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Term loan
Also called business term loan, installment loan.
A fixed sum lent at origination and repaid in scheduled instalments of principal and interest over a set maturity, with the obligation due regardless of the business's revenue.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
The defining features are a stated principal, a stated rate, an amortisation schedule and a maturity date. Interest may be fixed or float against an index. Payments are commonly monthly on bank and SBA paper, and daily or weekly on non-bank paper — the frequency changes the cash-flow burden, not the legal character.
Amortisation matters more than most borrowers realise. A fully amortising loan retires itself over the term; a loan with a balloon has a large residual due at maturity and depends on refinancing that nobody has committed to. Interest-only periods lower the early payment and raise everything after.
Where the interest is pre-computed rather than accruing on a declining balance, paying early saves nothing unless the contract grants a rebate or prepayment discount. Bank and SBA term loans generally accrue on the outstanding balance, so early payment genuinely reduces interest; much of the non-bank market does not work this way.
Where this one catches people
"Term loan" is used loosely by brokers to describe short-term daily-debit products that are priced with a factor and pre-computed cost. The word signals bank-style amortisation to a borrower and is often being used to describe something with none of it. The test is whether interest accrues on a declining balance — ask what the payoff would be at month three, and compare it to three months of payments taken off the total.
Worked through
Illustrative only. Two structures on $150,000 over 24 months. Amortising at a stated rate: pay it off at month twelve and you owe roughly the remaining principal, having paid interest only for the time the money was out. Pre-computed with a total payback of $195,000: pay it off at month twelve and, absent a discount clause, the remaining half of the $45,000 cost is still owed.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Term loan — common questions
What does term loan mean?
A fixed sum lent at origination and repaid in scheduled instalments of principal and interest over a set maturity, with the obligation due regardless of the business's revenue.
Where does term loan catch people out?
"Term loan" is used loosely by brokers to describe short-term daily-debit products that are priced with a factor and pre-computed cost. The word signals bank-style amortisation to a borrower and is often being used to describe something with none of it. The test is whether interest accrues on a declining balance — ask what the payoff would be at month three, and compare it to three months of payments taken off the total.
Is term loan the same as an interest rate?
Term loan is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does term loan apply to?
Working Capital, Term Loan, SBA Loan.
Is there a worked example of term loan?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside term loan?
Add-on interest, Amortization, Annual percentage rate, Balloon payment, Prepayment penalty.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.