Term loans
A term loan gives your business a single amount up front, repaid on a fixed schedule. It suits planned investments where you know the cost and want predictable payments.
Key points
- A term loan gives you one lump sum that you repay in regular payments over a set time.
- It suits planned investments with a known cost, like expansion, renovations or hiring.
- Loans can be secured by business assets, backed by a personal guarantee, or unsecured.
- Government-backed programs can help eligible small businesses borrow on better terms.
What is a term loan?
A term loan is money you borrow all at once and repay over an agreed period, usually with fixed monthly payments. The rate can be fixed, so payments never change, or variable, so they move with the prime rate.
Because you know the amount and the schedule up front, a term loan is easy to plan around. That’s also why it’s a poor fit for costs that come and go. For those, a line of credit usually works better.
When a term loan makes sense
Term loans work best when the cost is known and the benefit lasts for years. Opening a second location, renovating, hiring ahead of a big contract, or refinancing more expensive debt are all common examples.
How NorthMerit can help
Apply once and we’ll connect you with one financing partner who works with businesses like yours. It’s free, and there’s no obligation.
Where term loans come from
Programs such as the Canada Small Business Financing Program share risk with lenders, which can help eligible businesses borrow for equipment, property and improvements.
| Lender | Typical strengths | Typical trade-offs |
|---|---|---|
| Banks and credit unions | Lowest rates for established businesses | Stricter requirements, slower approvals |
| Government-backed loans | Better access for smaller businesses | Limits on what the money can be used for |
| Online and alternative lenders | Fast decisions, flexible requirements | Higher rates and shorter terms |
What a term loan costs
A restaurant borrows $200,000 to open a second location, repaid over five years at 8%.
What lenders look at
Lenders want to see that your cash flow can comfortably cover the new payments, usually with room to spare. They’ll look at how long you’ve been in business, your revenue and profit trend, your business and personal credit, and what the money is for. A short, clear plan for how the funds will be used goes a long way.
Security and guarantees
Many term loans are secured by business assets such as equipment, property or receivables. Lenders also commonly ask owners for a personal guarantee, which means you’re personally responsible if the business can’t repay. Read the guarantee carefully and ask whether it can be limited to a fixed amount.
Common questions
How long are term loans?
Do I need collateral?
Industries that use it.
Manufacturing
Manufacturers balance machinery, inventory and customer terms. Financing can match each to the right structure.
Learn moreWholesale and distribution
Distributors buy inventory up front and get paid later. Working capital closes that gap.
Learn moreRestaurants and hospitality
Restaurants and hotels invest in fit-outs and equipment and manage seasonal traffic.
Learn moreHealth care and clinics
Clinics and practices finance specialized equipment, fit-outs and practice acquisitions.
Learn moreAgriculture
Farms and agribusinesses finance equipment and manage revenue that arrives at harvest.
Learn moreProfessional services
Firms grow through hiring, acquisitions and partner transitions, often with few hard assets.
Learn moreThe right financing, from the right partner.
Apply once. One financing partner who knows businesses like yours. Free, with no obligation.
