Traditional Term Loans: Essential Considerations for Business Owners

Want to grow your business with the right financing?

Traditional term loans might be exactly what you need. But here’s the thing…

Most business owners have no idea how these loans actually work. They dive in without understanding the requirements, the process, or what makes one loan better than another.

Big mistake.

The good news? Traditional term loans can be an incredible funding solution for small businesses when you know what you’re doing.

Understanding Traditional Term Loans

Traditional term loans are exactly what they sound like. You borrow a fixed amount of money and pay it back over a set period with regular payments.

Simple, right?

But here’s where it gets interesting…

Traditional term loans offer something that most other financing options can’t match. Stability. When you get a traditional term loan, you know exactly what you’re paying each month for the entire loan term.

No surprises. No changing rates. No daily payments that mess with your cash flow.

The current market is massive. The commercial lending market reached $16.44 trillion globally in 2024 alone. That’s a lot of money flowing to businesses that understand how to access it.

And here’s something that might surprise you…

Only 34% of small businesses applied for loans in recent years. That means two-thirds of businesses are missing out on potential growth opportunities.

Traditional term loans work best for:

• Equipment purchases that will generate revenue
• Real estate investments for your business
• Major expansions that require substantial capital
• Debt consolidation to improve cash flow

The key is matching the loan term to your investment timeline. Short-term needs get short-term loans. Long-term investments get long-term financing.

Makes sense, right?

Why Traditional Term Loans Beat Other Options

Want to know the best part about traditional term loans?

They’re usually the cheapest money you can get for your business. While merchant cash advances can cost you 150-250% APR, traditional term loans typically range from 6.6% to 11.5% for qualified borrowers.

That’s a massive difference.

Let’s say you need $100,000 for equipment. With a merchant cash advance at 200% APR, you might pay back $300,000 over 18 months. With a traditional term loan at 8%, you’d pay back around $115,000 over the same period.

That’s $185,000 in savings.

But it’s not just about the cost…

Traditional term loans offer longer repayment terms. We’re talking 5-25 years depending on what you’re financing. Try getting that from an online lender or cash advance company.

Most alternative lenders want daily or weekly payments. That puts constant pressure on your cash flow. Traditional term loans give you monthly payments that are much easier to manage.

Here’s another advantage most people overlook:

Building your business credit. Traditional term loans from banks report to business credit bureaus. This helps you build the credit history you need for future financing at even better rates.

Alternative lenders? Many don’t report positive payment history at all.

The Real Requirements You Need to Know

This is where things get real…

Traditional term loans aren’t for everyone. Banks have gotten pickier about who they lend to. Banks have tightened lending standards for 13 consecutive quarters as of 2024.

So what do they actually want?

Credit score requirements: Most banks want to see a personal credit score of 680 or higher. Some will go as low as 625 for larger loans, but 680 is the sweet spot.

Business requirements:

• At least 2 years in business
• $250,000+ in annual revenue
• Positive cash flow for the past 12 months
• Debt-to-income ratio under 40%

Documentation you’ll need:

• 2-3 years of business financial statements
• Personal and business tax returns
• Bank statements (last 3-6 months)
• Cash flow projections
• Business plan (for larger amounts)

And here’s something that might shock you…

Only 56% of white-owned firms received all the financing they requested, compared to just 32% for Black-owned businesses. The approval process isn’t always fair, but understanding the requirements helps level the playing field.

Collateral requirements: Most traditional term loans require collateral. This could be:

• Business equipment
• Real estate
• Inventory
• Personal guarantees from owners

The amount of collateral depends on the loan size and your creditworthiness. Stronger financials mean less collateral required.

How to Get Approved (Even in Today’s Market)

Here’s the truth about getting approved…

Banks want to lend money. That’s how they make money. But they want to lend to businesses that will pay them back.

Your job is to prove you’re one of those businesses.

Start with your financials: Clean up your books before you apply. Banks want to see organized, professional financial statements. Hire a bookkeeper or accountant if you need to.

Improve your credit score: Pay down existing debt. Make all payments on time. Don’t apply for new credit cards before applying for your loan.

Build relationships: Don’t wait until you need money to start talking to banks. Build relationships with local bankers now. Small banks approve 75% of loan applications compared to 64% for large banks.

Choose the right bank: Community banks and credit unions often have more flexibility than big national banks. They can make decisions locally instead of relying on automated systems.

Time your application: Apply when your business is performing well. Don’t wait until you’re desperate for cash. Banks can smell desperation, and it hurts your chances.

Consider SBA loans: The SBA facilitated 103,000 financings worth $56 billion in fiscal year 2024. SBA loans have more flexible requirements and better terms for qualifying businesses.

Prepare for the process: Traditional term loans take 30-90 days to close. Plan ahead. Have all your documentation ready before you apply.

Want to improve your odds even more?

Show the bank exactly how you’ll use the money and how it will generate returns. Banks love loans where they can see a clear path to repayment.

Making It Work

Traditional term loans aren’t the fastest financing option. They’re not the easiest to get. But for established businesses with strong credit and clear financing needs, they’re often the best choice.

The key is preparation. Start building relationships with banks before you need money. Keep your finances clean and organized. Understand what banks are looking for and position your business accordingly.

Remember, default rates are only 3.18% in 2024. That means over 96% of businesses successfully repay their traditional term loans.

Banks know this. That’s why they’re still lending, even with tighter standards.

The businesses that get approved are the ones that take the time to understand the process and prepare properly. Don’t be the business owner who applies everywhere and gets rejected everywhere.

Be the one who does their homework, builds relationships, and positions their business for success.

Traditional term loans can fuel serious business growth. But only if you approach them the right way.