Getting to the next step in your business’s lifecycle is an exciting time for any small business owner. But there will likely come a point (or several) when you’ll need more access to capital before you can continue down the path you want to go.
Perhaps you’ve reached a certain point of stability and decided it’s time to start growing — maybe you need more inventory or large equipment purchase. Maybe you have a few different sources of business debt and are looking to refinance into one simple monthly payment. Or maybe you just need to cover tax obligations and payroll for a short period of time, and you simply don’t have the funds at the moment.
There are many different sources of funding available these days; for established business owners with solid credit, a term loan is often one of the best options. Whatever your reason for needing working capital, long-term financing is likely a good solution.
Below, we’ll go over the most important steps to take to find long-term financing through an online business lender.
What Can I Use a Term Loan For?
When it comes to putting a term loan to use, you’re likely to come across a few restrictions. However, your best bet is to put it towards something that’s going to help your business generate revenue.
This means that whatever you use your term loan for, you should come out on the other side of the loan with more money than you started with — otherwise, what’s the point? A term loan can be used for many different, exciting growth opportunities for your business, from starting a new marketing campaign to reaching untapped audiences, to launching a new product, to opening a new retail location.
How Does a Term Loan Work?
Term loans are some of the most straightforward business loans on the market. In fact, they are the most common types of business loans out there.
The process is simple: after applying and being approved for a term loan, you receive a predetermined sum of money. You will pay it back over an agreed-upon amount of time, along with interest, which will either be a fixed or variable rate. Your payments will be in regular increments and intervals — there’s nothing unpredictable about a term loan.
Of course, it’s important to remember that you may face a prepayment penalty should you decide to pay off your financing before your loan term is up. But with the set payment structure, longer repayment period than other loan options, and lower monthly payments than short-term loans, the pros of term loans certainly outweigh the cons.
Term loans have been traditionally a product of banks, but thanks to the internet, it’s easier than ever to apply for a term loan through an online business lender. And, by going through an online business lender, you can be approved for a term loan in as little as two days.
Will I Qualify for a Term Loan?
While many business owners do qualify for term loans, the application process is not without its specific criteria.
Since term loans come with longer repayment periods and lower interest rates than short-term loans, they are more desirable for business owners — and thus more competitive. Your financials and credit history are more important here than in a short-term financing application.
Simply put, if you are an established business owner with good credit and healthy revenue, you should have no problem gaining approval for a term loan. Let’s break that down a bit more. The applicants who are most often approved for term loans typically have at least:
- Annual Revenue of $300,000
- Credit Score of 680
- Three Years in Business
If you don’t meet or exceed each of these criteria, don’t panic — each online lender is different, and not all term loans are the same. You will most likely be approved for a specific interest rate, length of term, and maximum loan amount depending on where you stand in your financials and credit history.
How Do I Apply for a Term Loan?
With so many online lenders out there, it can be overwhelming to start the process of applying for a term loan. Thankfully, the process can be much simpler than you think.
The more prepared you are at the outset, the better. Like with any application (think back to the days of getting copies of your transcript and letters of recommendation), there are several documents you’ll be required to present. These typically include:
- Personal Identification
- Bank Statements
- Voided Business Check
- Balance Sheet
- Credit Score
- Personal Tax Returns
- Business Tax Returns
- Profit & Loss Statements
Once you have those documents in order, it’s time to apply. With so many online lenders out there, it’s best to do your research and compare to see which you would likely qualify for.
If you have a lower credit score or lower revenue than the lender would prefer, you may still be able to qualify for a term loan — but with the caveat of collateral.
Whatever you choose to do, do the math first, and make sure you can afford the loan in the first place. Looking at your current profits and anticipated trajectory, you should quickly be able to tell whether taking out this loan is a good idea for you and your business.
Term loans are an excellent funding option for established business owners looking to grow. And with a little planning, applying and getting approval can be simpler than you think.