What is a business term loan?

A business term loan is a lump sum you borrow and repay on a fixed schedule over a set period — months to years. Interest accrues on the balance over the term. It's the most common loan structure for defined, one-time capital needs.

A term loan is the baseline small business loan structure: you receive a fixed sum, agree to a repayment schedule (weekly, biweekly, or monthly), and repay principal plus interest over the loan term. At the end of the term, the balance is zero. It's not revolving — once you repay, the facility closes.

Short-term vs. long-term

Short-term loans (3–24 months) — Higher periodic payments, faster payoff, lower total interest. Common for working capital, inventory, or bridge needs. Often offered by online and nonbank lenders. Factor-rate pricing is common in this tier.
Medium-term loans (2–5 years) — Moderate payment size. Used for equipment, renovations, and business expansion. Banks and credit unions are common sources.
Long-term loans (5–25 years) — Lower periodic payment but more total interest. SBA 7(a) and 504 programs operate here. Used for real estate, major equipment, and business acquisition.

How interest and pricing work

Bank and SBA term loans typically use a simple interest rate (APR) applied to the declining principal balance. Non-bank and online short-term loans often use a factor rate (e.g., 1.25×), which means interest is pre-calculated on the original principal regardless of how fast you repay — prepayment doesn't reduce interest cost. Understanding which pricing structure applies to your offer is critical before signing.

Term loan vs. line of credit

Term loan: lump sum, fixed schedule, interest on the balance over the term. Best for defined, one-time capital deployments.
Line of credit: revolving, draw what you need, repay and redraw. Interest only on the outstanding balance. Best for ongoing or unpredictable cash flow needs.
Neither is universally better — the right structure depends on how and when you'll use the capital.

Typical qualification requirements

Qualification varies significantly by lender tier and loan size. Bank term loans typically require 650+ FICO, 2+ years in business, and strong annual revenue. Online and nonbank short-term lenders may accept 550+ FICO and 6–12 months in business at higher rates. SBA term loans (7(a), 504) set the strongest terms but require the most documentation and time. If a term loan fits your need, apply with ClearValue Lending — your application routes to one matched lender, not multiple competing offers.

Authoritative sources

44% of small employer firms that applied for financing sought a term loan — the second most common financing type after lines of credit (52%). Term loans are used for operating expenses, expansion, and equipment acquisition. — Federal Reserve 2026 Report on Employer Firms (2025 SBCS)
SBA 7(a) term loans have a maximum maturity of 25 years and a maximum loan amount of $5 million. Interest rates are negotiated between borrower and lender subject to SBA maximums pegged to the prime rate. — SBA.gov — 7(a) Loans
The CFPB's small business lending rule defines a business purpose term loan as a covered credit transaction — a category that includes equipment financing term loans but excludes merchant cash advances (sales-based financing). — CFPB — Small Business Lending Rule FAQs

Key takeaways

A term loan is a lump sum repaid on a fixed schedule — not revolving.
Short-term (3–24 months): higher payments, faster payoff, often factor-rate pricing.
Long-term (5–25 years): SBA territory — lower payments, strongest rates, more documentation.
Prepayment only reduces interest on simple-interest (APR) loans, not factor-rate products.
Lines of credit are better for recurring needs; term loans are better for defined, one-time deployments.