Term Loans: Everything You Need to Know

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
What Is a Term Loan?
What Can a Term Loan Be Used For?
Buying real estate or expanding or rehabbing property you already own (in that case, the real estate would likely serve as the collateral) Buying new equipment or repairing what you have (the equipment could serve as collateral) Restocking inventory, perhaps in anticipation of the holidays or another busy season, or if there’s great demand for certain products Buying vehicles for work, perhaps to deliver products
What Are Different Types of Term Loans?
Short Term
Intermediate Term
Long Term
How Do Term Loans Work?
What Are the Pros and Cons to Term Loans?
Pros of Term Loans
You may be able to borrow a large amount of money. Multiple types of term loan programs may be available when you look at different lenders. Interest rates are typically lower than credit card rates and those on payday loans and other short-term funding options. As you pay the term loan back on time, you can boost your business credit score.
Cons of Term Loans
You may be entering into a long-term debt. The loan application process may take longer than you’d like. Some loans come with prepayment penalties, which means that you can’t prepay to reduce the amount of interest paid over the loan’s life, and other fees. If your credit isn’t the best, the interest rates you’re offered may not be, either.
What Do You Need to Apply For a Term Loan?
Bank statements (personal and business) Tax returns (personal and business) Business legal documents, including licenses and permits Personal identification Business plan Revenue statements Accounts receivable reports Accounts payable reports
The Takeaway
About the Author
Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
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