Loans
What Is a Business Term Loan and How Does It Work
A business term loan is a lump-sum loan repaid over a fixed schedule of 6 to 60 months. Here's how rates, qualifications, and the application process actually work.
Quick Answer
A business term loan is a lump-sum amount you borrow and repay over a fixed term, typically 6 to 60 months, on a set schedule. Rates range from roughly 8.5% to 25% APR as of 2026, depending on your credit profile, time in business, and revenue. You qualify with a personal FICO above 550, at least six months in business, and around $10,000 in average monthly revenue. Funds usually arrive within 24 to 72 hours of approval.
What a Business Term Loan Actually Is
A business term loan is the plainest form of commercial credit. A lender gives you a single lump sum — anywhere from $10,000 to $5 million — and you pay it back in scheduled installments over a fixed period. The schedule is the "term," and it sets everything else: your payment size, your total interest cost, and your ability to plan around the debt.
According to the US Small Business Administration, term loans remain the most common form of small-business credit originated each year in the United States — a reflection of how well this structure fits the way most businesses actually need capital: a specific amount, for a specific purpose, paid back on a predictable schedule.
How the Structure Works
Every term loan has four numbers that define it: principal, term, interest rate (APR), and payment frequency. A $100,000 loan at 12% APR over 36 months is a $3,321 monthly payment. The same $100,000 at 18% APR over 24 months is a $4,992 monthly payment — $1,671 more per month — and you pay $19,800 more in interest over the life of the loan.
Fixed vs. Variable Rates
Most small-business term loans below $500,000 are fixed-rate. Above that amount, variable rates tied to the Federal Reserve's prime rate become more common, especially on SBA 7(a) loans.
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Start ApplicationHow Do You Qualify for a Business Term Loan?
Underwriting is mechanical. Four inputs drive almost every decision:
- Time in business. Six months is the floor for online lenders. Two years for banks and the SBA.
- Personal FICO. 550 for short-term online term loans; 680+ opens SBA and bank offers.
- Average monthly revenue. $10,000 minimum, verified via 3–6 months of bank statements.
- Debt service coverage ratio (DSCR). 1.25x for banks. 1.1x for online lenders.
Term Loans vs. Other Common Products
| Product | Structure | Typical APR | Best For |
|---|---|---|---|
| Term Loan | Lump sum, fixed payments | 8.5% – 25% | One-time capital needs |
| Line of Credit | Revolving draw facility | 12% – 29% | Recurring gaps |
| SBA 7(a) | Government-guaranteed | Prime + 2.75% to 4.75% | Best rates, qualified |
| Merchant Cash Advance | Advance against sales | 40% – 200%+ | Emergency only |
| Equipment Financing | Asset-secured | 6.99% – 18% | Buying machinery |
What Does a Term Loan Actually Cost?
The sticker rate is only one input. Origination fees (1% to 5% of principal, deducted from funded amount), prepayment penalties on some term loans, and late/NSF fees all add up. APR rolls all of this into one number — if a lender quotes only a factor rate, ask for APR before signing. Investopedia has a clean explainer on the difference.
Frequently Asked Questions
What credit score do I need for a business term loan?
Most short-term online lenders require a personal FICO of at least 550. Mid-market fintech lenders typically want 620 or higher. Bank and SBA term loans almost always require 680 or higher, and the best rates go to borrowers above 720.
How long does it take to get a business term loan?
Online term loans fund in as little as 24 hours after approval. Traditional bank term loans take 3 to 6 weeks from application to funding. SBA 7(a) loans typically take 30 to 60 days.
Can I pay off a business term loan early?
Yes, but check for prepayment penalties before you sign. Most reputable short-term term loans have no prepayment penalty. SBA 7(a) loans with terms longer than 15 years include a declining prepayment penalty in the first three years.
What's the difference between a business term loan and an SBA loan?
An SBA loan is a specific type of term loan whose principal is partially guaranteed by the US Small Business Administration. The guaranty lowers lender risk, producing longer terms and lower rates. Qualifying is harder — 680+ FICO and two years in business are typical.
Are business term loans tax-deductible?
The interest paid on a qualifying business term loan is generally deductible as a business expense. The principal is not. Always confirm with your CPA.