Definition
A business term loan is a lump sum borrowed for a business purpose and repaid over a fixed period through scheduled repayments. The loan can be secured or unsecured, short or long term, and repayments may be daily, weekly, fortnightly or monthly. Term loans suit one-off purchases or projects with a clear payback, rather than recurring gaps.
The term loan is the classic shape of borrowing: you receive an amount, and you repay it, with the cost on top, over an agreed period.
Key features
The amount, term, repayment frequency, cost and security are set at the start. Each repayment reduces the balance (unless there is a balloon or interest-only period), and the loan ends when the final repayment is made.
Good uses
Term loans suit specific, one-off needs: buying stock for a large order, a fit-out, a business purchase or clearing a debt. For recurring gaps, a line of credit is usually a better tool.
Picking a length
Match the term to how long the purpose takes to pay back. Our guide to choosing a loan term explains the trade-off between repayment size and total cost. To explore a term loan for your business, make one enquiry.
Common questions
Can I redraw on a term loan?
Most business term loans do not allow redraw, though some do. If you need flexibility to redraw, a revolving facility may suit better.
What is a typical term?
Terms range from a few months for short-term loans to many years for property-secured or equipment loans. Match the term to the purpose.
Sources and further reading
Related terms