Financing Guide
Business Term Loans
Reviewed and updated 2026-05-25 · Figures are dated industry references, not offers of credit
A business term loan is a lump sum of capital repaid over a fixed schedule at a stated interest rate — predictable monthly payments, defined start, defined end. Conventional bank term loans for established borrowers typically price 7% to 15% apr on conventional bank term loans for established borrowers, varying with credit, collateral, and term length. Non-bank and online term loans are faster but materially more expensive — 10% to 30%+ apr on non-bank and online term loans — faster to fund but materially more expensive than bank credit. The product fits a one-time capital need with a clear payback horizon; recurring or short-term cash-flow needs usually belong in a line of credit instead.
How a business term loan actually works
The amortization basics
The borrower receives a lump sum at funding. Repayment is on a fixed schedule — typically monthly, sometimes weekly for shorter non-bank loans — and each payment is part interest, part principal. Over the life of the loan, the principal balance walks down to zero. Some loans carry a fixed rate; others variable. Some allow penalty-free prepayment; others charge a prepay fee or have a fixed total cost that does not shrink with early payoff. The rate, the term, the prepay terms, and the origination fee together determine the true cost — not the rate alone.
Bank term loans vs. non-bank term loans
These products share a name and a structure but operate in different markets.
- Bank term loans price in the 7% to 15% apr on conventional bank term loans for established borrowers, varying with credit, collateral, and term length. Underwriting is full bank underwriting — financial statements, tax returns, cash-flow analysis, collateral review, often covenants. The process takes weeks. Loan sizes scale up to several million dollars for qualifying borrowers. Personal guarantees from 20%+ owners are standard.
- Non-bank and online term loans price 10% to 30%+ apr on non-bank and online term loans — faster to fund but materially more expensive than bank credit. Underwriting leans on revenue, bank statements, and credit rather than full financials. Funding is in days to a couple weeks. These products fit borrowers who do not qualify for bank credit or who genuinely cannot wait — the speed is real, and the price tag for that speed is also real.
How term length is set
1 to 10 years; bank loans frequently 3 to 7 years, online lenders frequently 1 to 5 years. The right term matches the useful life of what the money is funding. A two-year term on a ten-year asset means the business carries an expense after the asset has been long since absorbed; a ten-year term on a two-year asset means the business is paying off something that no longer exists. The structurally honest term sits somewhere between — usually long enough that the monthly payment is manageable against the project’s cash flow, short enough that the total interest paid is not punishing.
Origination fees and other costs
Origination fees commonly 1% to 5% of loan principal, deducted from proceeds at funding or financed into the balance. The origination fee materially affects the true cost of a term loan, especially on shorter terms where the fee is amortized over fewer months. Online lenders often deduct the fee from proceeds at funding — so a borrower expecting $100,000 net of a 5% origination receives $95,000 in hand and still owes $100,000 in principal. The all-in APR is what matters; the headline rate is not.
Who a term loan fits
- A one-time capital project with a clear payback horizon — an acquisition, an expansion, a build-out, or a major refinance
- Borrowers who want budget predictability: a fixed monthly payment over a defined term, with no revolving complexity
- Businesses that do not qualify for SBA but can carry a fully amortizing payment on conventional bank or non-bank terms
- Refinancing more expensive debt into a single structured payment — including consolidating one or more MCAs into a single term loan
When a term loan is the wrong choice
Term loans are the workhorse of business credit, but they are not the right tool when:
- The real need is a recurring or short-term working-capital cycle — a line of credit fits that better than a fixed amortizing loan
- The borrower qualifies for an SBA loan — SBA is materially cheaper and almost always the right call when timing allows
- The intended use is a major equipment purchase — equipment financing is usually cheaper because the asset itself secures the loan
- The borrower is paying for the speed of a non-bank term loan when a bank term loan, given a few extra weeks, would price dramatically lower
How PMF fits in
Premium Merchant Funding, which publishes this site, places business term loans across both bank and non-bank lender programs and can run the numbers honestly: if a bank term loan or SBA loan fits, that is the call to make even though it takes longer; if speed actually justifies the higher cost of a non-bank term loan, that is a different conversation. The comparison should be made on the actual all-in APR and on the real timeline, not on the headline rate alone.