tax returns, relevant business licenses, and profit and loss statements .

Down Payment Options

Some lenders may require that you put down a certain percentage of the vehicle's selling price. Or, you may be able to borrow the entire price, with no down payment needed. The more you put down, the less you'll need to borrow, which could save you in total interest charges and may also entitle you to a lower annual percentage rate (APR) . 

Applying for a business auto loan is a relatively straightforward process.

1. Establish Your Needs and Budget

Assess your needs for a new vehicle and look at your budget to determine how much you can afford without overextending your business financially. Consider any taxes and fees you may need to pay for the car and any other costs to maintain it. Our car loan payment calculator can help you determine your likely monthly payments and compare different loans.

2. Research Lenders 

Comparing multiple lenders lets you see what your options are and find the best fit. Auto loans are widely available from banks, credit unions, online lenders, and car dealers, and you can often check their minimum requirements online. The U.S. Small Business Administration (SBA) also backs certain business-related loans in partnership with local lenders. With some lenders, you may be able to get pre-approved to see what rates you would likely qualify for.

3. Choose a Vehicle

Before applying for a loan, choose what type of vehicle your business will need and how much it will cost. Some types of vehicles, such as trucks, are often financed through equipment loans , which can vary in their terms from auto loans. Bear in mind that vehicle prices are often negotiable, and you may have more leverage if you're buying multiple vehicles rather than just one.

4. Gather Documentation

To speed the process along as much as possible, make sure you have all the necessary documents in hand. The lender will outline what's needed—in most cases you'll have to provide proof that your business actually exists, such as tax returns, profit and loss statements, bank statements, and possibly a business plan .

5. Submit Your Application

Work with the lender to complete your application. Make sure you answer every question and provide any additional documentation. 

6. Sign the Loan Documents

If your loan application is approved, you will need to sign loan documents before you receive funding. These documents should cover the loan's repayment terms and your and the lender's respective responsibilities. Once they're been signed, the lender will give you the loan proceeds and you can purchase the vehicle.  

Lenders want to know that you'll be able to repay any money they lend you. You'll increase your odds of loan approval if you can demonstrate that your business is well managed and responsible in its use of credit. When buying a car (or any expensive piece of equipment) it helps to have a clear rationale for why you need it and how it will help the business.

If your business has a business or commercial credit score or a credit rating , make sure you know it, because the lender will most likely check. Anything you can do to improve your score or rating will also help, although that can take time.

You may also benefit from seeking guidance, either from someone in your finance department (if you have one) or from an outside loan specialist. 

Here are three of the best lenders, with information about their loan options and requirements.

Bank of America

Bank of America offers loans as low as $10,000 with APRs starting at 6.99%. Applicants can use the loan to purchase cars, light trucks, and vans. Borrowers don't need to be an existing Bank of America customer, but those who are enrolled in the Preferred Rewards for Business program may qualify for interest rate discounts.

Balboa Capital

Balboa Capital may be a good choice for newer businesses looking for commercial truck financing. Applicants only need to be in business for a minimum of one year. Other requirements include a minimum credit score of 620 and at least $100,000 in annual revenue. There is an online application and the approval process can take as little as an hour if you submit it during business hours.  

Ally Financial

Ally Financial offers several loan and leasing options. Applicants can opt for traditional financing for commercial vehicles, a closed-end lease with a fixed repayment term, or an open-end lease with flexible terms. Most types of vehicles qualify. Ally doesn't disclose its loan terms and borrower requirements, so you'll need to contact the lender directly.

A business auto loan may not be your only option. Others include:

• SBA loans. The U.S. Small Business Administration offers loans —the SBA 7(a) loan in particular—that can be used for most purposes, including acquiring vehicles and equipment. Businesses need to be for-profit and meet certain credit and size criteria, among other requirements.
• Personal loans. Though it can be possible to use a personal loan to finance a vehicle, not all lenders will allow you to use the loan for business purposes. This funding option may also be risky since you could be personally responsible for payments if the business is unable to keep up with them.
• Consumer auto loan. Taking out a consumer loan can be possible if you intend to use the vehicle for both business and personal purposes. Depending on the car's use, you may be able to have your business pay for certain expenses.

How Long Does It Take to Get Approved for a Business Auto Loan?

Lenders vary in how long it takes them to approve a business auto loan. In many cases it may be several days to several weeks, depending on the amount you want to borrow and how much documentation the lender requires.

Can Startups Qualify for Business Auto Loans?

Startups can qualify for business auto loans, although there may be fewer lenders willing to fund them due to the greater perceived risk. Lenders often indicate how long a company needs to have been in business on their websites.

What Happens If I Default on a Business Auto Loan?

If you default on your business auto loan, the lender may repossess the vehicle in an attempt to recoup its losses. Your business credit score or rating could also be negatively affected.

Can I Use a Business Auto Loan to Purchase Used Vehicles?

Yes, it is possible to purchase a used vehicle using a business auto loan, just as it is with a regular consumer auto loan. Qualifying criteria will depend on the lender.

If your company needs a new vehicle, or a whole fleet of them, a business auto loan could be the answer. As with any other kind of loan, it pays to take the time to shop around for one with a good interest rate and other terms.

U.S, Small Business Administration. " Loans ."

Bank of American " Business Auto Loans ."

Balboa Capital. " Commercial Truck Financing ."

Ally Financial. " Business Vehicle Financing ."

U.S. Small Business Administration." Terms, Conditions, and Eligibility ."

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