TERM LOANSCENTS

WHAT IS A TERM LOAN?

Most commonly used by businesses Stafford Student loans are also considered term loans

Can have “floating” or fixed interest rates Floating: variable interest rate 2.5-3 points over prime

Prime Rate: index of bank rates Wall Street Journal’s Prime Rate Index (industry

standard) Monthly or quarterly repayments Two types

Short-term loans Long-term loans

INTEREST RATES & FEES

Interest rates very greatly and are dependent on: Risk Length of the loan Loan use Rates & fees tend to be lower than other types of

loans

Interest rates: Fixed Floating

Fees Typically 1%

SHORT & LONG-TERM LOANS

Term: typically 1-3 years May be a line of credit or may be

tied to a specific purchase Line of credit: usually a fixed interest

rate at 2.5 points over prime

New businesses typically use these loans:

Working capital Equipment purchases

Application process: very thorough review of applicant’s personal and/or business credit history and any business plans

Payment schedule: typically monthly, but may be quarterly

Term: typically 1-7 years, but may be longer

Interest rates may be floating or fixed

Generally about 3 points over prime

Typically used by businesses to make larger capital purchases, equipment, or projects

Lender may require collateral Application process: very

thorough review of business credit history and business plan

Payment schedule: may be monthly or quarterly

PENALTIES

Prepayment (Defeasance fee): A fee assessed for full payment before the date of

maturity Some states prohibit this practice

Acceleration: Loan becomes due immediately upon violation of

a loan term or condition

TERMS & CONDITIONS

May place limitations on financial liabilities that may be assumed Debts Dividends Salaries

May require a percentage of profits are earmarked for repayment

May require a personal guarantee on the loan May include a “balloon” payment when the loan

matures

SUGGESTIONS Start with lenders you have a history with Do your homework

Shop around for the loan that suits your needs and has the best rates and fees

Consult your resources: friends, family, colleagues, newspaper, internet, Small Business Administration www.sba.gov

Mind your C’s: Character Capacity Capital Collateral Confidence

QUESTIONS?