Tuesday, 25th January 2022 | Management
What is a term loan and how is it beneficial to businesses?
Term loans are an easy and efficient way for businesses to raise money for various requirements from inventory management to expansion. iCapital is here to help your business with easy funding options!
What is a term loan?
Banks and lenders' most frequently-issued business loan is a term loan. These loans allow you to borrow a large quantity of money and repay it over a certain period of time with consistent installments. As a result, term loans are one of the most popular methods of borrowing money for small and medium-sized enterprises in Canada, compared to other business loans.
When to consider a term loan
When you’ve been in business for over a year and it’s taking off, you have a lot of possibilities. So, how do you know if a term loan, rather than, for instance, a revolving line of credit, is the best option for your company?
A term loan is an excellent option for a short-term project or cost in general. A term loan, for example, might assist you in purchasing merchandise or investing in a marketing campaign.
Business term loans are great for well-established enterprises with a track record of financial stability. Finally, term loans are appropriate for companies that don't want funds right away. Applying for a term loan takes time, especially if you're going to take advantage of low-interest rates. So, if you need money quickly, a term loan might not be the greatest option.
How is a term loan beneficial to businesses?
Additional income potential
Term loans can be used to support critical fixed assets or equipment. These assets can create revenue, which can be used to pay off the loan.
Low monthly down payments
A term loan with low monthly payments allows you to purchase additional assets without depleting your cash flow.
Less strict credit requirements
You don't need perfect personal or business credit to qualify. However, to be eligible for a term loan, you need to have a credit score of roughly 650. On the other hand, higher credit scores will result in better loan rates and terms.
Added cash flow
When suppliers of fixed assets cannot grant credit, a term loan might assist a company in development. As a result, your company won't have to wait for cash reserves to fund asset acquisitions.
Increased returns
When employed properly, this form of leverage may increase your company's profits. In addition, the leverage factor can help you acquire additional assets if you buy assets that provide economic value.
Ability to maintain ownership
Businesses can raise a large sum of money without sacrificing equity. Venture capital firms that invest vast quantities of money, on the other hand, will need a portion of a company's stock. When you lose stock, you lose some control over your company.
When to choose a business term loan?
Small firms can borrow more money with business term loans than merchant advances since term loans offer a more predictable repayment structure than fixed-rate loans. Term loans are ideal for meeting all of your business's requirements, 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
Consider iCapital term loans for your small business!
Hopefully, this post has clarified term loans for you. iCapital's business term loans are an excellent way to develop your company going forward. If you're looking for a term loan, iCapital can help you get approved. Start by determining the amount of money available for your company. Then, contact us at 1.877.251.7171 for guidance and planning for your small business term loans in Canada.
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