Business term loans: amounts, rates, and requirements in 2026

Reviewed by Turan Zeynal, Managing Partner, Outset Funding Partners · Last reviewed August 9, 2026

TL;DR

A business term loan is a lump sum repaid on a fixed schedule over a set term. In 2026 there are three tiers: short-term loans ($10k–$500k, 6–18 months, 15%–45% APR, funded in 1–3 days with 500+ FICO), medium-term loans ($25k–$500k, 2–5 years, 12%–25% APR, needs 620+ FICO and 2 years in business), and bank or SBA term loans ($50k–$5M, 5–25 years, roughly 9%–13.5%, needs 680+ FICO and filed returns). Term loans are the right structure for a known one-time amount with a defined payback — expansion, acquisition, refinancing costly debt, a large build-out. For recurring or unpredictable gaps, a line of credit costs less.

Quick facts

Loan amounts: $10,000 – $5,000,000
APR range: 9% (bank/SBA) – 45% (short-term)
Terms: 6 months – 25 years
Payment cadence: Daily/weekly (short-term) or monthly
Minimum FICO: 500 short-term · 620 medium · 680 bank
Minimum time in business: 6 months (bank: 2 years)
Origination fee: 0% – 5%
Funding speed: 1 business day – 60 days
Prepayment: Often discounted; verify before signing

The 60-second answer

A term loan is the simplest funding structure that exists: you receive one amount, you repay it on a schedule, it ends. That simplicity is the advantage — you know the total cost on day one, and every payment reduces principal.

The mistake operators make isn't choosing a term loan; it's mismatching the term to the use. A 12-month loan funding a five-year asset strangles cash flow. A five-year loan funding a 60-day inventory cycle pays interest for years after the benefit is gone. Match the term to how long the money earns.

How it works, step by step

1. Match the term to the life of the purchase
Inventory and seasonal stock: 6–12 months. Marketing pushes and hiring ramps: 12–24 months. Build-outs, equipment, and acquisitions: 3–10 years. Real estate: 20–25 years via SBA 504 or a bank. This single decision affects cash flow more than shaving two points off the rate.
2. Price on total cost, not the rate
Compare three numbers side by side: total payback, APR (which includes fees), and payment frequency. A "1.28 factor rate" on 12 months is roughly 50% APR — factor rates and interest rates are not comparable without conversion. Ask for total dollars repaid; it's the number that can't be dressed up.
3. Check payment cadence against your deposit pattern
Daily and weekly debits are standard on short-term loans and they are the most common cause of trouble for businesses with lumpy receivables. If your revenue arrives in monthly chunks, pay a little more for a monthly-pay structure — it's cheaper than an NSF spiral.
4. Confirm the prepayment and stacking terms
Ask two questions in writing: is there a discount for early payoff, and does the agreement prohibit additional financing? Many short-term contracts charge the full fixed fee regardless of payoff date, and some contain cross-default clauses triggered by taking a second position.
5. Take the cheapest structure you actually qualify for
At 680+ FICO with filed returns, run an SBA or bank quote before anything else — the spread is often 20 points. At 620–679, medium-term non-bank lenders are the sweet spot. At 500–619, a short-term loan is the realistic option; use it once, repay it clean, and requalify higher next round.

Pros and cons

Pros

✓Fixed schedule and known total cost from day one
✓Every payment reduces principal — the balance actually goes away
✓Larger amounts available than most revolving products
✓Long terms keep monthly payments manageable on big projects
✓On-time history is the fastest way to qualify for cheaper money next time

Cons

×Interest accrues on the full amount even if you deploy it slowly
×Short-term versions use daily or weekly debits
×Origination fees of 0%–5% cut net proceeds
×Re-borrowing means a new application — no revolving access
×Some short-term contracts charge the full fee regardless of early payoff

Who qualifies

•6+ months in business for short-term; 2 years for medium-term and bank loans
•$15,000+ in monthly revenue, verifiable on statements
•500+ FICO short-term · 620+ medium-term · 680+ bank and SBA
•3–6 months of business bank statements; returns and P&L above $250k
•No open bankruptcy; liens need a documented payment plan
•Fewer than 3 open advances — heavy stacking blocks approval

Term loan tiers compared

Option	When to use	Watch out for
Short-term (6–18 mo)	Urgent need, 500+ FICO, repays inside a year	15%–45% APR with daily or weekly debits
Medium-term (2–5 yr)	Expansion or equipment with 620+ FICO and 2 years of history	Requires financials; slower than short-term
Bank / SBA term (5–25 yr)	Acquisition, real estate, refinancing expensive debt	30–90 days to close; 680+ FICO
Line of credit	Recurring or unpredictable gaps	Smaller limits; draw fees
Equipment financing	The purchase is the collateral	Funds the asset only, not operating cash

Frequently asked questions

What is a business term loan?

A lump sum of capital repaid on a fixed schedule over a defined term, with each payment covering interest plus principal. Amounts run from $10,000 to $5 million and terms from 6 months to 25 years. It differs from a line of credit in that funds are disbursed once and don't replenish as you repay.

What credit score do you need for a business term loan?

500 FICO can fund a short-term loan because underwriting leans on bank deposits rather than credit. 620+ opens medium-term loans of two to five years. 680+ with two years of filed returns is where bank and SBA pricing near 9%–13.5% becomes available. The score gap between 620 and 680 is often worth 15–20 points of APR, which makes it the highest-value credit work an owner can do.

How are business term loan rates calculated?

Bank and medium-term lenders quote an interest rate plus fees, expressed as APR. Short-term lenders often quote a factor rate instead: a 1.28 factor on $50,000 means $64,000 repaid, which over 12 months is roughly 50% APR. Always convert to APR or total dollars repaid before comparing offers — the two formats are not interchangeable.

Term loan or line of credit — which is better?

Take a term loan when you know the exact amount and it funds a one-time project: an acquisition, a build-out, a piece of equipment, refinancing costly debt. Take a line of credit when the need is recurring or unpredictable, since you pay interest only on what you draw. Many established businesses run both — a line for operations and a term loan for growth.

How fast can a business term loan fund?

Short-term loans approve in hours and fund in 1–3 business days. Medium-term loans take 3–10 business days once financials are submitted. Bank and SBA term loans take 30–90 days. If the deadline is inside a week, only short-term is a real option — but you can run a longer application in parallel and refinance.

Can you pay off a business term loan early?

It depends on the contract. Bank and SBA loans under 15 years generally have no prepayment penalty, so paying early saves real interest. Many short-term loans charge a fixed fee that is owed in full regardless of payoff date, meaning early payment saves nothing. Ask for the early-payoff amount in writing before signing.

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