Use a Business Term Loan
Most business owners have heard, that term loans are one of the best products for small business owners who want to expand. Funds from a business term loan can be used in a multitude of ways to help a small business grow.
What exactly is a term loan? We’ll go over the costs, qualifications, process, use of proceeds and more to help you determine if a term loan is the best option to fund your small business growth.
Term loans are viable options for established businesses that are showing a profit on their most recent business tax return. No two businesses are alike and all business owners have specific capital needs. Upwise funding specialists will be able to qualify your business for a term loan very quickly.
With any term loan, your use of funds and credit score are the most important aspects during the underwriting process. Business owners need to make sure their use of proceeds make sense prior to applying for a term Loan. We ask our clients to list out a breakdown, dollar for dollar on what specifically the funds will be used for before applying. To speak with one of our term loan funding specialists regarding your business financing needs, please call 77-55-UPWISE.
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What is a Business Term Loan?
A traditional business term loan is a lump sum of capital that you pay back with regular repayments at a fixed interest rate over a term typically between one to five years. The “term” in “term loan” comes from its set repayment term length or when the loan goes to maturity. Business owners often use the proceeds from a Term Loan to finance a specific, one-off investment for their small business.
Since Term Loans have lower interest rates and come in at a great cost of capital over a longer term, many clients use Term Loans to refinance high interest debt. As long as the borrowers credit and Debt-Coverage-Service-Ratio meets the minimum requirements, Upwise will be able secure a Term Loan for your business.
Who Qualifies for a Term Loan?
Securing a Term loan is no easy task and required more paperwork than some other products offered by Upwise Marketplace.
So how can you get one?
Plenty of businesses can qualify for a traditional term loan—as long as you’ve been in business for a bit, have a good credit score, and are reporting a profit on your most recent years business tax return.
(See more on a term loan’s minimum qualifications below.)
Not all business term loans are the same, though: the interest rate, the length of the term, and maximum loan size depends on your business revenues and credit rating.
Typically, most term loan banks or lenders will lend up to 30% of gross annual sales reported on the most recent business tax return with no collateral attached to the loan. In order to increase the loan amount, you can add collateral such as real estate, equipment, Inventory, and other assets to the loan.
Since traditional term loans have longer repayment periods than short-term loans, your business’s financials and credit score are more important.
Depending on your small business’s growth needs , cash flow, personal and business credit score, revenue, EBITDA, net profit, DCSR and more, there are plenty of different term loans available on the Upwise Marketplace.
In fact, Upwise will assist you in securing business term loans with lengths and payment structures as varied as 1 year with bi-weekly payments to 5 years with monthly payments – and everything in between.
Most Customers Who were approved for an Term Loan had:
**Based on Previous Upwise Clients
What does a Term Loan Cost?
Before applying, you should know how much financing will cost you, no matter what type of financing you’re applying for.
Terms Loans are easy to figure out and calculate the amortization schedule and tend to be one of the most affordable options available.
Let’s take a look at a cost example.
Example of a Business Term Loan
Let’s say you’ve qualified for a business term loan.
In this business term loan offer, you’re borrowing $25K from a lender at a 12% interest rate and a 5-year term.
Given the longer length of that traditional term loan, you’ll most likely have a monthly payment of about $556. (Term loans can come with weekly and bi-weekly payments, too.)
That’s a predictable expense you can easily understand and plan your financials around.
Small business term loans, like other business loans, can also come with fees attached to the loan. These fees could be origination fees, underwriting fees, prepayment fees, and other fees.
Make a WISE choice with Upwise and don’t overlook fees on your loan offer with other loan brokers. Be sure to factor in any and all small fees associated with your Term Loan in order to understand the true cost of your loan. Upwise will make sure all fees are transparent and thoroughly explained prior to proceeding with a Term Loan.
Breaking Down Each Term Loan Payment
Here’s the thing with business term loans: not every payment goes toward the same thing. There is a specific amortization schedule for each term loan, with a certain portion of each payment going towards interest and principal.
Traditional term loans amortize, which means you don’t pay equal parts interest and principal (or the amount you borrowed) from month to month. Instead, lenders usually stack interest payments early on and leave your principal payments for later on in the life of your small business term loan.
That way, even if you pay your loan off early and get the rest of the interest forgiven, you’ve still paid most of it to the lender. Make sure to ask for an amortization schedule, so you know when is the best time to pay this loan.his means that you might save less than you’d think by paying your term loan off towards the end of the loans maturity. Most term loan lenders do not have a penalty for early payoff and some Term Lenders offer a pre-payment discount.
However, your monthly payment is still the same amount—it’s just the proportion of interest to principal that changes.
In order to understand your Term Loan completely, make sure to ask Upwise for an amortization schedule or call our Term Loan Team at (917)-444-3959.
Documents Required for a Term Loan
The best strategy to follow before you apply for these loans is to be prepared. The more readily available your documentation is, the faster you’ll move through the process.
The following is a checklist of the most commonly collected documents. It can be very helpful to work with your accountant or tax preparer to gather some of the financial documentation.
Upwise marketplace requires the previous 2 years of business and 1 year of your personal income tax returns.
Also known as an “Income Statement,” a Profit and Loss Statement measures a company's financial performance over a specific period of time. This statement includes all revenue and expenses over a given period.
We require at least 6 months of your business bank statements. If showing more gives us a better picture on how your business performs, feel free to send us a full year of statements. You may have more than one business bank account, so please make sure to include these statements for each account.
These can include entity and location documents such as business licenses, Articles of Incorporation, commercial leases, or franchise agreements.
To ensure all of your information is correct on the contracts, we require a clear copy of you DL & VC to verify this information.
This statement provides an overall financial snapshot of your small business. As an equation, it looks like: Assets = Liabilities + Equity. The two sides of the equation must balance out to equal each other.
Most banks require some type of collateral. For Upwise, collateral required depends on the Term loan size. Business term loans from traditional banks and certain online lenders will be the hardest term loan products to qualify for.
Getting a traditional business term loan isn’t easy if you’ve got a low credit score or no collateral to secure that cash with. In fact, collateral might be a requirement for a term loan—depending on the rest of your business’s financials—and you risk losing that collateral if you can’t repay your loan. And while many of these products might not require a specific piece of collateral but, instead, put a “blanket lien” across all your business assets, so the same risk still applies.
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