Intermediate Term Loans

When choosing a loan for your small business, there are several factors to address to determine the type of loan your business needs:

  • Amount required
  • Repayment schedule
  • Interest rate
  • Length of time before the loan matures

There are three different categories of loan maturation time periods: short-term loans of one year or less, intermediate-term loans of one to three years, and long-term loans that last anywhere from three to 20 years. In this article, we will discuss intermediate-term loans, including their purpose, repayment schedule and interest rates.

Commercial term loans, like the intermediate-term loans offered by Bond Street, are the most traditional and straightforward lending option for most small businesses that are looking to expand.

When to Choose an Intermediate Term Loan

When assessing the length of a loan, it is important calculate how long it will take for the asset being financed to provide a return, and to choose the loan accordingly. An intermediate-term loan is ideal for businesses looking to open a second location, hire a new employee, refinance debt or buy equipment.

Generally, intermediate-term loans are repaid directly from the asset they were used to finance. For instance, a new piece of equipment may increase productivity and allow the business to bring in more revenue – new revenue that is directly used to pay off the loan. However, the intermediate-term loan also provides the advantage of allowing time for the asset – new employee; piece of equipment, etc. – to begin to make a contribution back to the business before the loan matures.

Repayment Terms

Intermediate-term loans are one to three years in length, with fixed maturity dates and payment schedules. These loans give the borrower up-front access to amounts of up to $1 million. The loan can have either a fixed or variable interest rate, depending on the business’s financial history, and can be either secured or unsecured, although some form of collateral is generally expected for larger loans. Interest rates range from 6 percent to 30 percent.

Application Process

Though Bond Street is able to process most loan requests within 48 hours, applying for an intermediate loan requires submitting several types of business records; the application process may take much longer to process through other lenders. Intermediate term loans require giving the lender access to business bank statements, business financial information, credit scores and tax records.

Other Types of Intermediate-Term Loans

For business that do not qualify for commercial lines of credit, there are other options available for intermediate loans:

  • Peer-to-peer loans are funded by groups of investors that each take a portion of the interest paid by the business on the loan. These loans are ideal for new businesses that lack the financial history or credit required to receive a loan from a commercial lender. These loans are typically based on the business owner’s credit history if the business is too new to have its own historical financial data.
  • A business line of credit is best for businesses that require an ongoing source of working capital, and work similarly to a credit card, with a revolving line of credit. A business line of credit requires a minimum payment each month but otherwise allows you to access the loan as long as you have credit available.

For businesses looking to expand that expect a return on the investment within the next one to three years, an intermediate loan is a viable financing option. Although the application process may be more rigorous than applying for a short-term loan, both intermediate and long-term loans generally have lower interest rates than short-term loans, providing a cost-effective way to fund new business growth.

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