A lump sum, a fixed term, fixed monthly payments. The structurally cleanest financing product for major one-time investments where the math is predictable and the horizon is multi-year.
A term loan is the most familiar shape of business financing: you receive a lump sum, you commit to a fixed term, and you make fixed monthly payments until it's paid off. The structure is honest and predictable — and that's the value.
Term loans come in two flavors: bank term loans (lower rates, longer terms, stricter underwriting) and alternative or broker-network term loans (faster, looser qualification, but materially higher rates). Both are real products with legitimate use cases.
Bank term loans run 7–15% APR for qualified borrowers, terms commonly 3–10 years, larger amounts (often $100k–$5M+), and require strong financials, two-plus years of profitable operating history, and a thorough underwriting process that takes 2–6 weeks.
Alternative / broker-network term loans run 15–60% APR (depending on file strength), 6–60 month terms, $25k–$500k typical, and fund in 2–7 business days after a moderate underwriting pass. They exist because plenty of profitable businesses can't pass a bank's covenant package — they have revenue, they have credit, they just don't fit the bank box.
A term loan wins when the capital need is one-time, large, and tied to a specific use. You're buying out a partner. You're building out a new location. You're acquiring a competitor. The capital goes out the door once, the ROI is multi-year, and you want fixed payments you can budget against.
A term loan loses when the capital need is recurring or unpredictable (a line is more efficient because you're not paying for capital you haven't deployed) or when speed matters more than total cost (an MCA funds in 24–48 hours; even a fast term loan is days to a week).
One of the most underused term-loan strategies for SMBs is consolidation. A business that's three years old, profitable, and stuck with two MCAs at 60% effective APR can often refinance into a 24-month term loan at 25–35% APR. Cash flow improves immediately because the daily debits become a single fixed monthly payment, total cost drops, and the operator regains breathing room.
The math has to pencil — refinancing only helps if total interest paid drops or cash-flow improvement is worth the swap. Run both scenarios before committing.
Three watchouts: origination fees (1–6% of the loan amount, capitalized into the loan), prepayment penalties (some term loans charge for early payoff — kills the consolidation play if not negotiated up front), and personal guarantees (standard on alternative term loans; sometimes negotiable on bank loans for stronger borrowers). Always get the all-in payment schedule before signing — that's the only number that tells you what the loan actually costs.
Alternative term loans typically start at 650+ owner FICO with 24+ months in business. Bank term loans usually require 680+ FICO, two years of profitable operating history, and full financial documentation (P&L, balance sheet, tax returns, debt schedule).
Alternative / broker-network term loans typically fund in 2–7 business days after document submission. Bank term loans usually take 2–6 weeks from application to funding given the more thorough underwriting process.
Yes. Refinancing one or more MCAs into a single term loan is one of the most common consolidation plays for businesses that have stabilized after using cash advances. The math has to pencil — confirm total interest paid drops, or at minimum that monthly cash flow improves enough to justify the transaction.
Almost always, when you qualify. A 24-month term loan at 30% APR is meaningfully cheaper than a 9-month MCA at a 1.28 factor (≈ 60% effective APR). The trade is qualification — term loans require longer time in business, better credit, and more documentation than MCAs.
Yes, on most alternative term loans. Origination fees typically run 1–6% of the loan amount and are usually capitalized into the loan (added to the principal). Confirm whether the fee is on the loan disclosure as 'origination,' 'closing,' or 'processing' — same fee, different label.
Alternative term loans are typically unsecured — backed by a personal guarantee and a UCC-1 blanket filing on business assets, but not specific collateral. Bank term loans for larger amounts often require specific collateral (real estate, equipment, accounts receivable) in addition to a personal guarantee.