What do businesses use term loans for?
Term loans suit defined, one-time investments with a payback that stretches over months or years. Common uses include opening a second location, building out a new space, launching a product line, buying a large block of inventory for a contract, or hiring a team ahead of steady new revenue. The key is a clear cost and a clear plan.
- A retailer opens a second store in a neighboring state.
- A professional services firm builds out a larger office for new hires.
- A manufacturer adds a production line to serve a new customer.
- A home services company launches a new service area with vans, staff and marketing.
Expanding across state lines? Read expanding into another state first.
How is a term loan repaid?
You make regular payments, usually monthly, that cover principal and interest until the loan is repaid. Some shorter-term business loans use weekly or even daily payments. Fixed payments make budgeting easier, but they arrive whether your month was strong or slow, so the payment has to fit your leanest realistic month.
Longer terms lower each payment but increase total interest. Shorter terms cost less overall but squeeze monthly cash flow. Ask whether there is a fee for repaying early and whether early repayment reduces the interest owed. See working capital vs. term loan for a side-by-side.
What does a term loan cost?
Pricing depends on the lender type, your business's revenue and credit, the term and any collateral. Bank and SBA term loans tend to cost less but take longer and ask for more documentation. Online and alternative term loans are usually faster and more flexible but carry higher pricing. Compare total repayment, not just the rate.
Also ask about origination fees, which are sometimes taken out of the amount you receive, and whether the rate is fixed or variable. A loan with a slightly higher rate but no origination fee can cost less than one with a lower rate and a large fee. If you qualify and can wait, compare an SBA loan too.
When is a term loan a poor fit?
It is a poor fit when you do not know exactly how much you need, when your needs recur through the year, or when the project will not produce enough revenue to cover payments for a long time. Borrowing a lump sum you only partly use means paying for money that sits idle.
If your costs come and go, a line of credit is often better. If the main purchase is a machine or vehicle, equipment financing can offer a term matched to the asset. And if cash is already tight from existing payments, take that into account before adding another fixed obligation.
What should you prepare before applying?
Prepare recent bank statements, basic financial statements and a short explanation of what the money is for and how it pays back. Requirements vary by product and funder; many look at time in business, monthly revenue and credit. A clear expansion budget, with build-out, equipment, hiring and a cushion for the slow start, makes the review faster and your offer easier to evaluate.
If the expansion is in another state, list the new location and when you expect it to open. Registration, payroll accounts and licenses in the new state take time and money, and some states require written cost disclosures on commercial financing. Our state guides summarize what to expect.
What you’ll typically need
- Recent business bank statements
- Profit and loss statement and balance sheet
- Business tax returns for larger requests
- Budget or quote for the project
- Owner ID and business details
Frequently asked questions
How long are business term loans?
Terms vary by lender type and purpose. Alternative term loans are often measured in months to a few years, while bank and SBA loans can run considerably longer. The right term usually mirrors how long the investment takes to pay back. Ask each provider what terms they offer for your specific use.
Do term loans require collateral?
Some do and some do not. Larger or lower-cost loans commonly require collateral, while many alternative term loans rely on a general lien on business assets and a personal guarantee. Read the security section of the agreement so you know exactly what is pledged before you sign.
Can I use a term loan to open a location in another state?
Yes, many owners use term loans for new locations, including across state lines. Funders will want to understand the plan, the budget and how the existing business supports payments while the new site ramps up. Registration and licensing in the new state are separate steps to check with the official state agencies.
Will a term loan affect my existing funding?
It can. Some existing agreements restrict additional financing or require notice before you take on more. Funders also look at your current payments when sizing a new offer. Review your current agreements and share existing obligations on your application so offers reflect what you can actually afford.
Plan the expansion, then fund it
Apply once and compare term loan offers with the costs in writing.
Updated September 14, 2026 · 50 States Funding Team