The kind of decision a term loan suits
Term loans are for decisions with a beginning, middle and end: moving into a bigger unit, fitting out a second shop, taking on two employees ahead of a contract, buying a delivery vehicle. Because the amount and the schedule are set in advance, the owner can compare the payment to the margin the project is expected to add before committing.
Growth in a metro that kept expanding
Wikipedia notes that San Jose was California's fastest-growing metropolitan economy by the early 2000s and that its Foreign Trade Zone designation, from 1974, covers trade oversight across Santa Clara County and several nearby counties. For a local business that means an environment where growth is the norm and where expansions are common: a distributor taking a larger warehouse bay, a lab adding a room, a restaurant opening a second location in a neighboring city such as Milpitas or Santa Clara.
Before you borrow, run three tests
- Payback test. What will the project add each month, in margin, not revenue?
- Stress test. If sales dip by a fifth, can the business still make the payment?
- Timing test. Between spending and earning there is a gap. Is there enough cash to cover it?
Term loan or another product
| You need... | Look first at |
|---|---|
| A single sum for a planned project | Term loan |
| A machine that secures the amount | Equipment financing |
| Money that comes and goes with invoices | Line of credit |
| Short-term cover for payroll and bills | Working capital |
Illustration with round numbers
Made-up figures, not our terms: a San Jose caterer plans a $90,000 commissary kitchen build so it can take corporate contracts that its current rented space cannot support. Before applying the owner writes down the contracts in hand, the margin they carry, the months of construction with no added revenue and the cost of the rented space it replaces. If the kitchen adds $8,000 of monthly margin and the payment is about $5,000, the plan has room; if it adds $4,500, the plan is thin. The numbers are the plan.
Common planning errors
- Counting revenue, not margin. A project that adds $20,000 of sales at a thin margin may add very little profit.
- Forgetting the ramp. A new space or hire usually costs money for a few months before it earns any.
- Borrowing to the ceiling. Ask for what the plan needs, with a modest cushion, rather than for the largest amount available.
What we ask for
We consider FICO scores of 500 and above, review about three months of business bank statements and need no tax returns. The application takes about five minutes with a soft credit pull. Funding runs from $25,000 to $5,000,000 and can arrive in as little as 24 hours. Sole proprietors can apply. Apply here. The Santa Clara County overview offers regional context.