Business Term Loans Explained: Rates, Terms & How to Qualify

A business term loan is the foundational product most people picture when they think of a small business loan. You borrow a set amount of money, agree to a repayment schedule that runs for a defined period, and make regular payments until the balance is paid off. The structure is straightforward compared to revolving credit lines or revenue-based products, which is exactly why term loans remain one of the most commonly used financing tools for growing companies.

Understanding how term loans are priced, what repayment periods to expect, and how lenders decide who qualifies puts you in a much stronger position before you start shopping. This guide covers the mechanics of business term loans, what rates and terms actually look like in the current market, and how to figure out whether a term loan is the right fit for what your business needs right now.

Fixed Amount, Fixed Term, Fixed Payment: How Term Loans Work

The defining feature of a term loan is its structure. A lender advances a lump sum, and you repay it over a predetermined period with scheduled payments, typically monthly. Most term loans carry either a fixed interest rate that stays the same throughout the life of the loan or a variable rate tied to a benchmark like the prime rate. Fixed rates give you payment certainty from day one. Variable rates may start lower but can rise if market rates move up.

Because the loan amount, rate, and term are all set at closing, you can calculate your total cost of borrowing before you sign anything. If you borrow $150,000 at 9% over five years, your monthly payment works out to roughly $3,112, and your total interest paid over the life of the loan comes to about $36,700. That transparency is part of what makes term loans attractive compared to products where costs are harder to pin down upfront.

Some term loans are secured, meaning the lender takes a lien on collateral such as real estate, equipment, or inventory. Others are unsecured and rely primarily on the creditworthiness of the business and its owners. Secured loans generally come with lower rates because the lender has recourse if payments stop. Unsecured term loans carry more risk for the lender and therefore come with higher rates, though they close faster since there is no collateral appraisal required.

Rates and Terms: What the Market Looks Like in 2026

Rates on business term loans vary widely depending on the lender type, the borrower's credit profile, the loan size, and the term length. SBA 7(a) loans, which are partially guaranteed by the federal government, carry some of the lowest rates available. As of early 2026, SBA 7(a) rates for loans above $50,000 are capped at prime plus 2.75% for terms of seven years or fewer. For a well-qualified borrower, that puts the rate in the 9% to 11% range depending on the current prime rate.

Traditional bank term loans for established businesses with strong financials typically price in the 7% to 14% range. Online lenders and alternative financing platforms tend to price higher, anywhere from 14% to 30% or above, because they accept borrowers with shorter operating histories, lower credit scores, or thinner documentation. Short-term loans with repayment windows under 24 months often use a factor rate rather than an APR, which can make the true cost look lower than it is. Always convert a factor rate to an APR for a fair comparison.

On the term side, most commercial term loans fall between 1 and 10 years. Equipment financing tends to match the useful life of the asset, often 3 to 7 years. Working capital term loans often run 1 to 3 years. Real estate term loans can extend to 20 or 25 years. Longer terms reduce monthly payments but increase total interest paid. Shorter terms do the opposite. Picking the right term is about matching your cash flow capacity to your repayment obligation rather than just minimizing monthly cost.

Best Fit for Term Loans: One-Time Capital Needs

Term loans are designed for one-time funding needs where you know the total cost upfront. Buying a piece of equipment that will be used for the next five years, opening a second location, acquiring a competitor or a book of business, paying off a high-interest merchant cash advance, or funding a facility renovation are all natural fits. In each case, the investment has a defined scope, you can estimate the return, and the benefit extends over a period of time that makes amortizing the cost sensible.

A business line of credit tends to be a better fit for recurring or unpredictable needs. If you need to cover payroll gaps, buy inventory at irregular intervals, or smooth out seasonal revenue dips, a line of credit lets you draw only what you need and pay interest only on what you use. Using a term loan for ongoing working capital often leads to a mismatch: you spend the lump sum faster than expected and still have years of payments ahead.

Debt consolidation is one underutilized use case for term loans. If a business is carrying multiple merchant cash advances, a high-rate short-term loan, and a maxed business credit card, consolidating those into a single term loan at a lower blended rate reduces monthly outflow and simplifies bookkeeping. The key is to make sure the new loan rate is genuinely lower than the weighted average cost of the debts being paid off. A business that clears $40,000 per month in credit card advance payments by refinancing into a $120,000 term loan at 11% over three years might cut its monthly debt service by $8,000 or more.

How Lenders Decide Who Qualifies

Lenders evaluate several factors when underwriting a term loan. Credit score sits near the top of the list for most lenders. Traditional banks often want to see personal FICO scores of 680 or higher. SBA lenders typically want 650 or above, though some programs allow lower scores with compensating factors. Online lenders may approve borrowers at 580 to 620, but the rate premium for lower scores is significant.

Time in business matters almost as much as credit. Most conventional lenders want to see at least two years of operating history. Some online lenders work with businesses that have been open for six months or more, particularly if revenue is strong. Startups with less than six months of history will find term loan options limited and will likely need to consider alternatives like SBA microloans, CDFI lending, or equipment financing tied to a specific asset.

Revenue and cash flow determine how much you can borrow and whether you can realistically service the debt. Lenders look at annual revenues, bank statement trends, and the debt service coverage ratio, which measures how much cash flow remains after existing obligations are paid. A ratio above 1.25x is generally considered healthy. Collateral improves approval odds and rates for secured term loans, with real estate carrying the most lender credit, followed by equipment, then accounts receivable and inventory.

How TurboFunding Helps

TurboFunding works with small businesses across the country to find term loan options that fit both the purpose of the loan and the financial profile of the borrower. Our funding range runs from $10,000 to $5 million, so whether you are buying a single piece of equipment or funding a full location buildout, there is room to work with. Businesses need at least $10,000 in monthly revenue, a 550 FICO score or higher, and at least six months of operating history to qualify. The application takes about three minutes and uses a soft credit pull only, so checking your options does not affect your score. We match you with lenders suited to your situation rather than sending you to a single institution with rigid criteria. Find out More

Frequently Asked Questions

Q. What is the difference between a short-term and a long-term business loan?

A. Short-term business loans typically have repayment periods of 3 to 24 months and are often used for immediate working capital needs. Long-term loans run from 3 to 10 years or more and are better suited for capital investments like equipment or real estate. Short-term loans usually fund faster but carry higher effective rates because the lender recovers fees and interest over a compressed window.

Q. Can I get a business term loan with a 600 credit score?

A. Yes, though your options narrow compared to borrowers above 650. Online lenders and alternative platforms regularly work with scores in the 580 to 640 range. Expect rates toward the higher end of the market and possibly a requirement for additional documentation or collateral. TurboFunding accepts applicants with a 550 FICO minimum, so a 600 score puts you within the qualifying range.

Q. How long does it take to get approved for a business term loan?

A. It depends on the lender and loan type. Online term loans can fund in 1 to 3 business days. Traditional bank term loans often take 2 to 4 weeks due to underwriting and document review. SBA loans, particularly 7(a) loans, can take 30 to 90 days depending on complexity, lender processing times, and whether you are using a preferred SBA lender. If speed matters, online lenders or marketplace platforms that pre-qualify you quickly tend to be faster.

Q. Is collateral required for a business term loan?

A. Not always. Unsecured term loans exist and are available to borrowers with strong credit and revenue. However, most traditional bank loans and all SBA 7(a) loans above $50,000 require the lender to take available collateral, even if the loan is not fully secured. Online lenders often skip collateral requirements but offset the risk with higher rates or personal guarantee requirements. Equipment financing is technically always secured, because the equipment itself serves as collateral.

Business term loans are one of the most reliable ways to fund a defined investment in your company. The structure is simple, the costs are knowable before you commit, and the repayment period can be matched to the useful life of whatever you are buying or building. Whether you are looking at a traditional bank, an SBA program, or an online lender, understanding rates, terms, and qualification criteria puts you in a position to compare offers fairly and choose the product that fits your business rather than just the one that closes fastest. Find out More