Term Loan

All you need to know about small business funding in Canada.

What is a Term Loan?

A term loan is the most common type of business loan offered by banks and lenders. Simply put, these loans allow you to borrow a lump sum of money and repay it over a fixed period of time with regular payments. Compared to other business loans in Canada, it is often one of the best ways for small and medium businesses to get the funding they need.

Term Loan Agreements Provide More Control

Depending on what the lender agrees to, term loans can have a fixed or floating interest rate. Unlike a merchant cash advance that you repay with a percentage of your daily sales, a term loan is repaid in fixed daily installments. This loan agreement gives you even more control over your finances, allowing you to plan for the daily remittance and budget appropriately. What’s more, you know the date that you will make your final payment up front. This means that you can plan for additional financing if necessary. There is no penalty for repaying your loan early.

When to Choose a Term Loan

Because term loans have a more stable repayment structure than a fixed rate loan, small businesses can often borrow more money with this type of product than they can with a merchant advance. Term loans are excellent for covering all of your business needs, including:

  • Purchasing inventory

  • Remodeling your retail location

  • Opening another retail location

  • Purchasing equipment

  • Paying rent or other real estate payments

  • Obtaining funds for accounts payable

  • Managing your business cash flow

How do Term Loans work?

You can borrow between $50,000 and $300,000 with a term loan, and you have the option to repay it over the course of six, nine, or 12 months. The shorter the repayment term, the higher your payments will be, but the less interest you will pay over time. This can be more beneficial for small businesses than a long term loan that takes ten years to repay. Conversely, the longer the repayment term, the lower your payments will be, but the more interest you will pay over time.

Despite the fact that the repayment schedule is fixed, term loans give you the opportunity to set up a repayment plan that works for you from the very start. Unlike a monthly repayment structure, daily repayments align with your business’s sales cycle and keep your costs consistent. Daily repayments also help you avoid balloon payments towards the end of your term.

How to Apply For a Term Loan

Unlike some small business loans, applying for a term loan is easy. Just provide some basic information about your business, your merchant ID number, a government-issued photo ID, a void cheque, and your most recent bank statement. All of this information will be used to determine whether you qualify and, if you do, how much money you qualify to receive. You will also need to open a business bank account in order to receive the money from your lender.

Term Loans and Your Credit

Whereas a merchant cash advance does not appear as a trade line on your credit report, a term loan does. This means that if you want to establish or rebuild your credit, a term loan is a great choice. In fact, even if you have bad credit, you are not immediately disqualified. You may be asked to provide a cosigner to demonstrate your ability to repay, or you may be offered a different product with different pricing terms.

If you are interested in obtaining a term loan, Thinking Capital can get you qualified. Just fill out the short application, and find out how much funding your business can receive. That’s all there is to it, and you can get the money in as little as 24 hours.