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What is a Term Loan?
A term loan is a financing option that provides borrowers with a fixed amount of capital, repaid over a set period through regular installments. These loans are available from banks, credit unions, and online lenders, offering repayment terms that can range from a few months to several years. With predictable payments, term loans help businesses manage cash flow while securing the funds needed for growth and expansion.
Unlike Lines of Credit…
Term loans provide borrowers with a lump sum upfront, making them suitable for financing specific projects or investments. Borrowers can draw and repay funds as needed. These loans are commonly utilized by businesses to fund expansions, purchase equipment, manage cash flow, or undertake other significant capital investments.
Term loans usually come with fixed or variable interest rates, depending on the terms of the loan agreement.
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.