Is a Term Loan Good?

Short answer

Yes—when you have a one-time, well-defined need and want predictable payments. A term loan provides a lump sum with a fixed payoff schedule, making budgeting straightforward. It’s less ideal for fluctuating, short-term, or uncertain needs where revolving credit or asset-specific structures fit better. Explore options on our Term Loan page, or compare with Equipment Financing.

When a term loan is genuinely “good”

• Clear, one-time purpose: equipment purchases, renovations, facility upgrades, acquisitions.
  
  
• Predictable cash flow: you can service a fixed monthly payment comfortably.
  
  
• Ownership objective: you prefer to own the asset and amortize to $0.
  
  
• Cost discipline: fixed rate and term create an enforceable payoff plan.
  
  

If your goal is equipment ownership, also compare equipment loans and equipment leases—they’re purpose-built and can reduce monthly cost via residuals.

When a term loan is not your best tool

• Ongoing working-capital gaps or seasonality: a Business Line of Credit lets you draw/repay/re-draw.
  
  
• Short, variable needs: consider a Working Capital Loan.
  
  
• Sales-tied cash flow needs: Invoice/Freight Factoring can unlock AR; Merchant Cash Advance fits card-heavy businesses.
  
  
• Asset-heavy borrowing base: Asset-Based Lending scales limits with AR/inventory.
  
  
• You already own equipment but need cash now: Refinancing & Sale-Leaseback can inject liquidity while you keep using the asset.
  
  

Quick comparison (when each option shines)

Dive deeper: Term Loan, Line of Credit, Invoice/Freight Factoring, Equipment Leases.

Cost, risk, and structure: how to judge “good”

• Rate & term: Longer terms lower the payment but increase total interest.
  
  
• Fees & covenants: Understand origination, registrations, insurance, and any prepayment terms.
  
  
• Security: Secured loans improve pricing/approvals; Unsecured favors speed/simplicity.
  
  
• Program fit: Newer firms may benefit from the Canada Small Business Financing Program.
  
  
• Cash-flow alignment: Use our Calculator to test scenarios (e.g., 48 vs 60 months; loan vs lease).
  
  

Startups: is a term loan good?

It can be—if the payment fits your early cash flow and the asset drives revenue. Strengthen your file with down payment, collateral, or a co-signer. Compare with equipment financing and consider in-house options when conventional routes are tight.

Case study (Ontario contractor)

A paving startup needed a $150,000 paver to bid municipal work. We modeled a term loan, an equipment lease (10% buyout), and a sale-leaseback on an owned roller. The lease produced the lowest monthly payment, but the owner wanted faster equity build and flexible prepayment after year one—so they chose a Term Loan matched to 60 months and used the Calculator to confirm headroom. They won the tender, added a crew, and prepaid 8% of principal from the first season’s profits.

FAQs

Is a term loan good for buying equipment?
Yes—especially for long-life assets. Still compare with Equipment Loans and Leases for cash-flow advantages.

Is a term loan better than a line of credit?
For one-time capex, usually yes. For ongoing gaps, a Line of Credit is often better.

Do secured term loans get better pricing?
Typically. See Secured Loan vs Unsecured Loan.

Can I refinance expensive short-term debt into a term loan?
Yes—consolidation via Business Refinancing can reduce payment volatility.

What if cash is tight now?
Model a lease residual, longer amortization, or unlock equity via Refinancing & Sale-Leaseback.

How do I estimate my payment?
Use our Calculator, then feel free to contact our credit analysts for a tailored quote.

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Next step

Run your numbers in the Calculator, compare Term Loans with Lines of Credit and Equipment Financing, then contact us for 24–48h approvals aligned to your cash flow.

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