Our President Glen Dalzell explains how Term Loan financing can help you fund the purchase of key assets over time.
What is a Term Loan?A Term Loan is a financing solution that allows you to pay for an asset over time rather than in a lump sum. Too often, businesses deplete their most valuable asset (CASH) purchasing a high-cost asset that could easily be financed over time. A general rule in financing, “Use short term financing to purchase short term assets” (i.e. cash to purchase inventory) and “long term financing for long term assets” (i.e. term loans for machinery and equipment that has a long life). This preserves cash flow while providing the company with the production capability to pursue future business opportunities. The client identifies the asset and the lender (i.e. bank) purchases it and advances the funds in a single lump sum to the vendor and then enters into an agreement with the client to pay back the principal and interest over a period of time (typically 2-10 years).
What is a Term Loan Ideal for?
A term loan is ideal for purchasing new machinery and equipment, to finance a new location, acquisition or leasehold improvements. Assets such as machinery and equipment or a new location can be integral to your business’ growth and competitive edge. The cost of these types of investments can be substantial. Generally, a business will not have sufficient surplus cash or credit available to fund the outright purchase. Term loan financing will help your business retain cash while providing the assets needed to expand. If financing a large purchase from your own resources is not a viable option for your business at this time, we can help you arrange financing to pay for your purchase over time.
Term Loan Financing – The Benefits
- Term loan financing improves cash flow-beginning with the benefit of improved cash flow. Operational cash can be diverted to other areas of the business while a term loan finances the investment and reduces the impact on cash flow.
- Term Loans are flexible – depending on your company’s “credit-worthiness”, you will have varying degrees of flexibility on the terms of your financing deal (i.e. interest rates and amortization period)
- Term Loans can lead to other credit-If you regularly repay your term loan on time your loan history becomes a positive example of your creditworthiness and improves your credit score. As your score improves, you become more attractive to new lenders and other financing opportunities may become available – possibly even with better interest rates.