A term loan gives your business a lump sum today and a clear plan to pay it back over a fixed period through scheduled payments (principal + interest). If you’re funding a one-time purchase or project—like equipment, renovations, or consolidating expensive short-term debt—a term loan can be the cleanest, most predictable option.
Use this guide (credit-analyst tone, Canada-specific) to decide if a term loan fits your cash flow—or if a line of credit or equipment lease is smarter.
What a Term Loan Does Best
- One-time, well-scoped needs: equipment, build-outs, acquisitions, or business refinancing.
- Predictable cash flow: fixed amortization, clear payoff date.
- Ownership & equity build: ideal for long-life assets; also compare equipment loans and equipment leases.
If your need is recurring (inventory cycles, AR timing), a business line of credit is usually a better match.
How It Works (Mechanics You Can Model)
- Lump sum at closing → fixed payments (monthly or quarterly) → balance hits $0 at maturity.
- Rate type: fixed (budget certainty) or variable (can move with prime).
- Security: can be secured by equipment/GSA/PPSA or unsecured when speed and simplicity matter.
- Costs to expect: interest, modest admin/registration, possible prepayment rules.
- Estimate quickly: run scenarios in our calculator (48 vs 60 months, loan vs lease with residual).
Secured vs Unsecured Term Loans
- Secured: lower cost of capital, larger limits, longer terms; best for asset purchases or bigger tickets.
- Unsecured: faster to fund, lighter docs, but typically smaller amounts/higher rates.
- Newer firms may benefit from the Canada Small Business Financing Program.
Term Loan vs Line of Credit vs Lease (At-a-Glance)
| Best For |
Term Loan |
Business Line of Credit |
Equipment Lease |
| Use Case |
One-time capex or project |
Recurring gaps, seasonality, AR timing |
Lower monthly for same asset; upgrade path |
| Funding Style |
Lump sum; amortized to $0 |
Revolving; draw/repay/redraw |
Rent-style payments; buyout at end |
| Monthly Payment |
Fixed principal + interest |
Interest only on what you use |
Often lower via residual |
| Ownership |
Yes, from day one |
Not applicable |
Only at buyout |
| Flexibility |
Lower once funded |
High (matches cash cycles) |
Medium; end-of-term choices |
Explore options: Term Loan, Line of Credit, Equipment Leases.
Cost Controls That Actually Move the Needle
- Right-size the term: longer terms lower monthly cost but increase total interest—price 48 vs 60 months in the calculator.
- Consider residuals: leasing with a 10% buyout can meaningfully reduce payments for the same asset.
- Blend products: many clients pair a modest term loan (asset) with a small LOC (receivable lags).
- Secure selectively: asset-specific charges (e.g., an equipment loan) can avoid blanket GSAs blocking future borrowing.
- Refinance smartly: consolidate expensive short-term debt via business refinancing.
Approval Snapshot (What Lenders Check)
- Cash flow and bank statements (ability to service debt)
- Time in business and management track record
- Personal/business credit
- Collateral value & useful life (secured)
- Purpose of funds and logical payoff path
If bank appetite is tight, ask about in-house financing or asset-based lending for working capital.
Industry Notes (Canada)
- Transportation & Trucking: tractors, day cabs, trailers are ideal collateral. Consider refinancing & sale-leaseback to unlock equity during slow freight.
- Construction & Contractors: align term to machine life; keep a LOC for mobilization and materials.
- Manufacturing & Warehousing: combine a term loan for machinery with ABL against AR/inventory.
- Hospitality & Food Service: if lowest monthly matters most, compare leases with nominal buyouts.
We sell equipment directly—browse Inventory and ensure the asset is on Eligible Equipment.
Case Study (Ontario)
A paving contractor needed a used paver and two compactors before tender season. A full unsecured loan strained cash flow. We split the structure: lease on the paver (10% buyout), secured term loan on the compactors, plus a small line of credit for receivable timing. Result: double-digit monthly savings versus an all-loan approach, 24-hour approval, and no missed bids.
FAQs
Is a term loan secured or unsecured?
Both exist. Secured usually prices better; unsecured moves faster. See Secured and Unsecured.
When is a line of credit better?
For ongoing/seasonal gaps, a LOC lets you draw, repay, and redraw—interest on what you use.
Loan or lease for equipment?
Leases often have lower monthly payments via residuals; loans emphasize ownership/equity. Compare in Equipment Financing.
Can I refinance merchant advances into a term loan?
Yes—stabilize cash flow via business refinancing.
What if I already own equipment but need cash now?
Consider refinancing & sale-leaseback to unlock equity while keeping the asset in service.
How do I estimate my payment quickly?
Use the calculator to test terms and structures, then feel free to contact our credit analysts via Contact Us.
Ready to structure your file? Model two scenarios (loan vs lease, 48 vs 60 months) in the calculator, then share your target monthly—feel free to contact our credit analysts for a 24–48h decision aligned to your cash flow and project timeline.
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