A business term loan gives you a lump sum up front, which you repay in set monthly payments of principal and interest over a fixed term, usually somewhere between one and ten years, and up to 25 years when the loan buys real estate. Term loans for small businesses come from banks, online lenders and SBA lenders, and through our lending partners Today Capital Group offers SBA-equivalent and bank loans up to $5 million, which take weeks to close. When the money is needed sooner, revenue-based financing is typically funded within one to two business days of choosing an offer, and lines of credit go up to $250,000.
How a business term loan works
The lender pays out the full amount at closing, and from then on you make the same payment every month until the term ends. Each payment covers that month's interest first, and the rest goes to the balance, so the share going to principal grows as the balance falls. The SBA describes its own 7(a) term loans this way, as repaid with monthly payments of principal and interest from the cash flow of the business. On a fixed-rate loan the payment stays the same for the whole term. On a variable-rate loan the lender may change the payment when the rate moves.
Because interest is charged on the balance still owed, the early payments are mostly interest. Take an example of $100,000 at a fixed 10% over five years. The payment is about $2,125 a month, and in the first year about $9,270 of the $25,496 you pay is interest, leaving a balance of about $83,773 after twelve payments. By the final year almost all of each payment goes to principal.
Owners use term loans for things that pay back over years, such as equipment, a buildout, buying a business or replacing several shorter debts with one longer one.
Short, medium and long terms
The term usually follows the useful life of whatever the money buys. A loan that outlasts the thing it paid for leaves you paying for something you no longer use, and one that is too short makes the payment heavier than the project's earnings can carry.
| Term | Typical length | Common uses | Payment pattern |
|---|---|---|---|
| Short | Under about 2 years | Inventory, a contract, a repair | Larger payments, smaller total cost in dollars |
| Medium | About 2 to 5 years | Vehicles, technology, a renovation, working capital | Moderate monthly payments |
| Long | About 5 to 10 years, up to 25 for real estate | Machinery, buying a business, buildings | Smaller monthly payments, larger total interest |
The SBA's rules for its 7(a) program show the same logic. Its terms and conditions for lenders set the term at the shortest appropriate length for the borrower's ability to repay, ten years or less unless the loan finances real estate or equipment with a useful life beyond ten years, and a maximum of 25 years. For money repaid over months rather than years, our guide to short-term business loans covers the types and how each is priced.
Where term loans for small businesses come from
Business term loan lenders fall into three groups, and each one trades speed against price and paperwork in its own way.
Banks
Banks make conventional term loans to established businesses with strong financial statements, and they often take collateral and a personal guarantee. In the Federal Reserve's study of small business lending websites, Uncertain Terms, the banks that listed prices described traditional term loans with fixed monthly payments and quoted the cost as an annual interest rate, such as prime plus a fixed percent.
Online lenders
Online lenders offer term loans with shorter applications and faster decisions, generally over shorter terms than a bank. The same Fed study found that their fees are most often for origination, and that some describe the cost with terms such as a factor rate, a fee rate or simple interest, which makes their offers harder to line up against a bank's.
SBA loans and SBA-equivalent loans
SBA loans are made by banks and other lenders, and the SBA guarantees part of each loan, which lets the lender offer longer terms. The 7(a) program is the agency's main one, with a maximum of $5 million. We do not place SBA loans. Through our partners we offer SBA-equivalent and bank loans, which are built along the same lines (a larger amount repaid monthly over years) but sit outside the SBA program, so the partner sets the terms and the loan can even pay off existing advances. Our guide to SBA loan requirements covers the SBA's own standards for credit, collateral and the down payment, a useful benchmark for any long-term loan.
What lenders check for a business term loan
Every lender sets its own thresholds, but a term loan is judged on the same handful of things almost everywhere. Our guide to small business loan requirements lists the documents product by product.
- Credit tells the lender how you have handled debt before. The Federal Reserve Banks' 2026 Report on Employer Firms counts a personal score of 720 or more, or a business score of 80 to 100, as low credit risk, and a lower score narrows the options rather than ending them.
- Time in business shows whether the revenue has lasted through a few seasons. Banks and long-term lenders usually want two or more years of tax returns.
- Revenue sets how large a loan the business can carry.
- Cash flow and debt service coverage decide whether the payment fits. Lenders divide the cash the business has left each year to pay debts by its total yearly debt payments, new loan included, and each lender sets its own minimum for that ratio.
- Collateral is what the lender can claim if the loan goes unpaid. The SBA treats a 7(a) loan as fully secured when the lender holds a security interest in the assets the loan buys plus the business's other available fixed assets, up to the loan amount.
- A personal guarantee makes the owner responsible if the business cannot pay. Under the SBA's loan conditions rule, anyone holding at least 20% of the business generally must guarantee the loan, and banks and SBA-equivalent lenders commonly ask for the same.
The same items show up when applications are turned down. In the Fed survey, applicants that were not fully approved most often said lender requirements were too strict (46%), that they already had too much debt (37%), that their credit score was low (30%) or that they had too little collateral (29%). For business loans specifically, 37% of applicants were fully approved, 35% partly approved and 28% denied.
The funders we work with generally look for about a year in business and about $20,000 a month in deposits, and long-term lenders usually want a longer record than that. If you're not there yet, apply anyway. Some funders work with newer or smaller businesses, and we'll tell you what's realistic.
Business term loan rates and fees
A term loan's rate is either fixed for the whole term or variable, set as a base rate such as prime plus a margin that stays the same while the base moves. SBA 7(a) rates are negotiated with the lender under caps the SBA pegs to the prime rate or an optional peg rate, and the allowed margin shrinks as the loan grows. The maximum variable rates are the base rate plus 6.5% for loans of $50,000 or less, plus 6.0% from $50,001 to $250,000, plus 4.5% from $250,001 to $350,000 and plus 3.0% above $350,000. Those caps apply to SBA loans only, and our partners set their own terms on SBA-equivalent loans.
Business term loan rates usually come with fees, most often an origination fee taken at closing, and sometimes an appraisal or a guaranty fee (on SBA loans, the lender pays an upfront guaranty fee to the SBA and may pass it to the borrower). Some loans also charge a penalty for paying off early. To compare offers, put each one into the same three figures.
- The monthly payment, which has to fit your slowest usual month along with the payments you already make.
- The total cost in dollars, which is all the interest over the term plus every fee.
- The prepayment terms, which tell you what happens if you sell, refinance or pay the loan off early.
What a $100,000 business term loan costs, with a worked example
The figures below are examples to show the arithmetic, and they are not quotes. They assume a fixed 10% rate, equal monthly payments and a 2% origination fee paid at closing, with no other fees. The payment uses the standard amortization formula, payment = L x r / (1 - (1 + r) to the power of -n), where L is the loan amount, r is the annual rate divided by 12 and n is the number of months. Figures are rounded to the dollar.
| Example term | Monthly payment | Total interest | Interest plus $2,000 fee |
|---|---|---|---|
| 3 years (36 payments) | $3,227 | $16,162 | $18,162 |
| 5 years (60 payments) | $2,125 | $27,482 | $29,482 |
| 10 years (120 payments) | $1,322 | $58,581 | $60,581 |
Stretching the same $100,000 from three years to ten cuts the payment by about $1,905 a month and adds about $42,419 of interest. A business with thin monthly margins may need the ten-year payment to keep its coverage ratio healthy, while one with room in its budget saves on the shorter term.
Worked examples for $200,000 and $500,000 term loans
These are examples with stated assumptions, not quotes or approval standards. Each one uses an example debt service coverage minimum of 1.25, meaning the lender wants $1.25 of cash available for debt payments for every $1.00 of yearly debt payments. Real lenders set their own minimums.
A $200,000 example
At an example 10% fixed over 10 years, $200,000 has a payment of about $2,643 a month, or $31,716 a year. At 1.25 coverage the business would need about $39,645 a year of cash available for debt payments, plus 1.25 times any loan or lease payments it already makes. A lender would also want credit in good standing, usually two or more years of returns showing the revenue, collateral where the business has it and a personal guarantee from the main owners.
A $500,000 example
At an example 9% fixed over 10 years, $500,000 has a payment of about $6,334 a month, or $76,005 a year, and at 1.25 coverage the business would need about $95,007 a year available for debt payments. Total interest over the 10 years comes to about $260,055. If the loan buys a building and runs 25 years, the payment drops to about $4,196 a month, but the interest rises to about $758,795. A file this size usually needs two to three years of business and personal tax returns, current financial statements, a personal financial statement for each guarantor, a debt schedule, a written use of funds and details of the collateral.
Term loan vs line of credit vs revenue-based financing
A term loan fits one known cost that pays back over years, and it is the slowest of the three to arrange. The other two cover the needs a term loan handles poorly.
A line of credit fits costs that come and go, such as payroll before a client pays. You draw what you need, repay weekly or monthly on what you have drawn, and the room comes back as you repay. Through our network, lines go up to $250,000, offers often come back within a day, and our guide to how a business line of credit works covers draws, repayment and how to qualify.
With revenue-based financing, a funder buys a set amount of your future sales and pays for it in advance. The amount is sized on your usual revenue, and you repay it with a set daily or weekly payment until the agreed total is reached. It runs from $5,000 to $2,000,000, is decided mainly on four months of business bank statements, usually needs no collateral and is typically funded within one to two business days of choosing an offer. The cost is a factor rate, so you see the full payback in dollars before you sign.
How we place a business term loan
You start with one short application and your last four months of business bank statements, uploaded as PDFs or read from your bank with a read-only connection. For an SBA-equivalent or bank loan, we tell you exactly which documents the partner needs, help you assemble them and send the file to the lending partners that lend at your size and in your industry.
Underwriting commonly takes several weeks from a complete file, and our guide to how long it takes to get a business loan sets out the timeline for each type. If the need cannot wait that long, we can show you revenue-based financing or line of credit offers side by side while the longer loan is in process. We go through every offer with you before anything is signed. There is nothing to pay to apply or to see offers, and you are under no obligation to take one.
Start your application with your statements ready, or call (818) 351-0225 to talk through the amount, the term and the monthly payment that fit your business.
Business term loan questions
How much would a $100,000 business loan cost?
As an example, a $100,000 term loan at a fixed 10% costs about $3,227 a month and $16,162 in interest over 3 years, about $2,125 a month and $27,482 in interest over 5 years, or about $1,322 a month and $58,581 in interest over 10 years, plus any fees such as a 2% origination fee of $2,000; real rates, fees and terms depend on the lender and your credit, revenue and time in business.
How to qualify for a $200,000 business loan?
Lenders want credit in good standing, usually two or more years in business with tax returns showing steady revenue, and enough cash flow to cover the payment with room to spare, along with collateral where the business has it and a personal guarantee from the main owners; as an example, $200,000 at 10% over 10 years costs about $31,716 a year, so a lender using a 1.25 coverage minimum would look for about $39,645 a year available for debt payments, plus 1.25 times any payments the business already makes.
What do I need to get a $500,000 business loan?
A $500,000 term loan usually needs two to three years of business and personal tax returns, current financial statements, a personal financial statement for each owner who guarantees the loan, a schedule of existing debts, a written use of funds and collateral, and the cash flow to carry the payment; as an example, $500,000 at 9% over 10 years costs about $76,005 a year, so a lender using a 1.25 coverage minimum would look for about $95,007 a year available for debt payments.
How long are business term loans?
Most business term loans run from about one to ten years, and loans that buy real estate can run up to 25 years, with the term usually following the useful life of what the money pays for.
Are business term loan rates fixed or variable?
Business term loan rates can be either. A fixed rate keeps the same payment for the whole term, while a variable rate is set as a base rate such as prime plus a margin, so the payment can change when the base moves.
