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Business loan terms or business loan repayment terms?
Whichever you’re looking for, you’ll find it here.
Get a better idea of business loan repayment terms and rates and a glossary of important finance-related definitions, all below.
What are business loan terms?
Normally, when you hear people talk about “business loan terms”, what they’re really referring to are business loan repayment terms. In other words, business loan terms are the amount of time that borrowers have to pay the lender back the funds.
It shouldn’t come as any surprise that business owners who are looking to obtain financing are usually going to want information about the business loan terms and rates. Knowing that info will let business owners like you determine whether a particular loan is a good fit for them or not.
Note: Different businesses will find that certain loan types will be better matched to their needs. That’s why there are industry loans that are designed to meet the requirements of businesses that work in different sectors. Have a look over them before applying for business loans!
Typical business loan terms and rates can range from a number of weeks with high interest rates, up to 30 years with much lower rates. So, when you ask “how long are business loan terms?”, you can expect to find that the answers that vary greatly from one loan to the next.
Having a variety of business loan terms to work with is a big advantage when you stop to think about it. There may be situations where you’re in need of fast business funding – in which case a short loan term may not be the worst thing in the world. Likewise, you may be planning ahead to scale up your business, in which case stretching the repayment term over a number of years would likely be a better fit.
Whatever your purpose for taking a business loan is, it’s always going to be helpful to have a clear understanding of the different loan types and the average business loan terms for each of them. Keep reading to get the full scoop!
Common business loan terms for different loan types
1. Unsecured loan
If your business is short on valuable assets, but still shows a strong financial profile in other ways (credit score, monthly revenue, etc.) – then unsecured business loans could be the right fit for you. Qualifying is a bit tougher than for other types of business loans, but for good reason! The business loan terms and rates for unsecured loans are among the best around.
- Standard unsecured business loan terms: Up to 5 years
- Standard unsecured business loan rates: 7.5% to 22.99%
2. SBA loan
Often considered by business owners to be the gold-standard of financing options, SBA loans arguably have the best business loan terms and rates of all. That’s because SBA loans aren’t really loans at all, they are guarantees that the government gives to back up loans given out to small businesses. Since SBA loans give lenders the security of government guarantees, they have typical business loan terms and rates that beat pretty much all other loan options.
- Standard SBA business loan terms: Up to 10 years
- Standard SBA business loan rates: 7.25% to 8.25%
3. Line of credit
A business line of credit works almost exactly the same as a credit card – the business owner is given a credit limit based on the business’s health and stability, and those funds can be used on an as-need basis for basically any business-related expense. If it’s a revolving line, that means the credit limit replenishes as you pay back funds you’ve withdrawn. This is one of the most flexible types of business loans.
- Standard business line of credit terms: 3 to 24 months
- Standard business line of credit rates: 1.5% to 10%
4. Asset-based loans
As the name suggests, asset-based loans are a type of business financing that is secured with valuable assets (otherwise known as collateral). As far as average business loan terms and rates, having assets to back up a loan can be very helpful. The business loan terms are typically shorter than unsecured business loans, but that’s generally due to the depreciation that assets undergo over extended periods of time. But the business loan rates are better than unsecured loans – so it really depends on what your financial goals are.
- Standard asset-based business loan terms: 3 to 18 months
- Standard asset-based business loan rates: 5.25% to 15%
5. Equipment financing
Your small business may depend heavily on having up-to-date and properly functioning equipment. If you’re aiming to purchase or lease equipment, or even repair some machinery, then equipment financing will meet your funding needs. This is a useful business funding solution if you need extra cash to keep your manufacturing, construction, or contractor business running at full capacity.
- Standard equipment business loan terms: Up to 5 years
- Standard equipment business loan rates: 5% to 20%
6. Invoice factoring
If you’re looking for a quick way to deal with unpaid invoices, then invoice factoring is the answer. This is the easiest way to gain access to cash that’s tied up because of slow or non-paying customers. With invoice factoring, the lender will provide you with 80% of the value of the invoices upfront, then the final 20% after collecting from your customers (keeping between 1% and 4% as payment for the services).
- Standard invoice factoring terms: 6 to 12 months
- Standard invoice factoring rates: 1% to 4%
7. Vehicle loans
Need to give your trucking finances a boost so you can grow your fleet? Looking to expand your restaurant business with a food truck concept? Whatever the exact industry is, your business’s success may rely on vehicles. In that case, commercial vehicle loans are an ideal solution. One of the best parts is that the vehicle itself serves as collateral on the loan, so you don’t need to put other assets on the line.
- Standard equipment business loan terms: Up to 5 years
- Standard equipment business loan rates: 5% to 20%
A merchant cash advance, or MCA for short, is a lump sum loan that businesses repay through automatic deductions from future credit and debit card transactions. MCA’s are among the easiest funding options to qualify, and the average business loan terms aren’t out of the ordinary. But the tradeoff for easy qualification and quick access to funds is that the rates you’ll find with MCA’s are generally higher than you’ll see with other types of business financing.
- Standard MCA business loan terms: 2 to 24 months
- Standard MCA business loan rates: 9.99% to 39.99%
With these average business loan terms in mind, you should have a firmer grasp on which business loans are better for your specific needs. Remember that these are just typical business loan terms. The exact repayment terms you’ll get will depend on the lender, the loan type, and the financial health & stability of your business.
If you’re not asking “how long are business loan terms?” and you’re really looking for a glossary of financial terminology – scroll down!
Complete glossary of small business financing terms
Business loan terms can be confusing, we get it. Unsecured or secured, term or revolving credit, fixed or floating. And that’s just the tip of the iceberg. We at Become are here to help you learn the lingo, which is why we came up with this comprehensive guide to business loans. Consider it your go-to dictionary, the A-Z (although it technically goes up to W), for everything related to small business funding.
Make sure to read all the way through, as there are some terms in there that would confuse even the most financially savvy of us. We recommend bookmarking this page for easy as-needed access.
If you come across an unfamiliar term during your loan application process, find it quickly using the Quick Jump tool below.
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Accounting software is a type of computer software, generally cloud-based, used to manage accounts, track financial transactions, and provide financial analysis and reporting. Popular software systems include QuickBooks Online, Xero and Zoho.
This is any debt that your business owes and needs to be paid off in the short-term. It’s also commonly known as ‘current liability’.
Any outstanding payments or invoices that are owed to your business fall under accounts receivable.
Amortization is a specific way of paying off a business loan. The borrower will pay off principal and interest with set repayments of equal amounts over a specific term.
APR is an abbreviation of Annual Percentage Rate and is more accurate and transparent than the interest rate as it measures the actual cost of borrowing. The APR considers all fees related to the business loan, for example, loan origination fees.
An asset is anything that is owned including cash, inventory, accounts receivable, property, equipment, prepaid expenses, patents, and trademarks. An asset can be tangible or intangible.
This is a statement or snapshot reporting the total assets, liabilities, and capital of any organization or business at a specific point in time. The statement is based on the equation: Assets = Liabilities + Equity
A blanket lien gives the right to seize all asset types that act as collateral for a debt. This would be acted on in the event of non-payment of the debt and gives the lender legal claim to all the relevant assets owned by the business.
This is the recording of the financial transactions of a business such as sales, purchases, receipts, and payments.
This is the practice of funding a startup with personal finances and business revenue, as opposed to getting funding from investors or lenders. Cash is usually tight in a bootstrapped business but the business owner retains full control over the business, which would be lost with outside investment.
Business credit report
This is the record of a business’s credit history, prepared by one of the credit agencies or bureaus. Your credit score is calculated based on this credit report and lenders and investors use your credit report to analyze the financial health of your business and the risk of investing in or loaning money to you.
Business credit score
A business credit score is a number calculated based on your credit history and indicates the risk level of a potential borrower. The higher your credit score, the better you are as a loan candidate or business customer.
Side note: If you and/or your business have a low credit score, there are still ways to qualify for financing with no credit check. Don’t throw in the towel just yet!
Capital is a term used for wealth in the form of assets or money owned by a business, organization or individual, or funds provided for a specific purpose such as investing in a company.
Cash flow statement
Also known as a statement of cash flows, a cash flow statement is a financial statement that measures all the cash inflows and outflows experienced by a business over a specific time period. Cash inflows include all cash generated by a business, including from external investments and daily operations, while cash outflows include everything paid out for business activities.
This is something, usually property or other assets, pledged by a borrower as security for the repayment of a debt or loan. Collateral would be forfeited by the borrower to the lender in the event of repayment default.
Credit card receivables
Also known as credit card factoring, credit card receivables is a type of funding accessible by businesses that accept customer credit card payments. Similar to invoice factoring, the lender purchases a percentage of estimated future credit card income at a discount and gives the business an immediate cash infusion.
This is the maximum amount of credit that an individual or business is allowed to borrow on a line of credit or credit card.
Debt consolidation is the act of taking out a new loan to pay off other loans or debts. By consolidating its debts, a business is usually able to secure more favorable terms and lower rates, and also simplifies its debt repayment process.
This is the practice of borrowing money that needs to be paid back in the future with added interest. This takes the form of either an unsecured or secured loan, credit cards, invoice factoring, lines of credit and merchant cash advances.
This is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is an accounting measure used to indicate a business’s financial performance.
When starting a business, you need to choose which type of business entity to create. Your business could be a sole proprietorship, partnership, corporation, S corporation or LLC.
This is the act of selling a part of your business to an investor in exchange for capital. The investor could be venture capitalists, angel investors, family or friends.
Small Business Financing Terms: The “F’s”
This is an alternative way of measuring the interest charged on a merchant cash advance or on a small business loan. A factor rate is not a percentage, as is an interest rate, but rather is a decimal figure ranging from 1.1 to 1.5. Your factor rate depends on various factors including your industry, your time in business, your sales stability and your average credit card sales per month. Your loan or advance amount is multiplied by your factor rate to calculate your total repayment amount.
FICO, originally Fair, Isaac and Company, is the biggest and most well-known company providing credit scoring services. The FICO score is a measure of the credit risk of consumers and businesses.
These are a group of reports relating to a business’s financial activities over a specific period of time. Financial statements include the balance sheet, cash flow statement, income statement and the statement of shareholder’s equity.
Financial technology or ‘fintech’ refers to the computer programs and algorithms used by technology companies to improve and enable financial services and banking. Fintech companies are growing worldwide and providing serious competition to traditional financial providers.
Fixed interest rate
A fixed interest rate remains constant throughout the loan term and doesn’t fluctuate with market changes.
Floating interest rate
This type of interest rate fluctuates with the market over time. It’s also known as an adjustable rate or variable rate.
This is the period of time after a loan payment is due during which there will be little or no penalties or late charges.
Also known as profit and loss statements, this type of financial report reports how much a business has earned and spent over a specific period of time.
This is the state of a business being unable to meet its financial obligations or pay its debts.
An interest rate is a percentage of principal charged by lenders to borrowers over a specific period. Interest rates can be fixed rates or variable rates.
This is the practice of selling unpaid invoices to a lender at a discount in order to raise capital for your business.
Small Business Financing Terms: The “L’s”
LendingScore™ is the multi-faceted business profiling and scoring standard developed by Become for SMBs. Unlike FICO, LendingScore™ assesses a business’s creditworthiness based on the overall business health instead of its credit history alone, thus increasing funding odds and unlocking better funding opportunities.
Liability is the legal financial obligations or debts of a business and is settled through economic benefits such as the transfer of money, goods or services.
A lien is a type of security over a property or other asset, granted to secure a debt repayment or another contractual obligation.
Line of credit
This is a pool of funds available to a business. The business can draw from this capital up to a pre-determined maximum amount. A line of credit is essentially a short-term loan that is typically repaid with interest.
A loan agreement is a contract signed between a lender and borrower, regulating the mutual obligations of each party.
A long-term business loan is any loan that needs to be repaid in over one year.
This stands for Loan-To-Value Ratio and is a term used by lenders and other financial institutions when assessing loan applications for a specific item. For example, if you require a loan to purchase machinery, lenders will use the LTV ratio to assess how much of this machinery the loan will cover.
Maturity or maturity date is the date on which the final payment of a loan or other debt is due. It is basically the end of life of a loan, and the principal and all remaining interest need to be paid in full.
Merchant cash advance
A merchant cash advance is a short-term loan that is based on a business’s monthly credit/debit card revenue. It is repaid as a daily percentage of your credit card sales.
Personal credit report
Your personal credit report details your personal financial history with credit card companies, banks, governments and collection agencies.
Personal credit score
Your personal credit score is based on the information from your personal credit report. The score is determined by one of the three national credit bureaus – Transunion, Equifax, and Experian – and is derived from variations of the FICO score. Your credit score indicates your level of future risk.
Some lenders will charge you a fee if you repay your loan early.
This is the interest rate used by banks and is usually the interest rate at which borrowers with the best credit scores can borrow. The prime rate is usually the benchmark for borrowing with some variable interest rates being a percentage above or below the prime rate.
The principal is the original amount that you borrowed. For example, if you borrowed $50,000 for your business, then your principal amount is $50,000.
Profit and loss statement
Also known as an income statement or P&L, a profit and loss statement is a report showing your business’s income and expenses over a certain period of time.
A sole proprietorship is a type of business entity for any unincorporated business owned by a single person.
Small Business Financing Terms: The “R’s”
Refinancing a business loan is the act of paying off existing debt with a second, improved loan with better terms.
Revolving line of credit
This is a line of credit that can be used repeatedly by a business up to the approved credit line. The condition is that the business needs to pay off the previous credit spent before drawing on the credit line again.
The Small Business Administration (SBA) is a government organization that helps small businesses get funding. The SBA will guarantee loans provided by SBA-approved lenders up to 90% of the loan amount. SBA loan terms are generally very attractive to borrowers.
Second lien debt
Any second loan that you take out is known as a second lien debt, when there is a senior loan that needs to be paid off first.
This is a debt or loan that requires collateral to be pledged by the borrower to secure the loan.
This is any debt that needs to be paid off in the short term, which is usually within a year. Some lenders will refer to short-term even for loans that have a repayment period of up to 2 years. Short-term loans are generally quicker and easier to secure and more costly than long-term loans.
Statements of shareholders’ equity
This report covers the equity portion of a balance sheet, showing any changes in details.
Any high-risk borrower with a lower credit score is referred to as a subprime borrower.
A tax lien is the legal governmental claim to a taxpayer’s assets in the event of failure to pay taxes. This lien could be against a business or individual.
The term of a loan is the lifetime of the loan, the period of time during which you’ll be repaying your debt.
A term loan is a debt that takes the form of a lump sum that needs to be repaid at set intervals over a set time period.
An unsecured loan is a debt that is not backed up by collateral. Because unsecured loans are more risky for the lender, they are generally more costly than secured loans.
Variable interest rate
This is an interest rate that changes over time as it is based on a benchmark interest rate, such as the market interest rate.
Working capital is the daily operating capital of a business. It is calculated as current assets less current liabilities.
When applying for business loans, you’ll want to – and need to – understand the business loan terms used by lenders, as well as average business loan repayment terms. This guide will help you navigate the world of loans and speak the language of lending.
Now that you have a better understanding of common small business and start-up business loan terms, you may find you have the confidence to apply for that funding you need but have been putting off.