A term loan is a loan with a fixed duration and a set repayment schedule, typically used by businesses to finance specific expenses, such as equipment, expansion, or other significant investments. The loan amount is repaid in regular installments, usually with interest.
Why might a startup use a term loan?
Term loans provide startups with a predictable source of funding to cover significant expenses without giving up equity. They’re especially useful for planned investments that can generate revenue to cover repayment.
What are the repayment terms of a typical term loan?
Repayment terms vary but often include monthly or quarterly payments over a fixed period, such as 3 to 10 years. Interest rates may be fixed or variable, depending on the loan agreement.
How does a term loan impact cash flow?
Term loans require regular repayments, which can strain a startup’s cash flow. However, by aligning the loan purpose with revenue-generating investments, startups can better manage repayment.
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