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Let’s Talk Business: The Need To Know Business Terms For A Company Loan

The Need To Know Business Terms For A Business Loan

Are you ready to apply for a business loan for your company? Review our need to know business terms so you know what you are getting out of your loan.

terms and conditions

Be mindful of your business loan's terms and conditions

Do you know that a large number of loan applicants sign the paperwork without understanding the business terms?

Before you submit your business loan application form, read this guide to understand the common terms used by lenders. It’ll help you apply for the best business loan and understand the lingo used by most lenders.

Interestingly, business loans can stretch for a few weeks to 25 years. In this industry, the word "terms" ordinarily alludes to the amount of time taken to reimburse the loan and interest to the lender.

Business Terms in Repayment of Loan

Let me take you via some of the details of the loan terms and terminologies. They’ll help you know what you’re getting into when applying for a loan.

Traditional Bank Loans

Behind SBA loans, these loans range from 3 to 10 years and come with the longest finance terms. They’re not easy to qualify and are not accessed by most small business owners.

SBA Loans

These provides the longest loan terms in the business market. Loan terms in this category depend on the SBA loan programs they are lent through. Below are the three familiar SBA loan programs:

  • SBA 7(a) Loan Program: ranges between 5 to 25 years
  • SBA Microloan Program: covers less than 6 years
  • SBA CDC/504 Loan Program: ranges from 10 to 25 years

Medium-Term Business Loans

Similarly, this is another type of funding that provides prolonged business loan terms and covers one to five years. However, despite being applied via optional lenders, medium-term loans function like traditional bank loans. Their loan term provides a longer repayment period as compared to several other online business credit alternatives.

Invoice Financing

Do you know invoice financing provides extremely short-term solutions to business people? Its finance terms cover 3 to 6 months, and outstanding invoices secure the funding.

Usually, the loan term is determined by the amount of time taken by the customer to fulfill the invoice. As a result, invoice financing firms accept three to six weeks of outstanding invoices.

Short-Term Business Loans

As the name implies, these range from 3 to 18 months. You’ll have a lower cost of capital and provides small amounts of loans that are quicker time-to-fund. Short-term loans are impacted by the year or less repayment term.

Business Lines of Credit

This can be medium-term or short-term in nature. Hence, the usual loan term you see attached to credit business line varies broadly from 6 months to 5 years.

Equipment Financing

Are you aware that the equipment bought with this funding secures equipment financing? Also, its common finance terms usually are longer.

The built-in collateral means: lenders take less risk — the loan covers from 2 to 5 years.

Merchant Cash Advance

These have no business loan terms. They are repaid via a day-to-day percentage of the business card revenues. The advance firm claims the daily percentage until the whole debt is cleared.

With the fluctuating daily payment, it’s hard to tell the period taken by the merchant cash advance. But do you know this has some of the shortest loan terms in the industry?

That’s due to the daily payments. Normally, borrowers repay their loan for a period of 4 to 18 months.

Common Business Loan Terminologies

During the process of searching for the right business loan, you’ll come across some terminologies as highlighted below.

Cash Flow Statement

This takes note of the entire cash inflows and outflows from your business during a specific period.

Grace Period

It’s a pre-determined time after the due date of loan payment given without incurring late charges.

Entity Type

Moreover, the type of business entity constitutes the category your business falls legally. Entity type influences how your business functions under the law.

Collateral

Do you know with collateral you have high chances of qualifying for funding and get better business loan terms?

Collateral consists of  tangible and intangible property owned by an individual or business. It may include financial accounts, equipment, vehicles, real estate, etc. Businesses use collateral in two ways:

  • Securing a loan
  • Given to a lender when debt can’t be cleared

Unsecured

When utilized in the business loan term, it refers to loans with no collateral backing. However, unsecured debt results in bigger risks to the lender. They’re also not easy to qualify.

Underwriting

By underwriting your application, the lender accesses the risk of loaning you. It involves the decisions of whether to lend or not.

Accounts Payable

Commonly known as "current liability", accounts payable constitutes  a business loan term that alludes to short-term debt that you’re needed to clear soon. It denotes what’s owned by your business.

Accounts Receivable

This refers to the reimbursements you’re owned. They make up outstanding invoices and allude to what your trade is owed.

Amortization

In business finance terms, it refers to how borrowers pay off their business loans. For amortized loans, borrowers make scheduled and equal payments until the principal and interest is paid.

Consolidation

Consolidating your debts means paying multiple loans with the money you got from a single loan.

Debt Financing

Debt financing means way of business financing or a loan that necessitates you to repay the principal amount and interest over time.

Loan Agreement

It’s a contract signed when you agree to take the loan. The loan agreement delineates the loan terms.

Maturity

A loan matures after making the last loan payment. That’s after full clearing of the principal and interest.

Variable Interest Rate

Unlike a fixed interest rate, this differs from the market interest rates during the business loan span.

Subprime Borrower

It’s a borrower who is termed as a higher risk.

Blanket Lien

Signing to a blanket lien loan gives powers to the lender to seize any of your business property if the debt is not cleared.

Refinancing

Refinancing your debt involves paying off your loan with another better loan. It saves your huge business cash with the avoided interest.

Working Capital

What do you know about working capital? It’s the entire capital utilized in day-to-day transactions in your business. It's the amount of cash in your business minus the expenses.

Wrapping Up

If you are seeking to work out or modify your SBA loan  with lenders, get in touch with us. We’ll walk you through common business terms.

In the business arena, we’ll get the world at your fingertips as we offer you the most important loan details.

We are here to help you with your SBA loan problems.

If you owe more than $30,000, call our experienced attorneys at (833) 428-0933 anytime for a Free Case Evaluation