Think of a business term loan as money received all at once and returned in identical monthly amounts until a date fixed at signing; the interest inside each amount is figured on the balance left at that point. For a Cumberland, MD business it suits a cost known in advance, such as a buy-in, a move or a package of equipment. The funding partner that reviews a request sets the rate, the term and any fees.
Each payment is the same, but the interest share falls month by month; a known one-time cost suits a term loan, while a cost that comes and goes suits a credit line.
What is a business term loan? A lump sum, a fixed payment and a last month known from the start
The schedule does the explaining. Take an invented $35,600 borrowed for 48 months at 11.05% a year: every one of the 48 payments is $920.97. The payment never changes, but the part that is interest shrinks as the balance does:
| Payment | Payment amount | Interest | Principal | Balance after |
|---|---|---|---|---|
| Month 1 | $920.97 | $327.82 | $593.15 | $35,006.85 |
| Month 2 | $920.97 | $322.35 | $598.62 | $34,408.23 |
| Month 3 | $920.97 | $316.84 | $604.13 | $33,804.10 |
| Month 12 | $920.97 | $264.89 | $656.08 | $28,110.38 |
| Month 24 | $920.97 | $188.61 | $732.36 | $19,749.92 |
| Month 36 | $920.97 | $103.45 | $817.52 | $10,417.38 |
Across the 48 months the payments come to $44,206.56, so the loan costs $8,606.56 in interest. In the first month, about 36% of the payment is interest; by month 36 it is under 12%.
How do business term loans work for a buy-in, a move or an equipment package?
A term loan fits a cost with a clear price and a clear date. Three examples of that shape:
- A buy-in: a new partner pays for a share of an operating practice or shop, and the price is in the agreement.
- A move of an operating business: deposits, movers and the overlap month between two leases, all known before the move.
- An equipment package: several items bought together, where one schedule is plainer than several.
Buying or renovating a building is real estate and building work, which this site leaves out. The term loans page works through larger purchases, including a pharmacy purchase.
Term loan or line of credit when the cost is known in advance: a quick-service restaurant's order system
Invented case: a quick-service restaurant in Cumberland, MD prices drive-through headsets, order timers and kitchen screens at $10,470. On a term loan at 11.7% a year for 36 months the payment is $346.26, and the debt ends in month 36: $12,465.36 in all.
Drawn on a line of credit at an invented 13.4% a year instead, the same $10,470 carries $116.92 of interest in its first month, and how long it lingers depends on what the restaurant pays back each month. The line stays useful for costs that come and go; a known one-time purchase sits more naturally on a schedule with an end date.
What sets the rate and the number of months on a Cumberland, MD term loan
A term loan's price is not posted anywhere in advance; the funding partner that reviews the request sets it. Points a partner may weigh include:
- Years in operation and yearly revenue
- The deposits and balances in recent business bank statements
- The owner's and the business's credit, which a partner may check during its review
- The purchase itself and its working life
- Payments the business already makes on other loans, leases or advances
The request form asks for time in business, annual revenue and the amount requested, so having those three figures ready shortens the first call. A longer term lowers each payment and raises the interest paid in total; the shortest term the monthly budget can carry keeps the overall cost down.
Business term loans for a sit-down restaurant buying a closing restaurant's equipment in Allegany County, MD
A closing sale is a one-time price for a lot of used equipment. In this invented example a sit-down restaurant buys ranges, a dish machine, tables and smallwares from a closing restaurant for $27,900. A 42-month term loan at 10.85% a year sets the payment at $801.34; the 42 installments total $33,656.28, $5,756.28 of which is interest.
Whether a partner finances used equipment bought this way is its decision, and an itemized bill of sale helps. The ranges' gas hookups and the dish machine's plumbing are property work outside this site; the units themselves can be on the list, and items bought one at a time can go through equipment financing instead.
By Ledgewater Lending · Updated
