In the world of banking there are often words being referred to that we almost understand, but may not have enough information about when choosing financial products. When it comes to loans, there are so many kind of loans that are referenced that consumers may not always be applying for the right loan.

This is especially true when it comes to term loans. So what does term loan mean? A term loan is a loan for an amount of money that has a very specific repayment schedule and may have what is referred to as a floating interest rate.

Most often term loans mature (become payable in full) between 12 and 120 months. One of the main reasons that term loans are sought is with small businesses that need operating capital for purchases needed or to help them stay afloat during down times. Interest rates will most likely be contingent upon the business’ creditworthiness but the loan will help with expenses needed for operations.

Some term loan premiums may pay down the principal while others pay interest only until the loan matures. When seeking a term loan, make sure to understand what part of each payment is going toward unpaid principal and what part is paying interest, even on debt management loans.