Loan Term Lengths and Payment Schedules

When securing financing through FundLocal, understanding the loan term lengths and payment schedules is crucial for managing your cash flow and planning for repayment. Different financing options, such as Business Lines of Credit, Working Capital Loans, and Equipment Financing, come with varied loan terms and repayment structures tailored to fit your business’s needs.

In this guide, we’ll provide an overview of the loan terms and payment schedules for each funding option, explain how these terms affect your payments, and offer tips for choosing the best loan structure for your business.

The loan term length refers to the period over which you agree to repay the loan. FundLocal offers flexible loan terms depending on the type of financing you select. Here’s a breakdown of loan term lengths for each funding option:

1. Business Line of Credit

A Business Line of Credit is a revolving credit option, meaning there is no fixed term for repayment. You can borrow, repay, and borrow again as needed, up to your approved credit limit.

• Repayment Period: While there’s no fixed term, there are regular monthly or weekly payments based on the amount you draw from the credit line.

• Interest Only Payments: In some cases, initial payments may only cover the interest on the drawn amount, with later payments covering both principal and interest.

• Best For: Businesses that need flexible, ongoing access to credit for managing short-term cash flow or covering unexpected expenses.

2. Working Capital Loan

A Working Capital Loan typically comes with short-term repayment periods, often ranging from 6 to 24 months. This loan is designed to provide quick access to cash for covering operational expenses like payroll, rent, or inventory.

• Repayment Period: Terms are usually between 6 and 24 months, depending on the loan amount and your business’s financial profile.

• Fixed Payments: Payments are made either monthly or weekly, with each payment covering both principal and interest.

• Best For: Businesses needing a lump sum of cash to handle short-term expenses or bridge cash flow gaps.

3. Equipment Financing

Equipment Financing is designed for businesses looking to purchase or lease equipment, with loan terms that typically match the useful life of the equipment. Terms for equipment financing usually range from 12 to 60 months.

• Repayment Period: Typically, loan terms last between 12 to 60 months depending on the equipment’s cost and your repayment preferences.

• Fixed Payments: Payments are made monthly, and they remain consistent throughout the loan term.

• Best For: Businesses in need of high-cost equipment, machinery, or vehicles, where spreading the cost over a longer term makes repayments more manageable.

The payment schedule outlines how frequently you will make payments toward your loan. FundLocal offers flexible payment schedules to accommodate different business cash flow cycles.

1. Weekly Payments

For businesses with regular cash flow, weekly payments offer the advantage of smaller, more frequent installments. This can help reduce the overall interest cost and ensure faster repayment.

• Common for: Working Capital Loans and some Business Lines of Credit.

• Best For: Businesses that receive payments on a regular, weekly basis and want to keep their loan balance manageable.

2. Monthly Payments

Monthly payments are more traditional and work well for businesses with more predictable monthly income. Payments are typically larger than weekly installments but can be easier to manage if your business has fewer but larger income events each month.

• Common for: Equipment Financing, Working Capital Loans, and some Business Lines of Credit.

• Best For: Businesses with predictable monthly revenue cycles, such as rent payments, large contracts, or seasonal income.

3. Interest-Only Payments (For Lines of Credit)

For a Business Line of Credit, you may have the option to make interest-only payments during the draw period, which can help keep costs down until you’re ready to pay off the principal balance.

• Common for: Business Lines of Credit, where you are borrowing small amounts frequently and repaying as cash flow allows.

• Best For: Businesses that need flexibility and want to keep initial payments low until they can repay the principal.

Your loan term length directly impacts your payment size and the total interest you’ll pay over the life of the loan. Here’s how:

1. Shorter Loan Terms

• Higher Payments: Shorter loan terms mean higher monthly or weekly payments because you’re repaying the principal over a shorter period.

• Less Interest Paid: While the payments are higher, you’ll pay less interest over the life of the loan, making it more cost-effective in the long run.

• Best For: Businesses that want to save on interest and have the cash flow to support larger payments.

2. Longer Loan Terms

• Lower Payments: Longer loan terms allow you to spread out the principal repayment over a longer period, which reduces the size of each payment.

• More Interest Paid: While the payments are smaller, you’ll end up paying more interest over time, which increases the overall cost of the loan.

• Best For: Businesses that prefer smaller, more manageable payments and are comfortable with paying more interest in exchange for longer-term flexibility.

Selecting the right loan term and payment schedule depends on your business’s cash flow, financial health, and repayment preferences. Here are a few tips to help you decide:

1. Evaluate Your Cash Flow

Look at your business’s revenue patterns and cash flow cycles to determine whether weekly or monthly payments make more sense. If you have regular, consistent income, weekly payments may help you pay down your balance faster. If your cash flow is less frequent but larger, monthly payments might be a better fit.

2. Consider Your Long-Term Financial Goals

If your goal is to minimize the cost of borrowing, a shorter loan term with higher payments will save you on interest. However, if cash flow management is more important, opting for a longer term with lower payments may provide the flexibility you need to handle other business expenses.

3. Understand Your Loan’s Structure

Whether you’re applying for a line of credit with flexible repayments or a fixed-term loan with predictable payments, make sure you fully understand the terms and how they align with your business’s financial strategy.

1. Can I choose between weekly and monthly payments?

• Yes, in most cases, FundLocal offers the flexibility to choose between weekly and monthly payment schedules, depending on the loan type and your business’s cash flow preferences.

2. Are there any penalties for early repayment?

• No, FundLocal does not charge prepayment penalties, so you can pay off your loan early without incurring any additional fees.

3. How are payment amounts determined?

• Payment amounts are based on your loan amount, interest rate, and loan term. Shorter terms will have higher payments, while longer terms will spread the payments out over a more extended period.

4. Can I change my payment schedule after the loan is approved?

• In some cases, you may be able to adjust your payment schedule if your cash flow changes. Contact FundLocal’s support team to discuss possible adjustments to your repayment plan.

5. What happens if I miss a payment?

• If you miss a payment, a late payment fee may be applied, and it could impact your credit score. FundLocal requires automatic payments to reduce the risk of missed payments, so ensure there are sufficient funds in your account.

If you’re ready to apply for funding but aren’t sure which loan term or payment schedule is best for your business, FundLocal’s support team is here to help. Contact us today to discuss your options and receive personalized guidance based on your financial needs and goals!