SHORT - TERM LOANS

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A term loan is the most straightforward type of small business loan: You borrow a certain amount of money from a lender and you agree to pay back the loan plus interest over a set period of time.

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Pros

• Affordability 

• Amount

• Planned Payments

• Lower Rates

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Cons 

• Harder to Get

• Less Flexibility

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What About Collateral And Personal Guarantees?

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Almost all term loans require both collateral and a personal guarantee.

The value of the collateral required will vary from lender to lender. Banks and SBA typically want the loan to be “fully” or almost fully collateralized… meaning that the value of the collateral equals or exceeds the loan principal. Non-bank lenders typically want collateral, but aren’t as strict about it’s value (or will collateralize specific assets, such as equipment purchased with the loan proceeds).

 

In any event, expect a security interest and a UCC-1 financing statement.

As for a personal guarantee, they’re “market” terms, meaning they’re required by almost every small business lender in the United States (including the United States itself, in the form of the Small Business Administration!). So expect to sign an unconditional personal guarantee unless:

 

(1) your business has at least $20MM in annual revenue

(2) you’re entering into an atypical transaction not available to most business owners (e.g., venture debt).

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Summary

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Term loans are an excellent source of longer-term financing for your business. They are harder to get, but the terms make them worth it… if you have a specific need in mind. Expect to sign a personal guarantee and pledge your business assets as collateral. And don’t forget to plan ahead, they typically take a little more time to get than a line of credit or merchant cash advance.  For solutions and consultation for your specific business needs Contact Us Today! @ (800) 281-9536 

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