Understanding business term loans and how they can help your business
There comes a time when every business needs to consider getting additional funding to grow their business. At Levr.ai we believe when a business is in need of extra financial wiggle room it is a great problem to have!
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We understand that getting business loans is tough—the process is outdated, clunky and frankly at times it can be stressful. Making the business loan process better (in every aspect) is a problem we’re absolutely in love with and why we created Levr.ai.
As a business there are a ton of great loan options when it comes to leveraging and securing financial capital to grow your business and reach your goals. In this post we’re going to focus on one of the most popular and accessible loans for small business owners.
What are business term loans?
A business term loan, or sometimes referred to as term loan, is one of the simplest forms of borrowing money for your business.
A business term loan is a lump sum of money borrowed from a lender with agreed upon repayment terms over a specified period of time. Lenders usually provide flexible payment schedules—weekly, bi-weekly, monthly, or bi-monthly—that can align to your specific cash flow cycles.
Business term loans are extended for periods of 1 to 10 years, while there are instances when a lender is willing to lend money for longer periods of time. Business term loans tend to be borrowed over a shorter time frame compared to specialized financing like SBA loans, which can extend up to 25 years.
Business term loans are used for specific business objectives like real estate (property purchase, renovations etc), purchase of equipment to make consumer packaged goods, or even working capital. Due to the straightforward application of these funds, it’s easy to agree on clear and upfront repayment timelines.
Understanding short-term vs long-term business loans
Understanding the difference between short-term and long-term business loans is critical for choosing the right financing for your needs.
Feature | Short-Term Business Loans | Long-Term Business Loans |
Repayment Period | 3 to 24 months | 3 to 25 years |
Typical Loan Amount | $5,000 to $250,000 | $50,000 to $5,000,000 plus |
Interest Rates | Higher 10% to 99% APR | Lower 6.3% to 15% APR |
Monthly Payments | Higher payments, less total interest | Lower payments, more total interest |
Approval Speed | 1 to 3 days | 1 to 8 weeks |
Credit Requirements | More flexible 500 plus credit score | Stricter 680-plus credit score |
Best Use Cases | Cash flow gaps, inventory, and emergency expenses | Equipment purchases, real estate, and major expansions |
Payment Frequency | Daily, weekly, or biweekly | Monthly |
Collateral | Often unsecured | Usually requires collateral |
What are the benefits and advantages of a business term loan?
Business term loans offer a ton of benefits to small businesses and lenders. They’re typically one of the easiest kinds of loans to secure.
Speed and accessibility
Business term loans offer a ton of benefits to small businesses and lenders. They’re typically one of the easiest kinds of loans to secure.
Building business credit
Business term loans, especially for newer businesses are a great tool for business owners to build business credit. Too often business owners use their personal credit lines and credit history to secure financing that is used for their business. Having a business term loan in your business name allows for quick and purposeful business credit building and improving your company’s credit score. This separation of business and personal credit becomes increasingly valuable as your company grows and needs access to larger amounts of capital.
Predictable cash flow management
One of the best benefits of a business term loan is that the payments are predictable and the same amount each time, as they’re usually extended on a fixed interest rate. This helps businesses when it comes to managing cash-flow and monthly operating expenses. Knowing how much you need to pay to secure working capital makes it easy to manage business finances throughout the life of the loan. You can budget accurately, forecast future cash positions, and avoid the uncertainty that comes with variable-rate financing.
Capturing growth opportunities
Business term loans are great for emergencies, and sometimes those can be growth opportunities. As your small business scales up over time, you also build an excellent reputation for product quality and service. Business term loans can assist businesses to realize revenue growth opportunities to fulfill a bigger purchase order or meet the needs of a new client and seal the deal before work can start and be delivered at a profit. When a large customer places an order that exceeds your current production capacity, a term loan can provide the working capital to fulfill that order rather than turning away business.
Maintaining ownership and control
Given there are a number of options available to businesses to raise financial capital, business term loans are one of the few that allow businesses and business owners to maintain control.
Often when companies are standing at the intersection of growth – they seek out funding from investors. To bring investors into the mix business owners and founders typically will need to relinquish ownership and decision making authority. You worked hard to build your business, and so business term loans allow for you to get the funds you may need without losing any control of your business. The cost is purely financial—interest payments—rather than giving up equity or board seats.
Tax advantages
The interest you pay on a business term loan is typically tax-deductible as a business expense, reducing your overall tax burden. Unlike equity financing where you give up ownership permanently, debt financing provides a one-time capital injection with tax benefits that lower the effective cost of borrowing. This makes the true cost of a term loan lower than the stated interest rate when you factor in tax savings.
Understanding the tradeoffs
While business term loans offer significant advantages, they also come with considerations you should weigh carefully. Term loans create a fixed obligation—you must make payments regardless of business performance, unlike revenue-based financing that adjusts with your income. Many lenders require collateral, putting your business or personal assets at risk if you cannot repay. The qualification requirements can be strict, particularly for traditional bank loans, requiring strong credit scores, established operating history, and solid financials. Some loans include prepayment penalties that charge fees if you pay off the loan early, reducing your flexibility. The total interest paid over a long-term loan can be substantial even with low rates—a $250,000 loan at 8% over ten years costs roughly $115,000 in interest.
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What can you use a business term loan for?
For most businesses, there is usually a never-ending list of expenses and bills to be paid. Some of these expenses are necessary evils in running your business and some of these expenses are activities that allow you to grow your business profits through increased gross revenue or implementing efficiencies.
Common uses for business term loans
Some of the most common applications of secured business term loans are working capital, improvements such as renovations, headquarter expansion and upgrades, purchasing new and more efficient equipment or machinery that may cost less to operate and produce more product improving profit margins and productivity.
Small business owners often use business term loans to launch new products or divisions of their business whether that could be opening new offices and hiring staff in new expanded locations and territories. Or doubling machinery on site to produce new products without slowing down the production on an already steady flow of existing product sales.
In fact, when businesses have a clearly negotiated growth opportunity to deliver on, have good credit, it can make more sense to secure additional, low-interest, funding via a business term loan than put the company at risk by drawing-down on funds used for cash-flow and monthly operating expenses.
Supporting data on business loan usage
The Government of Canada released data stating that equipment and leasehold improvements were the most common assets financed through business loans. With equipment loans making up $513 million and $380 million in lending respectively. This data underscores that businesses most frequently use term loans for assets that generate long-term value and improve operational capacity.
The beauty of business term loans is that they can be used for virtually any business related activity that demonstrates a clearly defined need for the business and the output or result that by having additional financial capital will deliver increased profits.
Prohibited uses
While business term loans offer flexibility, certain uses are prohibited by most lenders. You cannot use business loan proceeds for personal expenses unrelated to the business. Speculative investments, gambling, or illegal activities are universally prohibited. Some lenders also restrict using loan proceeds to pay existing owners, pay off owner loans, or distribute dividends. Real estate investment for rental income (as opposed to owner-occupied business property) may be prohibited or require specialized financing. Always confirm with your lender that your intended use is permitted before accepting loan funds.
Business Type | Most Common Term Loan Uses | Typical Loan Amount |
Restaurants | Kitchen equipment, renovations, expansion | $50K to $500K |
Retail Stores | Inventory, new locations, store upgrades | $25K to $750K |
Manufacturing | Machinery, facility expansion, automation | $100K to $2M plus |
Professional Services | Office space, hiring, technology systems | $50K to $500K |
Construction | Equipment, vehicles, working capital | $100K to $1M plus |
Healthcare | Medical equipment, facility upgrades | $100K to $2M plus |
Technology or SaaS | Product development, hiring, infrastructure | $50K to $1M plus |
E commerce | Inventory, warehousing, marketing | $25K to $500K |
How much can you borrow with a business term loan?
What you can borrow against a business term loan generally ranges from business to business, need to need and year to year depending on the economy growth and health.
There are a number of agencies that compile data and stats related to business funding, one of the most regulated and trusted sources of data is published annually by The Canada Small Business Financing Program (CSBFP).
While in this article we don’t go into detail about the CSBFP, this government organization works closely with private lenders for approving and distributing any registered loans with the CSBFP.
In its published data, over 2021-2022 over 5 thousand loans were extended to Canadian businesses valued at $1.2 billion. Year over year both the number and value of loans increased by 34% and 41% respectively. In its data set, the average CSBFP business loan was $246,507 and increase of 4.3% from 2020-2021.
While this data doesn’t include all funded business term loans in Canada, it’s a reliable enough data set to inform the conversation we’re having about how much should you borrow with a business term loan? Well, the average small business participating in this program borrowed roughly $250k. Is that how much you should borrow? The answer to this question is always – only borrow as much as you need.
Most business owners live and breathe every aspect of their business. And so, they have the best first-hand knowledge to know how much money to borrow. Consulting with business financial analysts, controllers and/or accountants will help you make dollars and sense of what to borrow, when and for how much.
Business owners, along with trusted staff and operators will be tasked with right-sizing the needs of clients and what output is required to meet profitability goals set for the business. These teams, financial statements and growth/operating plans inform not only how much to borrow but how to responsibly use that funding to achieve what you set out to do.
Who and what you'll need to qualify for business term loans?
As a business it’s always good to have financial records up to date with the latest financial snapshot of your business health. When looking to apply for a Business Term Loan what lenders will ask of you will vary, but typically you can count on the following list of items:
Required Documentation for Business Term Loan Applications
- Most recent business and personal tax returns
- Current business and personal credit history
- Bank statements (3-6 months)
- Proof of business ownership, verification of business address (lease agreement if applicable)
- Key financial statements i.e. Balance Sheet, Income Statement, Cash-flow Statement, Inventory on hand (and aging) reports and supporting financial forecasts
- Business Plan and Payroll & Org Charts
How long do you need to be in business?
Aside from standard paperwork, important health metrics considered by lenders also include how long you’ve been in business. Generally speaking lenders are looking to extend Business Term Loans to those who have been in business for 2 or more years.
Minimum annual revenue requirements
Lenders will use established business income and revenue to determine if they will fund/underwrite your business term loan. Minimum annual revenue varies from lender to lender for instance OnDeck requires at least $100,000 in annual revenue whereas bigger banks typically require more.
How existing loans affect your application
Along with the financial statements outlined above, lenders will carefully review any already existing outstanding loans. Terms, interest rate and payment history. It’s not uncommon for businesses to seek loans throughout the lifecycle of their business. And depending on the size of the loan and the project/goal it’s being used to fund – there could be outstanding borrowed capital that is currently working. This can be both good and bad for business loan applicants.
If your business has demonstrated significant revenue growth since the last loan was secured, and the terms of outstanding loans are being met – then it might not be a problem for a new lender to extend you additional capital under a new Business Term Loan. In these instances it will be important to outline cash-flow projections and plans associated with the good use of this borrowed capital to ensure the underwriters’ ability to repay.
Application process & timeline
Understanding the business term loan application process can help you prepare and set realistic expectations for funding timelines.
Step-by-step application process
- Pre-application preparation (1-2 weeks)
- Determine how much capital you need and for what purpose
- Check personal and business credit scores
- Gather required financial documents
- Create or update business plan
- Calculate debt-to-income ratio
- Research and compare lenders (3-7 days)
- Compare interest rates and terms from multiple lenders
- Review qualification requirements
- Consider online lenders vs banks vs SBA lenders
- Read customer reviews and lender reputations
- Submit application (1-2 days)
- Complete lender’s application (online or in-person)
- Submit all required documentation
- Provide business and personal financial information
- Disclose intended use of funds
- Underwriting and review (1-8 weeks)
- Online Lenders: 1-3 days
- Traditional Banks: 2-8 weeks
- SBA Loans: 6-12 weeks
- Lender reviews credit, financials, and business viability
- May request additional documentation or clarification
- Approval and loan terms offer (1-2 days)
- Receive formal loan offer with terms
- Review interest rate, repayment schedule, fees
- Ask questions about any unclear terms
- Negotiate if possible (especially with banks)
- Acceptance and closing (3-7 days)
- Sign loan agreement and promissory note
- Provide any final requested documents
- Review amortization schedule
- Understand all fees and obligations
- Funding (1-5 days after closing)
- Online Lenders: Often same-day or next-day
- Banks: 3-5 business days
- SBA Loans: 5-10 business days
- Funds deposited into business bank account
Be sure to review all your options
Now that you have a better understanding of what a business term loan is and how they can help your business it’s important to review all your options. If you have experience applying for a business loan (really any kind of business loan) you will already know the work involved can be time consuming.
Levr.ai is designed to make this process easier, faster and more straightforward. A safe and secure platform allows you to collaborate with the key members of your team i.e. accounting, financial planner, and business operators to organize all the required financial statements and necessary business forecasts, plans and documents. Having everything in one place makes it easier to apply with multiple lenders to secure the rates and loan repayment terms that are best for your business.
In addition to making the process of getting a loan better, Levr.ai’s free loans marketplace allows you to review options and compare offers from multiple lenders based on what is right for you and what allows you to achieve your growth goals.
Using the data you provide in your profile in tandem with our team’s financial industry experience—Levr.ai provides the data intelligence to customize options to review that are best to consider. Levr.ai also can negotiate exclusive loan rates with its expert team of certified financial advisors and loan industry partnerships.
Frequently asked questions about business term loans
What is a business term loan and how does it work?
A business term loan provides a lump sum of capital upfront that you repay over a fixed period through regular installments. You receive the full amount immediately—say $100,000—and make fixed monthly payments until the loan is fully repaid. Most term loans have fixed interest rates, so your payment stays the same throughout the loan term, making budgeting straightforward.
What's the difference between a secured and unsecured business term loan?
Secured loans require collateral—assets like equipment, real estate, or inventory that the lender can claim if you default. They offer lower interest rates and higher loan amounts. Unsecured loans don’t require collateral but have stricter credit requirements and higher rates. Most small business term loans require either collateral or personal guarantees from owners.
How much does a business term loan cost?
Interest rates range from 6% to 99% APR depending on your creditworthiness and lender. Bank loans typically cost 6-12% APR, SBA loans 10-15% APR, and online lenders 14-99% APR. Beyond interest, expect origination fees of 0.5-5% of the loan amount and possibly prepayment penalties. Always evaluate the APR (Annual Percentage Rate) which includes both interest and fees to understand true cost.
Can I get a business term loan with bad credit?
Yes, but options are limited and expensive. Online lenders may work with credit scores as low as 500, but expect rates of 30-99% APR, smaller loan amounts, and stricter collateral requirements. If possible, improve your credit before applying—even modest improvements from 550 to 620 can dramatically improve your options. Alternatives include equipment financing, invoice factoring, or SBA microloans.
What credit score do I need to qualify?
Traditional banks typically require 680-700+ personal credit. SBA loans require 680+ personal and 165+ business credit (as of June 2025). Online lenders may accept scores as low as 500-600, though with higher rates. Your business credit score also matters for established companies.
Can I have multiple business term loans at the same time?
Yes, though each loan increases your debt-to-income ratio and makes qualifying for additional financing harder. You must manage multiple payment schedules and ensure cash flow handles all obligations. Consider debt consolidation to combine multiple loans into one with potentially better terms.
