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A business term loan is the financing most owners picture when they think "business loan": you receive a fixed amount upfront and repay it in regular installments over an agreed period. It's straightforward in concept, but the actual rates, terms, and qualification bar shift significantly depending on whether you're borrowing from a bank, a government-backed program, or an alternative lender.
How a Term Loan Works
You borrow a fixed amount — say $100,000 — and repay it over a set term, usually 12 to 60 months, with either fixed or variable interest. Each payment covers a portion of principal and interest, so by the end of the term, the loan is fully repaid. Unlike a line of credit, you can't draw more once the loan is disbursed, and unlike revenue-based financing, your payment doesn't change month to month.
What Term Loans Are Typically Used For
Because the amount and repayment schedule are fixed upfront, term loans work best for a defined, one-time need rather than ongoing or unpredictable cash flow:
- Business expansion — opening a second location, entering a new market
- Major renovations or leasehold improvements
- Buying out a business partner
- Large one-time equipment or inventory purchases
- Refinancing higher-cost existing debt
Rates and Terms: What to Actually Expect
Rates vary widely by lender type and risk profile. Bank and BDC term loans for well-qualified businesses can come in at rates well below what alternative lenders offer, but with stricter qualification (typically 650+ credit score, 2+ years in business, strong financials) and a longer approval process (often 4-12 weeks).
Alternative lenders in lendflo's network trade a higher rate for faster funding and more flexible qualification — some approve with 6 months in business and credit scores as low as 550.
How to Qualify
Most lenders evaluate a similar set of factors, weighted differently depending on the lender type:
- Time in business (banks typically want 2+ years; alternative lenders often accept 6 months+)
- Monthly or annual revenue
- Personal and/or business credit score
- Existing debt obligations relative to revenue (debt service coverage)
- Industry — some sectors face tighter scrutiny at banks specifically
Comparing Offers the Right Way
Don't just compare interest rate — compare total cost of capital, which includes any origination fees, the term length, and whether the rate is fixed or variable. A shorter term with a slightly higher rate can cost less overall than a longer term at a lower rate, once fees are factored in. lendflo shows offers side by side so you can compare on total cost, not just the headline rate.
