Term loan
A term loan is a loan with a fixed term and scheduled repayments, rather than a limit that can be drawn and repaid repeatedly. BDC describes a cash flow term loan used in acquisitions, and dedicated term loans secured on purchased equipment or real estate.
BDC describes working capital loans as term loans, and says their term, amortization period and payments are fixed, which helps a business plan its cash flow. In an acquisition, BDC refers to a cash flow term loan as one form of senior lending. Under the federal Canada Small Business Financing Program, term loans can finance listed business costs, and the program says their interest rates are determined by the financial institution and may be floating or fixed.
How it differs from a line of credit
A term loan is borrowed and then repaid on a schedule. A line of credit is a limit the business can draw on again, as covered in operating line of credit. A buyer may need both, and the term loan vs line of credit comparison sets them out.
What to ask the lender
- How long is the term, and over what period is the loan amortized?
- Is the rate fixed or floating, and can it be repaid early?
- What security and conditions apply?
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentWhat’s the difference between line of credit and working capital loan?
- 02Innovation, Science and Economic Development CanadaGovernmentHelping small businesses get loans - Canada Small Business Financing Program
- 03Business Development Bank of CanadaGovernmentHow to finance a business acquisition
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.