A business term loan provides a single sum repaid in scheduled installments over a fixed term. Brookmont Funding, a small-business funding broker in Terre Haute, Indiana, explains amortization, balloon payments and covenants to Vigo County owners and introduces term-loan requests to lending partners. Partners alone decide whether to lend and set the rate, term and conditions.
| Purpose | One-time projects and purchases |
|---|---|
| Funds arrive | All at closing, in one sum |
| Repayment | Set installments until the agreed end date |
| Commonly secured by | Business assets, often a personal guarantee |
| Vigo County context | 2,473 employer establishments in 2023 (CBP) |
Inside a business term loan, from closing to last payment
The partner advances the whole amount at closing. From then on you make payments on a schedule, usually monthly, until the term ends. Each payment includes interest on the balance still owed plus a slice of the balance itself. Because the funds arrive at once, a term loan suits a cost you can name and price in advance, not a stream of smaller bills.
Typical uses among local owners include fitting out a second dining room, moving a practice into a larger suite, buying a competitor's customer list or paying out a departing partner. Purchases of single machines or vehicles are often better handled through equipment financing, where the item itself is the collateral.
Amortization, in plain terms
Amortization is the schedule that spreads repayment of the balance across the term. With a standard fully amortizing loan, early payments are mostly interest and later ones are mostly principal, even though each payment is the same size. Ask the partner for the full amortization schedule: it shows how much of the balance you would still owe if you sold the business or refinanced in year two.
You can try the arithmetic for a vehicle purchase with the company vehicle payment calculator; for other projects, the partner's schedule is the document that counts.
Balloon payments
Not every commercial loan pays itself off through its regular installments. Its installments are sized for a longer schedule than the loan actually has, so whatever is left falls due in a single large balloon at the end. That lowers the monthly figure but creates a big obligation on a fixed date, which usually means refinancing or selling an asset. If an offer has a balloon, write the amount and the date on the first page of your notes.
Loan covenants
A covenant is a promise in the loan agreement. Some require things (send annual financial statements, keep insurance on the collateral), others forbid things (take on more debt without consent, sell major assets). Breaking a covenant can put the loan in default even if every payment is on time. Read them before signing, and ask the partner to explain any you do not understand.
What partners commonly review
- Business tax returns for recent years, where they exist
- Recent business bank statements
- A current-year profit and loss and a balance sheet
- A description of the project, with quotes or contracts
- Existing debts and liens
- For a build-out: the lease and any permits the work needs
Contractors and businesses renovating space can use the Terre Haute, IN contractor and permit checklist to gather the job paperwork. Free help building projections is covered in the Wabash Valley resource list.
Fixed or variable rate, and paying early
A term loan's rate may be fixed for the whole term or tied to an index and reset at set intervals. A fixed rate keeps every payment the same; a variable one can move in either direction, so budget for the higher case. Ask the partner which applies and how often a variable rate can change.
Ask too what happens if you repay early. Some term loans let you pay off the balance and save the remaining interest; others carry prepayment charges or calculate interest up front so that an early payoff saves little. If you expect to sell the business, refinance or receive a large payment before the term ends, that clause may matter more than the rate.
Term loan versus revolving line
Term loans fit a single, known cost. A line of credit suits repeated, unpredictable costs, because you borrow only what you need and the limit frees up as you repay. Using a line for a five-year project usually ends with a balance that never comes down; using a term loan for small recurring bills means paying interest on money sitting idle.
Still deciding? The full comparison lays all six options next to each other, the sector page shows how Vigo County's main industries tend to use them, the county profile has the local figures, and how a request works explains our part.
By Brookmont Funding · Updated