5 Ways a Term Loan Secures Your Company's Next Stage

Growth rarely fails for lack of ideas. It fails for lack of timing: the inventory that had to be bought in August, the lease that had to be signed in March, the hire that had to start before the contract did. A term loan is a way to buy timing. Here are the five uses we see pay off most often, with the numbers owners actually run.

Suppliers reward early, large orders with discounts of 5% to 15%. If your busy season starts in November and the deposit is due in August, a six- or nine-month term loan bridges the gap. A $60,000 order at a 10% early discount saves $6,000; a nine-month loan on that amount at 14% APR costs roughly $3,200 in interest. The math works when the discount plus the margin on the extra stock exceeds the cost of the loan.

A second site needs a deposit, build-out, equipment and three to six months of operating cushion before it carries itself. That is a defined investment with an estimable payback, which is exactly what a 36- to 60-month term loan is built for. Borrow the full amount up front so the new location never starves the first one.

Service businesses grow by adding people before the billable work fully arrives. A term loan sized to cover four to six months of a new hire's fully loaded cost lets you say yes to the contract that requires them. Keep the term short, twelve to eighteen months, so the loan is gone before the next hiring round.

Many owners carry an advance repaid daily from card sales at an effective APR of 40% or more. Replacing it with a monthly-pay term loan at 12% to 20% can cut the cost of that debt by more than half and free up daily cash flow immediately. Ask the current lender for a payoff letter, then apply for a term loan large enough to clear it with a small cushion.

Winning a large order is a cash-flow problem disguised as good news: materials and labor go out for weeks before the invoice is paid. A term loan sized to the cost of delivery, with a term that ends just after the customer's payment terms, turns the contract into profit instead of a liquidity crisis.

Add up the actual cost of the project, add 10% to 15% for the things you have not thought of, and check that the monthly payment stays under about 10% of your average monthly deposits. Lenders check that coverage too, so an application that respects it moves faster.

Get every offer in APR and total payback, confirm the payment frequency, and read the prepayment terms. Then compare at least three. On FundLine one application returns offers from multiple lenders, so the comparison is built in.