A business term loan gives you a lump sum up front that you repay on a fixed schedule over a set number of months or years. Banks, credit unions, online lenders and community lenders all make them, and each one decides by looking at the same three things: your cash flow, your credit and what backs the loan.
Who makes term loans
Term loans are the most common product in business lending, so almost every lender on the register offers some version. The difference is in who they are built for.
Banks are the largest source of term loans for established businesses. They want two or more years of operating history, steady profits and a relationship that includes your deposit accounts. Regional and community banks often have more room for judgment than national banks, which run tighter credit boxes. Browse banks on the register.
Credit unions lend to member businesses and often price competitively. Their business lending teams are usually smaller, so they suit owners who want a direct line to the person making the decision. See credit unions.
Online lenders decide fast and accept shorter histories and lower credit scores. The trade is a shorter term and a higher cost. They fit owners who need money in days and have a clear use that pays back quickly. See online lenders.
CDFIs (community development financial institutions) serve owners that banks often pass on: newer businesses, owners in underserved areas, and borrowers with thin collateral. They pair the loan with coaching. See CDFIs.
SBA lenders make term loans with a federal guarantee behind them. The guarantee lets the lender stretch the term and accept less collateral. If a bank turns you down on a conventional loan, ask whether the deal fits the SBA 7(a) program. In Canada, the matching tool is the Canada Small Business Financing Program, offered through banks and credit unions.
What lenders look for
Every term lender asks one question: can this business repay the loan from the cash it already makes?
Cash flow. Lenders calculate a debt service coverage ratio: the cash your business generates divided by all the loan payments it owes. Banks generally want that number comfortably above 1, meaning you earn more than enough to cover every payment with room to spare. Online lenders look at monthly bank deposits instead of tax returns and want to see consistent revenue.
Time in business. Two years is the common line for banks. Online lenders often start at six months to a year. Startups generally need an SBA loan, a CDFI or startup funding sources rather than a conventional term loan.
Credit. Lenders check your personal credit and, for larger loans, the business credit file. A strong personal score widens your options and improves your terms. Recent late payments, liens or tax debts narrow them.
Collateral. Banks want the loan secured by business assets, and often a lien on everything the business owns. Many also want real estate when the loan is large. Online lenders usually take a general lien and skip specific collateral.
Personal guarantee. Expect to sign one. Almost every small business term loan requires owners with a meaningful stake (often 20 percent or more) to guarantee it personally.
Use of funds. Lenders want a clear purpose: buying equipment, opening a location, refinancing expensive debt, hiring ahead of a contract. A specific plan with numbers reads as a lower risk than "general working capital."
Typical terms
Terms vary with the lender type and the strength of your file. The table shows how the main lender types tend to structure a term loan.
| Lender type | Typical term | Speed to funding | Collateral | Best fit |
|---|---|---|---|---|
| Bank | 3 to 10 years, longer with real estate | 3 to 8 weeks | Business assets, often real estate | Profitable, established businesses |
| Credit union | 3 to 7 years | 2 to 6 weeks | Business assets | Members who want a local relationship |
| Online lender | 6 months to 5 years | 1 to 7 days | General lien | Owners who need speed |
| CDFI | 1 to 7 years | 3 to 8 weeks | Flexible | Newer or underserved businesses |
| SBA lender | Up to 10 years, 25 with real estate | 4 to 12 weeks | What is available | Strong businesses short on collateral |
Pricing follows risk. Banks and credit unions usually price off a benchmark such as prime plus a margin, with either a fixed or variable rate. Online lenders often quote a factor or a total cost of borrowing, and the effective cost runs higher. Ask every lender for the total dollar cost of the loan over its life so you can compare offers on the same footing.
Watch for fees and conditions beyond the rate: origination fees, prepayment penalties, required minimum deposit balances and financial covenants that set a floor on your cash flow or a ceiling on your other debt.
Process and timing
A bank term loan follows a predictable path.
- Initial conversation. A loan officer or business development officer asks about your business, the amount and the use. They will tell you quickly whether the deal fits.
- Application and documents. Expect two to three years of business and personal tax returns, year to date financial statements, a debt schedule, bank statements and a description of the use of funds.
- Underwriting. A credit analyst spreads your financials, calculates coverage and writes up the request. This is where most of the waiting happens.
- Approval and commitment letter. The lender issues terms in writing, including rate, term, collateral and covenants.
- Closing. Documents are signed, liens are filed and funds are released.
At a bank, plan on three to eight weeks from a complete application. Online lenders compress this into days because they verify revenue through linked bank accounts and automated checks.
The fastest way to speed up any lender is a complete package on day one. Missing returns or unexplained swings in revenue are the main reasons files stall.
Which lenders to approach
Match the lender to your situation rather than applying everywhere.
- Profitable for two years or more, with collateral: start with a community or regional bank, and a credit union if you are a member. These usually give you the longest term and the lowest cost.
- Strong cash flow but limited collateral: ask a bank or an SBA lender about a 7(a) loan.
- Under two years in business or recovering credit: look at CDFIs and online lenders.
- Need money this week: an online lender is the realistic option. Keep the term short and the use specific.
- In Canada: start with your bank or credit union, and ask about the CSBFP if you need equipment, leasehold improvements or real property financing.
You can also search by place to find loan officers who know your market, such as lenders in Texas or Ontario. If you need a revolving source for ongoing expenses instead of a one time sum, a line of credit is usually the better fit.
Need help choosing a lender? Sign up through BusinessLoanBroker.ai to share your financing needs and get help with your next steps. You can also explore financing guides and tools before you apply.