A business term loan pays for one defined project and is paid back on a fixed schedule. For Corsicana, TX manufacturers and contractors that usually means an expansion, a building improvement, an equipment package or buying out a partner. This article covers each.
Eagleland Finance explains what Corsicana, Texas manufacturers and contractors use business term loans for, how fixed payments compare with a revolving line, buyouts, terms and collateral, and two loans compared on the same amount. Funding partners decide each request.
Expansions, building improvements and equipment packages on a term loan
Term loans fund projects with a start and an end: adding a production bay, insulating and wiring a shop, buying a package of machines with installation, or paving a yard. The loan pays out once, and the business pays it back over years.
Contractors often use term loans for a yard and shop: fencing, a pole barn for equipment, a fuel tank and office space. Those improvements raise the value of the property and the business, which is what a lender wants to see behind a multi-year loan.
Navarro County, TX had 54 manufacturing and 90 construction employers in 2023 (CBP 2023). For both, a term loan fits when the project keeps earning after the last payment. A press brake that runs fifteen years fits a seven-year loan; a single job's material does not.
Fixed payments vs a revolving line for a one-time project
A one-time project suits fixed payments: the business knows the monthly cost and can plan around it. A revolving line suits repeating costs and charges interest only on what is drawn, but its limit and rate can change at renewal.
Using a line for a large one-time project ties up the limit for years and leaves nothing for the gaps it was meant to cover. See the line of credit page for the other side.
Buying out a partner or an existing business with a term loan
A partner buyout uses a term loan to pay the departing owner for their share. Lenders review the company's cash flow, the buyout agreement and the remaining owner's credit, and often ask for a valuation. Buying an existing business works the same way, with the seller's records carrying more weight.
The buyout agreement should set the price, the payment terms for any seller note, and what happens if the business misses a payment. Lenders want their loan paid ahead of the seller note, so expect a subordination agreement.
Seller financing, where the departing partner takes part of the price as a note, can lower the loan amount. The term loan page covers acquisition loans and down payments.
Term length, collateral and the documents lenders ask for
Terms usually follow the life of what is bought: one to seven years for equipment and working purposes, longer when real estate is part of the loan. Collateral may be the equipment, the building, receivables or a blanket lien on business assets, and owners usually sign a personal guarantee.
Ask about covenants as well. Some term loans require a minimum debt coverage ratio, annual financial statements or limits on new debt; breaking one can let the lender call the loan even when every payment is on time.
- Business and owner tax returns covering the last two or three years.
- Interim financial statements and a debt schedule.
- Quotes, contracts or the purchase agreement.
- Bank statements for recent months.
Two Navarro County, TX term loans compared on the same $150,000
Illustration only, not an offer. A Navarro County, TX fabricator compares two term loans for $150,000 at an annual rate of 9.5%:
| Term | Monthly payment | Total paid | Interest |
|---|---|---|---|
| 5 years | $3,150 | $189,017 | $39,017 |
| 7 years | $2,452 | $205,934 | $55,934 |
On the seven-year loan the payment is $699 less each month, and total interest is $16,917 more. The shorter term is cheaper if the business can carry the payment in its slowest month.
When a term loan is the wrong fit for a Corsicana, TX project
A term loan is the wrong fit for costs that repeat, such as payroll gaps or seasonal stock; for anything that will be used up long before the loan ends; and for a business whose cash flow cannot carry a fixed payment through slow months.
A term loan can also be the wrong size. Borrowing well beyond the project leaves the business paying interest on idle cash, and borrowing too little forces a second, costlier loan halfway through the work.
Those needs belong on working capital or a credit line. A machine purchase on its own often prices better as equipment financing.
By Eagleland Finance · Updated
