Use a term loan when the plant is paying one big invoice whose price is already settled. The payment stays level, interest falls each year as the balance shrinks, and the partner sets the amount, rate and term.
At a glance
- What it pays for
Production equipment, software systems, other one-time costs
- How it is paid back
Level monthly payments over a fixed term
- Not for
Real estate, building construction loans, trucking or agriculture
How a business term loan works when a Brigham City, UT food manufacturer adds a labeling machine
A food manufacturer that wants to label its own packages instead of buying pre-printed film has a cost with a known price and a long useful life: a labeling machine. A term loan pays the vendor once, and the plant pays the partner back in level monthly payments over the agreed term.
Illustration only, invented figures: if the labeler costs $96,385 and the plant repays it in 60 monthly installments at an annual rate of 9.91%, each invented installment is $2,043.63 and the 60 invented installments sum to $122,617.80. The table splits each invented year's payments into interest and principal; the last year absorbs the rounding so the columns sum to the totals.
| Year | Interest paid | Principal paid |
|---|---|---|
| Year 1 | $8,852.64 | $15,670.92 |
| Year 2 | $7,227.15 | $17,296.41 |
| Year 3 | $5,433.03 | $19,090.53 |
| Year 4 | $3,452.82 | $21,070.74 |
| Year 5 | $1,267.16 | $23,256.40 |
| Total | $26,232.80 | $96,385.00 |
A labeler decision lands on a short list of local plants: County Business Patterns showed 12 food manufacturing employers in Box Elder County, UT for 2023 (NAICS 311). A plastics shop's pad printing and deburring cell gets its own year-by-year split in the manufacturing equipment post.
Supplier payments at a Brigham City, UT manufacturer, scheduled on a term loan and on a credit line
A term loan pays out once. If a manufacturer uses one for supplier payments, it borrows the full sum on day one and pays interest on all of it from the first month, even on money it does not spend until later. A credit line lets the same manufacturer draw for each supplier invoice as it arrives and pay interest only on what is out.
So the two fit different costs. A one-time purchase with a fixed price, such as a machine or a software system, suits the term loan's level schedule. Repeating supplier payments suit the line. A plant can also hold both: a term loan for the machine and a line for the steel, film or packaging it buys each month, with each payment sized to its own cost. Any partner reviewing the second request may ask about the first; the line of credit page works through draws, paydowns and limits for a dental office. ZIP Code Business Patterns put 39 manufacturing employers at ZIP 84302 street addresses in 2023. A bank term loan is one of three sources a machinery repair shop compares in the dealer, bank or lender post.
Small business term loans for a Box Elder County, UT home builder's estimating workstations
A small business term loan is the same product on a smaller scale: a set amount, a fixed term and level payments. A home builder replacing the office's estimating and design workstations, with software licenses bought for several years at once, has a cost that is too large to pay from one month's income and too fixed for a credit line. For Brigham City, UT residents, the 2020-2024 American Community Survey puts the share working in their own incorporated business at 3.5% (±1.1), against 4.5% (±0.8) for Box Elder County, UT.
The term loan pays for the workstations and licenses; it does not fund the houses the builder puts up. Loans to build the houses themselves, and any land or property purchase, are not arranged here. Home builders here are mostly small offices: County Business Patterns counted 64 residential building construction employers in Box Elder County, UT for 2023, and 51 of them had fewer than five employees (NAICS 2361). Dental practices comparing a 36-month and a 60-month term on hygiene and root canal gear can read the post on air polishers and an obturation unit.
Interest year by year on a Brigham City, UT plant's five-year term loan
On the labeler loan, each month's interest is taken out of the payment first and whatever is left cuts the balance. Because the balance falls each month, the interest share falls too. In the invented labeling-machine case above, the first invented year carries $8,852.64 of interest and the fifth only $1,267.16.
That pattern shapes two decisions. A shorter term raises the payment but cuts the total interest; a longer one lowers the payment and adds interest. Before signing, the plant can ask the partner whether an early payoff reduces the interest owed, since some term loans charge a prepayment fee. The business loans page compares term loans with the other five funding types. For a dermatology office, the physician office funding post puts a UVB phototherapy cabinet on a 60-month term loan.
By Clayland Commercial Capital · Updated