November 29, 2023 By Caitlin Rose

When you’re looking for financing options for your small business, a bank term loan may be a good option. Our article will help explain the application process, demystify key terms, and help give you the knowledge you need to confidently explore this financing option. 

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What is a bank term loan?

A bank term loan is a one-time, lump sum payment you receive from a bank or credit union. The lender provides you with the funds, and you repay the loan with interest over a period of time. These loans often have fixed interest rates, but you may find some lenders charge a variable interest rate that changes based on the market.

Typically, repayment terms for business loans range from two to five years. If you received a fixed-rate loan, your interest rate will stay the same throughout the life of the loan. With a variable-interest loan, your rate will typically change periodically. Additional fees like closing costs and origination fees, may vary based on the lender and the type of term loan. 

Eligible business owners are U.S. citizens or legal permanent residents, with at least two years in business with good credit and cash flow history. 

Benefits of a bank term loan

A bank term loan may be an excellent option if you are in need of a faster funding boost. Bank term loans generally offer you the opportunity to secure cash flow more quickly while locking in a favorable rate through a faster application process. Funds may be delivered in as little as seven days from application approval. 

Bank term loan funds may be used for working capital, debt refinancing, hiring employees, purchasing equipment, marketing, construction, partner buyouts, acquisitions, or increasing inventory. 

Additionally, repaying term loans on time may help you build business credit, setting you up for further growth and success. 

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Application process

If you think a bank term loan is right for your financing needs, consider the following:

  • Evaluate your qualifications: Check your credit score, annual revenue and time in business. These are typically three key loan requirements lenders look at to determine whether you qualify for financing. 
    • Banks prefer to offer their low-rate business loans to borrowers with credit scores in the good and excellent ranges, or 690 and above.
  • Compare lenders: Decide which type of lender is right for you. Banks and credit unions may offer favorable terms, but their products may be more difficult to qualify for. 
  • Prepare your documentation: Commonly required documents include business financial statements, business and personal tax returns, business and personal bank statements, and business legal documents. To the extent possible, keep up-to-date financial records and meet with your business accountant on a regular basis. Some lenders may also require you to put up collateral, such as real estate or equipment, to secure your loan.
  • Personal guarantee: Most lenders will require you to sign a  personal guarantee when you apply for a small-business loan. A personal guarantee is an agreement that states you, the borrower, are responsible for paying back the loan with your personal assets if your business defaults. Other business owners may be required to sign personal guarantees as well. 
  • Complete and submit the application: Follow the lender’s instructions to complete the application and provide all necessary documents. Take advantage of any assistance the lender offers to guide you through the application process.

SmartBiz® offers a streamlined, online application to determine the best funding fit for your small business. Our online lending network matches you with the right bank or lending partner to meet your business needs. Pre-qualify in just five minutes and our dedicated team will help you through every step of the application process. 

You’ve been approved - Now what?

Once your business loan application is approved, you will receive a loan agreement from your lender. This binding document is an agreement between a business and a lender outlining the promises of both parties. It establishes the terms and conditions for the loan, serving as a guide while you pay off your debt. 

Be sure to read your agreement carefully before signing and ask questions if there is anything you don’t understand. This recent SmartBiz blog also features a guide to terminology you may come across in a business loan agreement. Finally, it may help to have an attorney review your agreement before signing. 

Comparing funding options

In addition to bank term loans, you may want to consider and compare other financing options

SBA (Small Business Administration) loans are government-guaranteed loans typically made available to eligible U.S. entrepreneurs through banks and other financial institutions. 

A business line of credit may be the right choice for you if you aren’t sure exactly when you will need extra cash flow or what you might need it for. A line of credit gives you access to the funds you need, when you need them. You decide when and how to use your funds and your interest-only monthly payments are based on the amount you actually use. 

No matter which option you choose, it’s important to find a lending partner you can trust. SmartBiz is here to help you secure financing to grow your small business. Our team delivers top-notch customer service, honesty, and transparency while going through the loan process, and beyond. Get started today.

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