Term loan, as the name defines, refers to a specific amount of money borrowed for a specific time period. Business owners often leverage term loans for some immediate working capital. Term loans are best suited to seasonal businesses, but various small businesses have been getting financial help through term loans. Any car loan or home loan is a type of term loan where the term defines the period of time specified to repay the loan.
A number of reasons including, but not limited to, lower interest rates, payment structure setting, and a simple application process make term loans a fan-favorite among small business owners. Term loans ensure that you get adequate time for your investment to give back to the business and repay easily. However, this is not the case when taking a term loan to cover a cash shortage or to cover an unexpected expense. Below, we will roll through a comprehensive guide explaining when and how to take term loans.
Documents You Need for a Term Loan
Irrespective of your business current situation, short term funding will always help in expanding business. Contrary to popular belief, you don’t need infinite documentation to apply for term loans. Also, businesses from varying industries can get a short term loan. You can apply for a term loan and receive $20,000 to $1,000,000 for a tenure of 1 to 3 years with the following documents.
- REIL Capital Application
- 3 Months of Business Bank Statements
- Debt Schedule
- Business and Personal Tax Returns
- Business Profit & Loss Statements
- Business Balance Sheet
Apart from this, your credit score plays a major role in devising the amount of loan you are eligible for. To qualify for a term loan, you need to maintain a credit score of a minimum of 600. Furthermore, your business should also be at least a year old with a minimum annual revenue of $100,000.
When to Apply for a Short Term Loan
Having extra working capital always helps businesses to grow promptly. Sometimes you need resources for your next big project, while sometimes short term loans can cover unwanted costs that you may have incurred. Short term funding keeps your business from slowing down. You can apply for a short term loan when:
- You have an emergency: You may have to shift to a new workplace in between projects or there may be an equipment breakdown – emergencies can appear anytime. With a quick turnaround time of as low as 72 hours for the whole application and disbursal process, short term funding is a great way to cover emergency expenses.
- You have operational expenses: Seasonal businesses often need funding while being at the peak of their season. You may want to hire more resources or buy new equipment to grow your business. With a wide window of $20,000 to $1,000,000, you can calculate and cover all your operational expenses with a single loan.
- You have cash flow gaps: Every business has its share of good and bad times, but it may get hard for seasonal businesses to get out of those bad times. Short term funding helps bridge the cash flow gaps that your business may have due to unwanted expenses.
Where and How to Apply for a Term Loan
All the commercial banks, finance companies, and some non-bank finance companies offer term loans. Some vehicle and equipment manufacturers are able to offer term loans through finance companies for their product financing.
Banks follow a long application process for term loans, although they usually are able offer lower interest rates as compared to other non-banking lenders.
With alternative financing like REIL Capital, to apply for a short term loan you’ll need to submit the specified documents previously mentioned, including your business financial statements, and business and personal tax returns. To get started it’s as easy as submitting an eSign application and 3 months of bank statements! Apart from that, you can solidify your application by submitting some more information related to the owners as well as the business. Information you may need to apply for short term loans from different financial bodies include, but are not limited to:
- A detailed business plan explaining the exact need for capital. Specify the exact assets you will purchase as well as the business benefits of this purchase.
- Financial statements (of both business and owner) covering profit and loss (P&L) statements and balance sheets
- Tax returns (of both business and the owner)
- Business premises lease documents (if available)
- Expected revenue plan for upcoming years demonstrating how current operations will help to repay the offered loan.
- Sales contract or purchase agreement of assets to be purchased proceeding the term loan.
With the ever-growing internet assisting application processes for most industries, applying for term loans is just a one-click thing. You can grab all the necessary documents and click here to apply for a term loan.
Factors to Keep in Mind Before Applying
Since short term loans can be obtained easily as compared to long-term loans due to the increasing number of online lenders, business owners often ignore important factors to keep in mind before applying for short term loans. When it comes to the commercial finance sector, short term loans are can be released at either low or high-interest rates, with some non-bank online lenders offer as low as 6% interest rates on their term loans. Short term loans demand periodic payments, and in cases where your business does not have stable cash flow, you may have to pay additional fees and fines.
This is why it is important to keep certain things in mind before applying for short term loans, such as:
- Interest rates and overall cost: Interest rates are considered the most important part of any loan type. Regardless of the loan type, it’s important to thoroughly research the market for the lowest interest rates and then apply for a loan. Also, never apply for a loan before getting a list of all the charges or fees that you may have to pay on every payment. These extra charges are excluded from the interest but may become part of your periodic payments.
- Risks: A wise business owner never takes a business decision before weighing all the possible risks. Analyze and predict the benefits you may reap with the proposed loan. At the same time, also make a list of potential risks it may cause to the business. If the risks are big enough to hurt regular cash flow, reconsider your decision of taking a short term loan.
It’s always important to know what you want to accomplish through any business decision you take. This comprehensive guide to short term loans helps you evaluate your decision and wisely move ahead while applying for a loan.
At REIL Capital, we care about our clients, their businesses, and their futures. If you’re interested in learning more about how a term loan or any other financing product can help your business, please reach out to us, and one of our Capital Specialists will help find the right type of financing for you.