Medium Term Loan

Find out all about medium term loans, and whether these loans are a good fit for your company’s needs.

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The definitions may vary, but in general medium term loans are financing options set to be repaid within a year. Borrowers obtain a lump sum loan set to be repaid through regular installments within a predetermined period of time.

Compared to short term loans, medium term loans carry lower interest rates and come with longer repayment terms. Consequently, lenders impose stricter lending requirements. For example, borrowers are required to have higher credit scores and revenues, as well as a longer operational history.

How can a medium term loan help my business?

Medium term loans are a great option for larger expenses, such as equipment purchases, expansion to a new location or developing a new product. It lends itself to businesses that are past the initial startup stage, with a good revenue and are looking to implement large scale expansion activities.

Is a medium term loan right for my business?

The following are general requirements that can help you assess if a short term loan is a good fit for your business:

  • You don’t qualify for traditional loans: Banks and traditional lenders impose stringent lending criteria. As an example, businesses need meet requirements such as having a minimum operational history of two to three years or a minimum annual revenue amounting to $200,000. In comparison, alternative lenders providing medium term loans offer more flexible terms. While the requirements will vary across different lenders, you may be looking at lending criteria such as a minimum annual revenue of $100,000 or a minimum operational history of one year. As such, these loans can be a more accessible option for small businesses or newly established ventures.

  • You require quick access to funding: With alternative lenders, your application may be approved in under 24 hours, and you may obtain funding as soon as two days from your application approval. As such, these loans can be a viable option for businesses that require immediate funding.

  • You need to handle large expenses: Think of medium term loans as a financing tool that fills in the gap between short term and long term loans. It can be a suitable option if you aren’t looking for long term financing, but still require a sizable sum to implement initiatives that will accelerate the growth of your business.

Tips to help you prepare for a medium term loan application

Build up your credit scores

Beyond your business credit score, your personal credit can also impact upon your business loan application. That’s because it shows how well you’re able to manage your personal finances - which is an indirect indicator of how reliable and timely you will be with meeting your loan repayments over the long run. In addition, having high credit scores will give you a leg up in being granted favourable terms for your loan.

To get started on building your credit scores, here are some action steps you can take:

To build up your business credit score, you’ll need to:

  • Be timely with payments: Making timely payments is a key factor to bringing up your business credit score. Caton Hanson, co-founder at business credit score company Nav states that late payments may be reflected in your business credit reports - even if you’re late by just a few days. Wherever possible, make your payments early. Hanson explains: “With some business credit scores, such as the Paydex score provided by Dun & Bradstreet, to get higher than an 80 (out of 100), you need to pay your bills early.”

  • Submit trade references: Trade references, which are records of your past payment experiences play an important role in building up your business credit score. Submitting trade references with timely payments can help establish the credibility of your business; it indicates that you’ve got a track record of making on-time payments, which can help bring up your score. Some suppliers and vendors may not submit these information to credit reporting agencies, so it’s best to check in with their accounts payable department. If they don’t report your payment history, you’ll need to add trade references through a credit reporting agency.

To build up your personal credit score, you’ll need to:

  • Monitor your credit report regularly: Check your credit reports annually, and be sure to report any errors that you come across - as even minor errors like miscalculations can have an impact on your credit score.

  • Make your payments on time: As with your business credit score, making on-time is a key factor in building up your personal credit score. To prevent any slip-ups with payments, it can be helpful automate your bill payments or set up monthly payment reminders.

What are small business financing options I can explore?

Medium term loans can be a viable option for SMEs that are currently in a phase of expansion, and are looking to accelerate their growth. For newly established ventures or small business owners in search of short term financing, this may not be an ideal financing solution.

A business line of credit, invoice financing or unsecured loan are alternative SME funding options to consider. These financing are available through alternative lenders, which can be a better fit for small businesses due to their flexible lending requirements, streamlined application processes and quick access to funding.

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