The traditional small business loan structure: lump sum up front, fixed monthly payment, fixed term. Competitive rates starting at 8% APR for qualified borrowers, with flexible terms. Funds in 1–3 days online or 2–6 weeks at a bank.
A business term loan is the financing structure most people picture when they imagine "getting a business loan." Lump sum delivered up front. Fixed monthly payment. Fixed term, usually one to five years. The lender amortizes principal and interest across the term so the payment is the same every month. It's a hundred-year-old structure, and for most established businesses with predictable cash flow, it's still the right answer.
Term loans are the cheapest unsecured small business capital available outside of SBA programs — if you qualify. The qualifying matters. Banks want 680+ FICO, two-plus years in business, and demonstrated debt service coverage. Online term lenders fund down to 600 FICO at meaningfully higher rates. Below 600, most term loan options disappear and you're in MCA territory.
Real business examples showing when a term loan is the right structural fit, the wrong fit, and the situation where it's the only option that makes sense.
A regional dental practice needed to replace two aging CBCT scanners. Quote came in at $238K plus install. Owner had run the practice for 8 years, FICO 723, last two years' tax returns showed $1.4M revenue and 18% net margin. They considered an MCA (could have funded in 48 hours) and an SBA 7(a) (lowest rate, longest underwriting).
The math made the term loan obvious. A 5-year term loan at 11.5% APR meant a $5,250 monthly payment they could absorb easily. Total interest over 5 years: ~$77K. Same deal as an MCA at 1.32 factor would have cost ~$76K of factor cost over a 9-month payback — same dollars, but with cash-flow whiplash. SBA would have been ~$2K cheaper but added 60 days of underwriting they didn't need.
A two-location restaurant operator needed $80K to bridge a slow December and February. Three years in business, FICO 640, $2.1M revenue, thin margins. Took a 3-year term loan at 24% APR for $80K. Monthly payment $3,124 for 36 months — $112K total payback.
The problem: by month 8, summer revenue was strong but the fixed monthly payment didn't flex with cash flow. By month 11, they hit a slow week and missed two payments. Default fees added $1,800. They eventually paid it off but the term loan was the wrong structure for cyclical revenue.
A specialty manufacturing operator wanted to acquire a smaller competitor for $385K asset purchase + $35K transition costs. SBA 7(a) was the obvious cheapest option (~10.5% APR), but the seller wanted to close in 30 days — SBA underwriting takes 60-90.
The non-SBA term loan at 13.75% APR funded in 8 business days. Monthly payment $9,150 over 60 months. Total interest: ~$169K. SBA would have saved them $50K in interest, but losing the deal would have cost the entire acquisition opportunity. The 5-year term loan was the only structure that combined the speed they needed with the multi-year amortization the deal required.
The mechanics are simple. The lender approves an amount. Funds wire to your business account. The loan amortizes over the agreed term using a standard amortization formula: each monthly payment includes both principal and interest, with the interest portion higher early in the term and the principal portion higher later. By the end of the term, the loan is fully paid off.
Fixed-rate vs variable-rate. Most term loans under $250K offer fixed rates — the rate is set at funding and never changes. Loans above $250K, particularly bank-originated, more often use variable rates tied to WSJ Prime (currently 6.75% as of May 2026) plus a spread. A "Prime + 5%" rate today would be 11.75%. If Prime rises to 7.25%, your rate rises to 12.25%. Variable rates start lower but expose you to rate risk over the loan's life.
Secured vs unsecured. Loans under roughly $250K are typically unsecured but require a personal guarantee — meaning if the business defaults, the lender can pursue your personal assets. Loans above $250K typically require collateral (a UCC blanket lien on business assets) plus the personal guarantee. Real-estate-secured term loans are a subset that price 200–400 basis points cheaper because the collateral is liquid.
Origination fees. Online lenders typically charge 1–6% of the loan amount as an origination fee, deducted from the funds at closing. A $100K loan with a 4% origination fee delivers $96K to your account but you owe interest on the full $100K. Banks rarely charge origination fees but make up for it with longer underwriting and tighter approval criteria. SBA loans cap origination at 2–3.5% (regulated).
An amortizing loan front-loads interest. On a $100,000 5-year loan at 12% APR, the first month's payment of ~$2,225 includes ~$1,000 of interest and ~$1,225 of principal. By month 30 (the halfway point), the interest portion has dropped to ~$580 and the principal portion has risen to ~$1,645. By the final month, you're paying almost entirely principal. This is normal and identical to how mortgages work.
The implication: prepaying a term loan early in the term saves more interest than prepaying late. Most online term loans don't let you capture this saving (they require "guaranteed interest" or use a "lockbox" structure where total payback is fixed). SBA loans and bank loans typically allow real prepayment with proportional interest savings.
The 8–30% APR range covers a wide spread because term loan pricing is heavily credit-dependent. The table below shows current market ranges by credit tier, based on publicly available lender disclosures and industry-standard market data.
| Tier | FICO | Years in Business | Typical APR | Origination Fee |
|---|---|---|---|---|
| Prime (Bank) | 720+ | 3+ years | 8–13% | 0–1% |
| SBA-eligible | 680+ | 2+ years | 9.75–13.25% | 2–3.5% |
| Strong online | 680+ | 2+ years | 11–18% | 1–3% |
| Mid-tier online | 650–719 | 2+ years | 14–22% | 2–5% |
| Sub-prime | 600–649 | 1+ year | 20–30% | 3–6% |
| Specialty / rebuilt credit | 580–599 | 6+ months | 28–40% | 5–8% |
| Component | Detail | Amount |
|---|---|---|
| Loan amount | Approved principal | $200,000 |
| Origination fee | 2.5% deducted at closing | $5,000 |
| Net to your account | What actually wires | $195,000 |
| Monthly payment | 48-month amortization | $5,432 |
| Total payments over term | 48 × monthly | $260,756 |
| Total interest | Total payments − loan | $60,756 |
| Total cost | Interest + origination | $65,756 |
| True effective APR | Including origination | ~14.4% |
The 13.5% stated APR becomes a 14.4% true APR once the 2.5% origination fee is amortized into the cost. Always compute true APR including fees before signing.
Use our MCA Calculator to compare term loan APRs against MCA factor rates apples-to-apples. The Factor Rate to APR converter shows how MCAs compute when annualized properly.
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