Term Loan
Definition
A term loan is a traditional business loan where a borrower receives a lump sum of capital and repays it in fixed installments (monthly, weekly, or daily) over a predetermined period. Term loans have a set interest rate (fixed or variable), a defined repayment schedule, and a maturity date. Short-term loans range from 3–18 months, medium-term from 1–5 years, and long-term from 5–25 years. Term loans are available from banks, credit unions, online lenders, and SBA-approved lenders. They are suitable for specific purposes like equipment purchases, expansion, hiring, or debt consolidation.
Example
A dental practice borrows $150,000 as a 5-year term loan at 9% fixed interest to renovate their office. Monthly payments are $3,112. Over the life of the loan, they pay $36,720 in total interest.
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