Term Loans/Corporate Finance

Term loans are the standard commercial loan, often used to pay for a major investment in the business or an acquisition. The loans often have fixed interest rates, with monthly or quarterly repayment schedules and a set maturity date.Bankers tend to classify term loans into two categories: intermediate- and long-term loans.

Intermediate-term loans usually run less than three years, and are generally repaid in monthly installments (sometimes with balloon payments) from a business's cash flow.

Long-term loans can run for as long as 10 or 20 years and include additional requirements such as collateral and limits on the amount of additional financial commitments the business may take on.

Term loans are often the best option for established small businesses. If your financial statements are sound and you're willing to make a substantial down payment, you can receive financing with minimal monthly payments and total loan costs. The loans are best used for construction, major capital improvements, large capital investments, such as machinery, working capital and purchases of existing businesses.

Term loans require collateral and a relatively rigorous approval process but can help reduce risk by minimizing costs. Before deciding to finance equipment, borrowers should be sure they can make full use of ownership-related benefits, such as depreciation, and should compare the cost with that leasing.