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What is a Bank Term Loan?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 26 September 2016
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One of the more common types of financial lending that is extended to businesses, the bank term loan is a certain type of loan that involves a fixed maturity and an amortization of the principal amount of the loan. Bank term loans may be used to establish a line of credit that the business can draw upon as needed, or be provided to the company in a lump sum, just as any type of bank loan. Here is some information about how the bank term loan works, and why this particular loan process may be advantageous for a business.

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Using the process of a bank term loan to establish a line of credit is perhaps the single most common application. Businesses that want to be able to demonstrate financial stability can choose to create this sort of credit line as a means of providing an example of just how secure the company happens to be. There may not be any immediate financial need on the part of the company. However, the creation of a line of credit via a bank term loan makes it possible for a company to respond quickly to chances for acquisitions or other means of expansion without being slowed down by the approval process of obtaining any other type of business loan. This means there are funds on tap whenever they are needed. The company can move swiftly to take advantage of an opportunity without having to dip into the operating capital to do so.

In other cases, a bank term loan can provide the necessary funds to keep a company going during a slow period. A company that experiences seasonal peaks and valleys in the demand for their products is a good candidate for a bank term loan. With a demonstrable performance record, it is easy to establish a bank term loan that will come due during the period when a high volume of revenue is received. In the interim, the funds from the bank term loan can be used to keep the operating and other expenses of the business paid and up to date. From this perspective, the bank term loan is an ideal way to get the best financial arrangements that meet the needs of the company.

Bank term loans have been the means of assisting many companies to grow, as well as allow continued operations during a temporary but anticipated slump. As one of the most common types of loans on the market, banks often offer competitive rates for a bank term loan. Any business that is thinking about the possibility of taking out a bank term loan would do well to shop around for the best rate and conditions possible.

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