Business loan terms aren’t much different than a car loan. The borrower pays off the loan in small increments until they’ve paid off the loan. Though it can be paid off early, the loan term is the maximum time you have to repay the total sum.
If you’re looking for a loan for your small business, you will want a loan that works for your finances and your timeline. When shopping for lenders, here’s what you need to know to be prepared:
A loan term, also known as a repayment time, is the schedule a lender established for you to pay off a loan each week or month until you pay your loan off entirely.
Some loan terms are a few months, while others can extend to 25 years or more. It all depends on the nature of the business loan.
Loan terms vary depending on the type of business loan you apply for. Here are some typical terms.
| Type of loan | Business loan terms | Small business loan amount |
| Term loan: A traditional loan from a lender that comes with a lump sum that needs to be repaid over a set time period. | 3 months–10 years | $5,000–$1,000,000+ |
| Microloan: Smaller loans that give business owners quick funding, and often come from thematic lenders and organizations. | Usually short term, but can go up to 7 years | Up to $50,000 |
| SBA loans: A loan backed by the Small Business Administration (SBA) that has favorable terms to help small businesses. | 7–25 years | $1,000–$25,000,000 |
| Business line of credit: Like a credit card, business owners can access the money they need until they reach their limit. | 6 months–5 years | $1,000–$25,000 |
| Equipment financing: A loan designed to purchase business equipment and vehicles. | The term relates to the lifespan of equipment because you use equipment as collateral | Value of equipment |
| Invoice factoring: Sell your outstanding invoices and receive a partial amount of the money. | 30–90 days | Up to 80% of outstanding invoice value |
| Inventory financing: A loan to buy inventory using your inventory as collateral. | Around one year | Percentage of inventory, usually 20–65% |
| Merchant cash advance: Similar to a payday loan for businesses, you get an advance of your typical profits with high interest rates. | Daily payments that involve auto-drafts | Up to $500,000 |
When starting a small business, it’s hard to access funding to get started. A loan can help. Here’s a rundown of the major types of business loans and their terms.
Term loans are lump sums of money borrowers pay over a fixed period. Term loans are helpful if you need a large sum of money for your small business.
These types of loans come in a wide variety and are highly variable. Their interest rates tend to be lower than other loan types but read the fine print to understand if you’re getting a fixed or variable interest rate.
Microloans are often lent by non-profits and almost always cater to specific groups like women, veterans and minorities. These are smaller loan amounts with shorter terms.
SBA loans tend to come from traditional lenders. You must have a small business and qualify through a SBA lender. There are several types of SBA loans, and the 504 and 7(a) are the most common among small business owners.
A business line of credit works like a credit card but functions like a checking account for your small business. You take out money as needed and pay interest only on the money used. This is a short-term solution for businesses that need access to cash.
Equipment financing is a loan that helps finance purchasing or leasing business equipment (including vehicles). Terms will vary for equipment financing because lenders will use the equipment as collateral and set the loan terms to the lifespan of the equipment.
You can sell your outstanding invoices and receive a portion (usually 70%–95%) of the value. The lender deducts a fee since they are collecting the money. It’s a fast way to get a business loan, but you give away some control and customer service related to your money.
You can get a loan to buy and use inventory as collateral. This is a good option for businesses expecting a big rush of orders at certain times and don’t have enough cash to prebuy inventory.
Like a cash advance or payday loan, the lender looks at how much you typically make and loans this amount. Then, they take daily payments on the loan (plus interest) through auto-draft.
Merchant cash advances come with high interest rates but are easier to qualify for than other loan types. Use this type of loan as a last resort — the daily terms of this loan make it hard for small business owners to maintain cash flow.
The most important thing about small business loans is that no one size fits all. You have to pick the loan that works best for your business.
Once you have secured a small business loan, you can ensure you make each payment with the right business insurance. Commercial property insurance can help protect you from business disruptions. You won’t have to worry about missing a loan payment if something happens that forces you to temporarily close or stop operations.
Here are a few things to consider while shopping around for a small business loan:
Each dollar you invest in your business matters, so we want to help protect your small business at affordable prices. You can easily create and manage customized business insurance packages with NEXT.
Our online application will ask you a few questions and show you coverage options. When you see what you like, you can buy the coverage you need on the spot — all in about 10 minutes.
As soon as your purchase is complete, you can access your certificate of insurance and manage your policy 24/7 via web or mobile app.
If you have questions, our licensed, U.S.-based insurance professionals can help.
Jessica spent over a decade working in education before moving into content marketing. She has worked on content marketing campaigns in the edtech, real estate, and personal finance sectors. She has a passion for working with companies that take the time to educate their customers. When she’s not working, she’s probably outside with her two kids.
