What Is a Term Loan?

• A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. Term loans are normally meant for established small businesses with sound financial statements. In exchange for a specified amount of cash, the borrower agrees to a certain repayment schedule with a fixed or floating interest rate. Term loans may require substantial down payments to reduce the payment amounts and the total cost of the loan.

• A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms.

• Borrowers agree to pay their lenders a fixed amount over a certain repayment schedule with either a fixed or floating interest rate.

• Term loans are commonly used by small businesses to purchase fixed assets, such as equipment or a new building.

• Borrowers prefer term loans because they offer more flexibility and lower interest rates.

• Short and intermediate-term loans may require balloon payments while long-term facilities come with fixed payments.