Business Loan Terms Explained: Term Lengths, Fees and What You Are Actually Signing
How long the schedule runs, and everything else you sign. Compare offers on the total repaid.
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Every word in an offer, in the order you meet it
Both meanings of term apply across business term loans and every other structure, and each part below says where the vocabulary changes.
- Term loans: terms up to 10 years, depending on the funding provider
- Every fee is in the offer before you sign
- Compare on total repaid
Rates, factor rates, fees and terms are set by the funding provider that makes your offer and are disclosed in that provider's agreement. Figures on this page are illustrative ranges from providers in our network, not offers. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders.
Part 1. What does term mean in a business financing offer?
Term has two meanings in an offer, and on some products it has none at all.
Singular
The term
How long the agreement runs: the number of months or years until the balance is cleared. When a provider says a five-year term, it means this.
Plural
The terms
The conditions of the agreement: the amount, the payment, the frequency, the fees, the collateral, the guarantee, and what happens if you pay early or miss a payment.
No single number, the rate or the length, describes the deal. Two offers for the same amount over the same months can differ by thousands of dollars once fees and early payoff are counted.
The agreement as a document
Understanding the business loan agreement covers the contract itself. This guide covers the words inside it, and what each one costs you.
Part 2. How long are business financing terms?
The question only makes sense inside a product, and three of the structures below have no term in the sense it assumes.
| Product | How long it runs | What sets the length |
|---|---|---|
| Business term loan | Months to years; some providers write terms up to 10 years, depending on the funding provider | The provider, reading your deposits and the use of funds |
| Short-term business loans | Months, usually inside the trading year you are in | The same decision, on a shorter schedule |
| Business line of credit | The facility stays open and renews; each draw has its own repayment period | The provider's facility agreement |
| Equipment financing | Usually matched to the working life of the equipment | The asset rather than the balance |
| Invoice factoring | No schedule: each invoice settles when your customer pays | Your customer's payment behaviour |
| Merchant cash advance | No term and no maturity date: remittance runs until the payback amount is collected, over an estimated 3 to 18 months, depending on the funding provider | Your sales |
| SBA loans, 7(a) and 504 | Up to 10 years for working capital and equipment, up to 25 years for real estate | SBA programme rules, applied by the participating lender |
Business term loan
Months to years; some providers write terms up to 10 years, depending on the funding provider
Set by: The provider, reading your deposits and the use of funds
Short-term business loans
Months, usually inside the trading year you are in
Set by: The same decision, on a shorter schedule
Business line of credit
The facility stays open and renews; each draw has its own repayment period
Set by: The provider's facility agreement
Equipment financing
Usually matched to the working life of the equipment
Set by: The asset rather than the balance
Invoice factoring
No schedule: each invoice settles when your customer pays
Set by: Your customer's payment behaviour
Merchant cash advance
No term and no maturity date: remittance runs until the payback amount is collected, over an estimated 3 to 18 months, depending on the funding provider
Set by: Your sales
SBA loans, 7(a) and 504
Up to 10 years for working capital and equipment, up to 25 years for real estate
Set by: SBA programme rules, applied by the participating lender
Lengths are set by the provider and disclosed in its agreement. A merchant cash advance is a purchase of future receivables rather than a loan, priced with a factor rate. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders.
Length is a lever rather than a feature. Stretching a schedule lowers the payment and raises the total paid; compressing it does the reverse, and does it fast. The line of credit is the row that trips people up, because there the question has no answer at all.
Part 3. What is the difference between term, schedule and amortisation?
Three words get used as though they were one. Each answers a different question about the same agreement.
How long
Term
How long the agreement runs, start to final payment.
How oftenUnderestimated
Schedule
When payments are taken: daily, weekly, bi-weekly or monthly, depending on the funding provider.
A daily debit is a monthly number nobody has worked out yet. Multiply it by the business days in your month first.
How it splits
Amortisation
How each payment divides between the balance and the cost of the money. Early payments are mostly cost, later ones mostly balance.
Decisions from some providers the same day, depending on the provider. Subject to provider approval and document turnaround.
Part 4. How is the cost of business financing written?
Check which cost word an offer uses. The four below are not interchangeable and do not convert cleanly into one another.
| Product | Cost is expressed as | What that means in practice |
|---|---|---|
| Term loan, short-term loan | An interest rate or a fixed cost of funds, plus any origination fee | A rate accrues over time; a fixed cost of funds is set at signing |
| Line of credit | A rate on the drawn balance; the hybrid lines some providers offer state a fixed cost of funds instead | You pay on what you have drawn; some lines charge a draw or maintenance fee, some do not |
| Equipment financing | A rate, plus any documentation, lien, inspection or titling fees | Priced on the provider, the equipment, your credit profile and the term |
| Invoice factoring | A factoring fee, also called a discount fee, for each period an invoice stays open | Not an interest rate: nothing is borrowed, and a reserve is held until your customer pays |
| Merchant cash advance | A factor rate | A multiplier fixed at signing, not a rate that accrues: an advance is a purchase of future receivables rather than a loan |
| SBA loan | An interest rate within SBA maximums, plus the SBA guarantee fee and the lender's own fees | The participating lender sets the rate inside the cap and discloses every fee |
Term loan, short-term loan
An interest rate or a fixed cost of funds, plus any origination fee
In practice: A rate accrues over time; a fixed cost of funds is set at signing
Line of credit
A rate on the drawn balance; the hybrid lines some providers offer state a fixed cost of funds instead
In practice: You pay on what you have drawn; some lines charge a draw or maintenance fee, some do not
Equipment financing
A rate, plus any documentation, lien, inspection or titling fees
In practice: Priced on the provider, the equipment, your credit profile and the term
Invoice factoring
A factoring fee, also called a discount fee, for each period an invoice stays open
In practice: Not an interest rate: nothing is borrowed, and a reserve is held until your customer pays
Merchant cash advance
A factor rate
In practice: A multiplier fixed at signing, not a rate that accrues: an advance is a purchase of future receivables rather than a loan
SBA loan
An interest rate within SBA maximums, plus the SBA guarantee fee and the lender's own fees
In practice: The participating lender sets the rate inside the cap and discloses every fee
Every cost here is set by the provider and disclosed in its agreement. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders.
Part 5. What fees can a business financing offer include?
Every fee that applies to your offer is disclosed in that offer before you sign, so no category of charge appears afterwards. What varies is which fees apply.
| Fee | What it is | Where it lands |
|---|---|---|
| Origination fee | A charge for putting the financing in place, usually quoted as a percentage of the amount | Deducted from the money that reaches you, or added to the balance. Ask which |
| Documentation or underwriting fee | A flat charge for processing the file | Usually deducted at funding |
| Draw fee | Charged each time you take money from a line of credit | On the draw |
| Maintenance or facility fee | A monthly or annual charge for keeping a facility open, drawn or not | Billed on a cycle |
| Late and returned-payment fees | Charged when a payment misses or a debit comes back unpaid | On the event |
| Wire or ACH fee | The cost of moving the money | On each transfer |
| UCC filing fee | The cost of recording a lien | At closing |
| SBA guarantee fee | A programme fee on the guaranteed portion of an SBA loan, under the SBA's current fee schedule | Charged by the participating lender |
| Prepayment or early-termination fee | A charge for ending the agreement early | On payoff |
Origination fee
A charge for putting the financing in place, usually quoted as a percentage of the amount
Lands: Deducted from the money that reaches you, or added to the balance. Ask which
Documentation or underwriting fee
A flat charge for processing the file
Lands: Usually deducted at funding
Draw fee
Charged each time you take money from a line of credit
Lands: On the draw
Maintenance or facility fee
A monthly or annual charge for keeping a facility open, drawn or not
Lands: Billed on a cycle
Late and returned-payment fees
Charged when a payment misses or a debit comes back unpaid
Lands: On the event
Wire or ACH fee
The cost of moving the money
Lands: On each transfer
UCC filing fee
The cost of recording a lien
Lands: At closing
SBA guarantee fee
A programme fee on the guaranteed portion of an SBA loan, under the SBA's current fee schedule
Lands: Charged by the participating lender
Prepayment or early-termination fee
A charge for ending the agreement early
Lands: On payoff
Which fees apply depends on the funding provider and the product; some providers in our network charge no origination fee. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders.
The two questions that settle it
Is the origination fee deducted from the amount funded or added to the balance? And what is the total amount repaid? An offer with a lower rate and a fee taken off the top can cost more than one with a higher rate and no fee, which is exactly why the rate is the wrong thing to shop on.
Part 6. What happens if I pay a business loan off early?
There are only three possible answers, and which one applies is written in your agreement rather than decided by custom.
- 1
Simple interest
Cost accrues on the outstanding balance, so paying early genuinely reduces what you owe.
- 2
A fixed cost of funds
The cost was set at signing and does not shrink. Paying early frees the cash flow but saves nothing, unless the provider offers an early-payoff discount; some do.
- 3
A prepayment or early-termination fee
The agreement charges you for leaving early, often stepping down over the first few years on a longer loan.
Ask before you sign: the answer decides whether refinancing later is worth it. On an advance the payback amount is fixed at signing; some providers offer an early-payoff discount, stated in the agreement.
Part 7. What do collateral, UCC liens and blanket liens mean?
Collateral is the asset a funder can take if the agreement defaults. A lien is the filing that makes that claim enforceable and visible to everyone else.
A specific lien
A UCC filing that names one asset, usually the one being financed: the machine, the vehicle, the receivables of one contract.
A blanket lien
A UCC filing over substantially all business assets: receivables, inventory, equipment. It takes nothing when filed; it reserves a position.
What a blanket lien changes is your room to manoeuvre: the next funder will find it and want it released or moved behind its own claim.
Who is paid first
First position
Whoever filed first, and therefore gets paid first.
Making room
Subordination
An existing lienholder agreeing to sit behind a new one.
After payoff
Release
The filing being removed once the obligation is cleared. It does not always happen automatically, so check.
Part 8. What does a personal guarantee actually do?
A personal guarantee is a promise by an individual to pay the business's obligation if the business does not. It puts the signer's personal assets behind the agreement, whatever the entity structure is.
A guarantee is commonly required, options vary by provider, and an LLC or a corporation does not remove it. Check three things in the clause.
- 1
Who signs
Every owner above a threshold, or one named individual?
- 2
Whether it is joint and several
If it is, the funder can pursue any one guarantor for the whole amount rather than for a share of it.
- 3
What survives payoff
A guarantee should end when the obligation does. Confirm that it does, and that any lien is released with it.
On an SBA loan the guarantee is a programme rule, not a lender preference: every owner of 20% or more signs. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. This is general information, not legal advice; have a lawyer read anything you are unsure about.
Part 9. What do the terms on an advance or factoring offer mean?
These words appear only on products that are not loans. Reading them as loan words is an expensive mistake.
On a merchant cash advance
- Funded amount: cash paid for future receivables
- Factor rate: the multiplier that sets the payback
More terms
- Payback amount: the funded amount times the factor rate; no interest accrues
- Remittance: how the payback is collected, a fixed daily or weekly debit or a share of sales
- Holdback: the agreed percentage of card settlements collected as remittance
- Reconciliation: a clause that adjusts a sales-tied remittance when sales fall
On invoice factoring
- Advance rate: the share of an invoice paid up front
- Factoring fee: a percentage for each period open
More terms
- Reserve: the part of the invoice held back until your customer pays
- Notice of assignment: the letter telling your customer to pay the factoring company
- Recourse: whether an unpaid invoice comes back to you, or the factoring company absorbs it
- Verification: the factoring company confirming the invoice with your customer
A merchant cash advance is a purchase of future receivables rather than a loan, priced with a factor rate, with no maturity date. Invoice factoring is the sale of an invoice at a discount, settled by your customer. Compare either one on dollars and on when the money leaves, never on a rate.
Part 10. What am I signing? Read the offer in this order
Everything above, as eight lines to read in order. Then test the two offers you shortlist against your own numbers.
- 1
The amount offered, and the amount that arrives
They differ whenever a fee is deducted at funding.
- 2
The total amount repaid, in dollars
The number that compares across offers and products.
- 3
The payment and its frequency
Converted to a monthly figure.
- 4
The fee schedule
One-off fees, and the ones that recur.
- 5
The early-payoff clause
Simple interest, a fixed cost of funds, or a fee.
- 6
Collateral and liens
Specific or blanket.
- 7
The guarantee
Who signs, and whether it is joint and several.
- 8
Default and remedies
What counts as default, and what the funder may then do.
Two offers for the same amount: one with a fee and a short schedule, one with no fee and a long one.
Illustrative example, not an offer. Terms are set by the provider and disclosed in its agreement.
Offer A
- Amount offered
- $150,000
- Deducted at funding
- $4,500 origination fee
- Cash reaching the account
- $145,500
- Payments
- 24 monthly
- Payment
- $7,200 a month
- Total repaid
- $172,800
- Cost of the money
- $27,300
- Early payoff
- A rate on the balance, so paying early usually reduces it
Offer B
- Amount offered
- $150,000
- Deducted at funding
- None
- Cash reaching the account
- $150,000
- Payments
- 48 monthly
- Payment
- $4,100 a month
- Total repaid
- $196,800 (less favourable)
- Cost of the money
- $46,800 (less favourable)
- Early payoff
- A fixed cost of funds, so it does not shrink (less favourable)
The real question: A costs less in total and takes a larger bite each month; B is easier to carry and costs more. Which payment still clears your weakest month of deposits?
Key takeaways
- 1
The term is the length of the schedule; the terms are the conditions you sign.
- 2
A line of credit renews, factoring settles when your customer pays, and an advance runs until the payback amount is collected.
- 3
The cost word changes with the product, and a factor rate is not an interest rate.
- 4
Compare offers on the total repaid in dollars, and on what the payment does to your weakest month.
- 5
Ask whether the origination fee comes off the top or goes onto the balance.
- 6
Early payoff has three possible answers, and only your agreement says which.
- 7
A blanket lien reserves a position over your assets, and an LLC does not remove a personal guarantee.
Frequently asked questions
In short
A business loan's term is how long the repayment schedule runs; its terms are everything you sign: the payment, fees, collateral, guarantee and early-payoff rules. Term loans run from months to years, and some providers write terms up to 10 years, depending on the funding provider. Compare offers on the total repaid, not the length or the rate.
What are business loan terms?
The terms of a business loan are the conditions in the agreement: the amount funded, the payment and how often it is taken, how long the schedule runs, every fee, what is pledged as collateral, who signs a personal guarantee, what happens if you pay early, and what counts as default. In the singular, the term usually means only the length of the schedule.
How long are business loan terms?
It depends on the product. Term loans run from months to years, and some providers write terms up to 10 years, depending on the funding provider. SBA loans run up to 10 years for working capital and up to 25 years for real estate under programme rules; Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. A line of credit renews, and an advance has no maturity date.
What fees should I expect on a business loan?
Commonly an origination fee quoted as a percentage of the amount, a documentation or underwriting fee, draw or maintenance fees on a line of credit, late and returned-payment fees, wire or ACH charges, and on an SBA loan the SBA guarantee fee. Which apply depends on the provider and the product; some providers charge no origination fee. Every fee is in the agreement, so compare total cost.
What is the difference between the term and the amortisation schedule?
The term is how long the agreement runs. Amortisation is how each payment is split between the balance and the cost of the money. Early payments on an amortising loan are mostly cost and later ones mostly balance, which is why clearing a loan halfway through its term does not leave you owing half the original amount.
Can I pay a business loan off early?
Usually, but only your agreement says what it saves. Under simple interest, paying early reduces what you owe. Under a fixed cost of funds, the cost was set at signing and does not shrink, though some providers offer an early-payoff discount. And some agreements add a prepayment fee, which on longer loans often steps down over the first few years.
What is a UCC lien, and what does a blanket lien cover?
A UCC lien is a public filing that records a funder's claim on business assets. A specific lien names one asset, usually the one being financed. A blanket lien covers substantially all business assets: receivables, inventory, equipment, accounts. Filing it takes nothing from you, but the next funder running a search will see it and will want it released or subordinated.
What does a personal guarantee commit me to?
It is a promise by an individual to pay the business's obligation if the business does not, which puts personal assets behind the agreement whatever the entity structure. One is commonly required, and on an SBA loan every owner of 20% or more signs; Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. Check whether it is joint and several, which lets a funder pursue one guarantor for everything.
Will checking my options affect my credit score?
No. Checking your options through Capital Gurus uses a soft credit pull only, which does not change your score and does not show as an inquiry to other funders. Applying once, through one file, avoids a run of separate applications in a short window.
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