There are times during the course of a business when you would feel really at a loss about which type of loan you should go for.
Of course, you want the loan for a specific period to cover gaps in your cash flow. Or perhaps you have seen a good expansion plan, and seek to capitalize on it.
No matter what the reason for your borrowing decision, you must be clear that the loan you are going for will not only serve its specific purpose, but also pose very little burden to your cash flow in terms of interest payments.
We will also discuss ways in which a term loan can help your business.
What is a Term Loan?
A term loan involves an amount borrowed from a lender or a lending institution. The loan is supposed to be repaid in periodic equal installments over a pre-agreed time period between the borrower and the lender.
How a Term Loan Helps Small Businesses
There are several reasons why Terms Loans are considered the best SBA loan Type.
Additionally, a fast short-term business loan can be particularly beneficial for addressing immediate cash flow requirements or seizing time-sensitive opportunities.
Reasonable and Affordable Rate of Interest
Term loans are usually spread over a longer period. Owing to their long durations, these loans carry interest rates that are very affordable.
This mean that the monthly or quarterly interest expense on your income statement is relatively lower.
Frees up Cash for Further Investment and Growth
A business owner or a manager who runs the daily operations of the business has an idea where his cash is needed most. A term loan allows you to do just that —use your cash where it is most useful.
With the help of a term loan, a business is able to use cash flow for inventory, raw material, and other operational use. While a term loan will allow the business owner to make capital investments into the business.
Agreed Repayment Dates
If you are running a business, you must be aware that there are quite a lot of things with your business which are unpredictable, and may go wrong at any time.
However, with a term loan, you are sure when you are supposed to make a repayment, and exactly for what amount. There is no element of surprise with a term loan repayment. It allows you to arrange the money well in advance.
In fact, the entire repayment schedule until the retirement of the loan is pre-set and agreed beforehand.
Simple and Easy Application Process
Term loan is one of the most sought after loans in the industry.
Banks and financial institutions have very well-defined SOPs for assessing and evaluating term loans.
This means that applying for this loan is also very easy. You only need to fill out the application form, organize and arrange required documents, and submit all the papers in the bank.
The bank staff will evaluate your case, check you meet the sba loan qualifications, and approve it within a day or two. Once your loan is approved, it takes just one day to disburse the amount in your bank account.
Familiarizing yourself with the SBA loan process and its specific requirements can streamline the application and approval timeline, ensuring a smoother experience for borrowers.
The simple and easy process of procuring a term loan allows small business owners to get it approved without having to waste time going to alternate banks and financial institutions.
Tax Benefits
One of the reasons why a term loan is highly sought-after is that it offers tax benefits in the form of deductibles.
The amount of interest paid on a term loan is deductible from your final tax liability at the end of each year. This means that all the interest payments that you made to the lender during the year can be subtracted from your final tax liability at the end of the year.
For a small business reduction in tax liability is a big advantage.
Freedom to Use the Cash as You Deem Fit
For most business owners, their business is something that they cherish. They have a plan and a vision for their business, and they would never let it be compromised.
However, there are times when due to monetary restraints, these visionary businessmen and entrepreneurs are forced to share their business with others. This usually happens when they secure equity loans or debt financing against shares of the company.
Their control in the company is ultimately diluted. This is a situation that not a single business owner would like to be in.
A term loan has no such disadvantages — the lender offers you money, and you repay them the capital with interest. They have no stake in your business one way or the other.
The Final Word
There are several advantages of a small business. Some of them have been discussed above.
While it is not only very easy to secure a term loan, it is also equally easy to manage it. This is the kind of loan that allows you to grow without hurting your daily operations.