Resolve your business’ cash flow problems with a loan while you repay over a fixed period.
Whether you need new equipment, want to open a new location or just need funds for increasing expenses, the right fixed-term business loan could help boost your business.
When you apply for a fixed-term business loan, you enter into an agreement with the lender to make repayments over a fixed period of time. Lenders consider your business profile, the loan amount and what you can afford.
Most business loan lenders require you to have been in business for at least a year and meet certain revenue criteria. If you have a newly established business, check out our guide on startup loans.
How does a fixed-term business loan work?
If your application for a fixed-term loan is approved, the lender provides you with the loan amount and you agree to repay the amount over a set period of time. The terms offered depend on the purpose of the loan and the lender.
Many fixed-term business loans have periods of up to 10 years. If you’re considering a larger loan for purchasing property, a vehicle fleet or heavy machinery, lenders may provide loan options with repayment periods of up to 15 years or longer.
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How to compare fixed-term business loans
There are several types of business loans available, so it’s important to compare options before applying. Here are a few factors to consider:
- Secured vs unsecured. If you’re applying for a secured fixed-term loan, you will need to declare your assets of value as collateral. In the event that you can’t make repayments, the lender will sell some or all of your assets to cover what you owe. An unsecured loan doesn’t require collateral, but the application requirements may be strict to minimize the lender’s risk.
- Loan amount. Different lenders have different lending criteria. Lenders assess your personal and professional profiles, credit history, business type, the purpose of the loan and the value of your assets. You will then be offered a loan amount based on what you can afford to repay.
- Interest rates. Rates can either be fixed or variable (or both) over the fixed-term of your loan. While your repayment amount might fluctuate, the repayment period remains fixed. Some loan products feature an introductory fixed rate for a certain period, after which it reverts to the standard variable rate for the rest of the loan term.
Benefits and drawbacks of fixed-term business loans
- Regularity. You have peace of mind with regularly timed repayments. The amount itself might vary depending on interest rate fluctuations, but the term remains unchanged.
- Investment. You’re most likely taking out a business loan to invest in improvements for your business that’ll pay off in the long run.
- Jeopardizing assets. Secured fixed-term business loans require assets as collateral. The lender can seize your assets if you can’t repay the loan.
- Penalties for early repayment. Settling the outstanding amount before the end of the loan period is a good way to save on interest. However, the lender loses out on that interest, so you may be penalized for ending the fixed-term loan contract.
Important things to consider with fixed-term business loans
- Can you afford it? While a business loan can fix cash flow problems, lenders won’t approve a loan if your business can’t afford to repay it.
- Early repayment policies. Some lenders might charge a penalty fee if you repay the whole loan before the end of the fixed-term. Check lenders’ policies before accepting loan terms.
- Repayment period. If you’re taking out a small loan amount, you can consider repaying it over a shorter period. Spreading your repayments over a longer period will chip away at your business’s profits because of interest charges. But if the loan term is too short and the repayments are too high, they could become unmanageable.