How a term loan works
You receive the full amount up front. You repay it in equal payments over a set term. When the last payment clears, the loan is done.
That predictability is the point. You know the payment, the payoff date, and the total cost on day one.
Short-term business loans differ from bank loans in two ways:
- Shorter terms. 6 to 36 months is typical, against 5 to 10 years at a bank.
- More frequent payments. Many are collected daily or weekly from your business bank account.
Shorter terms and frequent payments mean each payment takes a bigger share of weekly cash flow. Size the loan to the payment you can carry in a slow month, not a good one.
Your offer may be a loan or revenue-based financing
Apply for term financing and the offer can come back in either form. The amount and the speed are similar. The contract is not.
- A loan has a set term and a fixed payment.
- Revenue-based financing is not a loan. The funder buys a share of your future sales. The cost is a factor rate, and payments are meant to track revenue.
Check which one you are holding before you sign. How the two differ, and how to compare them.
What a term loan costs
Lenders price each loan during underwriting. Kapitus does not publish a rate range, and we will not guess at one.
What moves your price:
- Time in business. More history, lower risk.
- Revenue and bank balances. Steady deposits and healthy daily balances help the most.
- Credit. Personal and business.
- Existing debt. Other daily or weekly payments reduce what you can carry.
- Industry. Some carry more risk in a lender’s model.
- Term. Longer terms usually cost more in total dollars and less per payment.
Compare every offer on two numbers:
- Total payback. The dollars you repay, fees included.
- APR. The yearly cost, which lets you compare offers with different terms.
Some lenders quote a factor rate where you would expect an interest rate. A 1.30 factor is not 30% interest. See factor rate vs APR for the conversion.
Paying off early
On a fixed-cost loan, the cost is set on day one. Paying early saves nothing unless your agreement includes a prepayment discount, which forgives some or all of the cost you have not yet paid. Many lenders offer one. Kapitus publishes no prepayment penalty on its business loans, and in our experience forgives 100% of the remaining cost when a commercial or SBA loan pays off the balance.
Three things to ask before you sign: is there a discount, what percentage, and does it depend on who pays you off. Our guide to early payoff discounts shows the math, including what a discount is worth at renewal.
What lenders look at
Kapitus publishes minimums of 2 years in business, $250,000 in annual revenue, and a 650 credit score, and in our experience its approvals run 680 and above. Other lenders in our marketplace set their floors between 600 and 640, usually at a higher cost. Kapitus calls its figures basic minimums and says lenders weigh more than that.
In practice, bank statements drive the decision. An underwriter reads them for:
- Average monthly deposits
- Number of deposits, which shows how concentrated your customers are
- Average daily balance
- Days with a negative balance
- Payments already going to other lenders
Collateral
Some larger loans require collateral and some do not. Kapitus sets that case by case. Ask what is pledged, and whether a personal guarantee is required, before you sign.
When a term loan fits
- A one-time purchase with a clear payoff: equipment, a build-out, a bulk inventory buy.
- You want a fixed payment and a known end date.
- You have the history and revenue to clear the minimums.
When something else fits better
- Uneven or seasonal sales. A revenue-based offer collects as a share of sales, so payments ease when revenue does.
- Ongoing, unpredictable needs. A line of credit lets you draw only what you use.
- You can wait and want the lowest cost. SBA loans take longer and usually cost less.
- Under 2 years in business. Most term lenders will pass.
How to apply
- Fill out our short form. It takes about a minute.
- Complete the lender’s full application.
- Upload 3 to 6 months of business bank statements.
- Review your offers. One Kapitus application can return up to six.
- Pick one, sign, and receive funds.