What is a Term Loan?
A term loan is a type of loan that provides borrowers with a fixed amount of money that is repaid over a predetermined period, known as the loan term. These loans can be obtained from various financial institutions, such as banks, credit unions, or online lenders. The repayment period typically ranges from a few months to several years, and the borrower is required to make regular installment payments, often monthly, until the loan is fully repaid.
Unlike Lines of Credit...
Where borrowers can draw and repay funds as needed, term loans provide a lump sum upfront, making them suitable for financing specific projects or investments. They are commonly used by businesses to fund expansions, purchase equipment, manage cash flow, or undertake other significant capital investments.
Fixed-rate term loans have a consistent interest rate throughout the repayment period, offering borrowers predictable payments. In contrast, variable-rate term loans have interest rates that can fluctuate based on market conditions, potentially resulting in varying monthly payments.
Overall, term loans provide businesses with the necessary capital to achieve their growth objectives while spreading the repayment over time, making them a popular and accessible financing option for various ventures.
