- A term loan gives you a fixed lump sum repaid in regular installments over a set term, so you know the total, payment, and payoff date from the start.
- Term loans fit one-time, known expenses like expansion, equipment, or refinancing, whereas a revolving line of credit suits ongoing or unpredictable needs.
- Compare offers on APR rather than rate, and check for origination fees and prepayment penalties before borrowing.
How a term loan works
A term loan is the most familiar form of business financing: you borrow a fixed lump sum up front and pay it back in regular installments — typically monthly — over an agreed term. Each payment covers both principal and interest, and the loan is fully repaid by the end of the term.
For example, a business might borrow $100,000 over five years at a set interest rate, making the same scheduled payment each month until the balance reaches zero.
Common features
- Set amount and schedule: you know the total, the payment, and the payoff date from the start.
- Fixed or variable rate: fixed keeps payments predictable; variable can rise or fall with a benchmark like the prime rate.
- Secured or unsecured: larger or longer loans often require collateral.
- Fees: many carry an origination fee, and some include a prepayment penalty.
When a term loan fits
Term loans suit one-time, known expenses — expansion, equipment, real estate, or refinancing — where you need the full amount now and value predictable payments. SBA loans and most bank loans are structured this way. For ongoing or unpredictable needs, a revolving line of credit is often a better match.
What to watch for
- Compare the APR, not just the rate, so fees are included.
- Check for prepayment penalties if you might pay off early.
- Make sure the payment fits your cash flow — shorter terms mean higher payments even when total interest is lower.
Hoss Capital can help you compare term loans against other structures to find the right fit for what you’re funding.
Frequently asked
How is a term loan different from a line of credit? +
A term loan gives you a one-time lump sum repaid on a fixed schedule. A line of credit is revolving — you draw, repay, and reuse funds up to a limit, paying interest only on what you use.
What can a term loan be used for? +
Common uses include expansion, equipment, real estate, refinancing debt, or large one-time investments where you know the amount you need upfront.
What's the difference between short- and long-term loans? +
Short-term loans (often under 18-24 months) repay quickly and may cost more in total APR; long-term loans spread payments over years for lower payments but more interest over time.
Last updated: June 2026