7 Reasons to Use Term Loans for Your Business
As a business owner, you have several options available to meet your funding needs. One of the most common options is a term loan. Term loans offer several significant advantages. Here are seven reasons why you should consider them.
Affordable Interest Rates
While interest rates vary based on the loan’s term, term loans typically have more affordable interest rates than short-term loans. Other factors that affect the rate include your credit history and if you provide collateral. In general, rates vary between 6% and 23% and are fixed for the duration of the loan.
The term and rate of your loan can often be negotiated before its final approval. Generally, the better your credit history (and the credit history of your business), the more flexibility you’ll have.
Easy Application Process
Typically, business loans have a significant amount of paperwork and can take weeks to be approved. The process for term loans is typically much more streamlined, making applying easier.
Fast Decisions and Funding
Not only are term loans more streamlined, but they’re also approved more quickly. Instead of waiting weeks, you may only need to wait a few business days to get the funding you need for your business.
Preserve Your Cash Flow
Even if you have the capital to make a major purchase, making it can strain your cash flow. A term loan allows you to make your necessary purchase while preserving your cash flow for other essential needs, such as making payroll or paying your monthly expenses.
A term loan comes with a significant tax benefit. You can deduct the interest you pay on the loan from your taxes. This helps to reduce the amount you owe in taxes each year that you have the loan.
Boost Your Credit Score
Your monthly payments are reported to the credit reporting agencies each month. Making on-time payments (or making your payments early) can help to boost your credit score. This can be particularly beneficial if your credit score is less than perfect. A higher credit score can help you to secure better rates and terms on the next loan (or other financing option) you apply for in the future. Conversely, late payments can harm your score. No matter what type of financing you have, be sure to make all of your payments on time.
Term loans have many uses and can be highly beneficial for your business. Before you apply, be sure to research all available financing options to find the best one for you.