When owners ask, “How is a term loan different from a normal loan?”, they usually mean: how does a fixed, amortized term loan compare to the other common ways businesses borrow—like lines of credit, demand notes, leases, or short-term working-capital products. Below is a plain-English, Canadian-specific breakdown from a credit-analyst perspective.
What most people call a “normal loan”
“Normal loan” is a catch-all. In practice it can mean:
- An installment loan with set payments (that’s a term loan).
- A demand loan (bank can call the balance due on demand; often interest-only).
- A revolving line of credit (draw, repay, draw again).
- A lease (use the equipment now; decide on buyout later).
Because the phrase is vague, it helps to define the yardstick: a term loan.
What a term loan actually is
A term loan advances a lump sum up front and you repay it over a fixed term via amortized payments (principal + interest) until the balance reaches $0. It can be fixed- or variable-rate, and either secured or unsecured. It’s best for one-time, clearly defined needs like an equipment purchase, renovation, acquisition, or business debt consolidation.
Explore the product:
Side-by-side: term loan vs “normal” alternatives
| Feature |
Term Loan |
Line of Credit |
Demand/Interest-Only Loan |
Equipment Lease |
| Purpose |
One-time capex/project with clear payoff |
Recurring/seasonal working capital gaps |
Short-to-mid needs; flexibility, faster setup |
Use equipment now; buy or return at end |
| Funding style |
Lump sum at closing |
Revolving limit; draw/repay/redraw |
Lump sum; often interest-only |
Funded to vendor; scheduled rents |
| Payments |
Fixed, amortized to $0 |
Interest on amount used; principal on repay |
Mostly interest; principal due on call/maturity |
Lower monthly via residual/buyout |
| Flexibility |
Low once funded |
High (matches cash cycles) |
Medium; callable by lender |
Medium; end-of-term options |
| Ownership |
Yes, from day one |
N/A |
Yes, but watch call risk |
Only at buyout |
| Best fit |
Defined asset/project; budget certainty |
AR/AP timing, inventory, seasonality |
Bridge financing with exit plan |
Cash-flow relief + upgrade flexibility |
Compare related options:
When a term loan is the better choice
Choose a term loan when you want:
- Predictable payments and a fixed payoff date.
- Ownership of a long-life asset (truck, excavator, CNC, medical imaging).
- To replace expensive short-term debt with one amortized payment via Business Refinancing.
- A clear capital plan for expansions or build-outs.
If you’re buying equipment and want the lowest monthly payment, also price a lease with residual; if you need ongoing purchases across the year, consider an Equipment Line of Credit.
When “normal” alternatives win
- Lines of credit for recurring cash gaps, inventory turns, deposits, and AR timing. See Line of Credit and Invoice/Freight Factoring if receivables are large.
- Leases when you value lower monthly payments and upgrade flexibility more than immediate ownership. See Equipment Leases.
- Asset-based lending (ABL) if you’re asset-heavy and need a larger flexible borrowing base. See Asset-Based Lending.
- Sale-leaseback/refinance to unlock equity in owned equipment while keeping it in service. See Refinancing & Sale-Leaseback.
Cost drivers you should model
- Term & amortization: Longer terms reduce monthly cost but increase total interest.
- Rate type: Fixed = budget certainty; variable = potential savings if rates fall.
- Security: Collateral often improves pricing/limits; learn more about Secured vs Unsecured.
- Fees: Origination/admin, PPSA registrations, legal; include taxes on equipment where applicable.
- Prepayment: Some loans allow partial principal payouts; others have penalties—confirm before signing.
Run side-by-side scenarios in the Calculator (e.g., 48 vs 60 months, loan vs lease with a 10% buyout).
Approval basics (what lenders look for)
- Cash flow to service debt (bank statements, margins, DSCR).
- Time in business & management track record.
- Credit profile (personal and business, if applicable).
- Collateral value & useful life (for secured deals).
- Purpose and payoff logic—a clear plan for ROI.
Newer firms should check eligibility for the Canada Small Business Financing Program. If bank appetite is tight, ask about In-House Financing.
Practical scenarios
- Fleet owner adding a tractor + reefer trailer
Chooses a term loan for the tractor (ownership + equity build) and a lease for the reefer to lower the blended monthly payment. Product pages: Equipment Loans, Equipment Leases.
Are you looking for a truck? Browse our used inventory—Mehmi sells equipment directly.
- Contractor with seasonal cash swings
Uses a line of credit for materials and payroll timing, plus a term loan for a telehandler purchase. See Line of Credit.
- Clinic upgrading imaging equipment
Compares a 60-month term loan vs a 60-month lease with 10% buyout; picks the lease for lower monthly, with intent to buy at end. See Equipment Financing.
How to choose in three steps
- Map the need: one-time project or ongoing cycle?
- Model options: loan vs lease vs LOC in the Calculator.
- Package the file: quotes/invoices (or select from our Inventory), bank statements, company details—then contact us for 24–48h decisions.
FAQs
Is a term loan the same as an installment loan?
Yes—both refer to amortized loans repaid on a schedule. See Term Loan.
Why would I choose a line of credit instead?
If your need recurs (inventory, AR timing), revolving credit is usually cheaper to carry and more flexible. See Line of Credit.
Is leasing really a “loan”?
No. It’s a rental contract with financing characteristics. Payments can be lower due to a residual/buyout. See Equipment Leases.
Can I refinance short-term or merchant cash advances into a term loan?
Often yes. Consolidation can stabilize cash flow. See Business Refinancing.
What if I already own equipment but need cash now?
Consider Refinancing & Sale-Leaseback—you unlock equity and keep using the asset.
Do startups qualify?
With strong personal credit, down payment, collateral, or via CSBFP. If traditional channels are tight, ask about In-House Financing.
Ready to compare options? Run your numbers in the Calculator, then feel free to contact our credit analysts via Contact Us. We’ll structure a lender-ready package across Business Loans and Equipment Financing—often approved in 24–48 hours.
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