Business Term Loans: What are the Benefits?
After you have gotten your business off the ground, more often than not, your next goal would be continuous growth.
That would mean you’d look forward to employing more workers and serving more customers.
However, fueling your growth would not be possible sans funding.
If you are looking for a quick capital infusion, then a business term loan would be ideal for you.
What exactly is a business term loan?
Essentially, a business term loan is utilized for modernization, expansion, and diversification projects.
This kind of loan is at times referred to as project financing.
Business term loans are usually repayable in periodic installments and are provided by banks or other financial institutions.
What are some of its basic features?
Business term loans are convertible into equity.
However, it would depend on the conditions and terms set by the financial institution.
Payment of interest as well as repayment of capital is mandatory on the borrower’s part.
That means regardless if the business is doing well or on the brink of bankruptcy, the obligation should be settled as agreed.
Typically, a business term loan can be repaid in installments over a period of 5 to 10 years.
Generally, business term loans come with a fixed interest rate.
Said rate however will be agreed upon by both the borrower and the creditor.
Classified as a medium-term financing source, business term loans are paid through installments that have a maturity period of 5 to 10 years.
Term loans are often secured loans.
That means current assets of the company can also function as collateral security.
Assets that are financed through business term loans will also serve as primary security.
Aside from asset security, the lender has the option to impose other restrictive covenants such as maintaining minimum asset base and repayment of existing loans, among others.
What are some of the enticing benefits of business term loans?
Unlike debt financing, interest of equity shareholders is not diluted in business term loans.
Oftentimes, business term loans are negotiable.
In majority of the cases, the terms and conditions are not very strict so borrowers can look forward to a certain level of flexibility.
Business term loans are often easy to obtain and very affordable.
Interest that will be set aside for payment of a business term loan will be deemed a tax deductible expense.
When is a business term loan necessary?
When the need to pay for emergency repairs arises.
Without doubt, businesses deal with some unexpected issues at one point or another.
These issues can come in the form of a computer server crash or a malfunctioning equipment.
Whatever the case may be, it is important to have access to an emergency fund so that everything is back on track before it affects productivity.
When there is a need for operational financing.
If there is a need for the business to buy a new piece of equipment to attend to a large client order or to hire seasonal help, then a business term loan would be perfect.
When funding is needed for seasonal gaps in receivables and payables.
Businesses that are cyclical in nature can definitely benefit from business term loans.
For example, those who are running a flower shop might need to buy at least a triple of their usual monthly inventory to cover for high demands on Valentine’s Day and other special occasions.
Thanks to a business term loan, businesses can pay in advance and take advantage of any likely supplier discount while in waiting for the account receivables to clear.