Quick answer
A business term loan is a single lump sum repaid in regular instalments over an agreed period, usually one to five years for unsecured lending and longer when property or equipment secures it. Each repayment covers interest plus part of the balance, so the debt reaches zero on a known date. Term loans suit a defined, one-off cost such as a fit-out, an acquisition or new equipment.
Key points
- One drawdown at the start, then fixed instalments until the balance reaches zero
- Match the term to how long the purchase keeps earning, not to the lowest repayment
- Online lenders typically offer up to five years unsecured; secured term loans run longer
- Bank customers covered by the Banking Code get notice periods that many non-bank contracts don't promise
- Compare offers on total dollars repayable and on what an early payout really costs
- Typical amounts
- $5k to $500k unsecured; more with security
- Typical term
- 1 to 5 years unsecured
- Repayments
- Weekly, fortnightly or monthly instalments
- Best for
- One-off costs with a long payback
Ask ten lenders what a “business loan” is and most will describe a term loan without using the phrase. It’s the default shape of business borrowing in Australia: the money arrives in one payment, the repayments are scheduled from day one, and the contract tells you the exact date you’ll be debt free.
That predictability is the main attraction. It’s also the main trap when the term doesn’t suit the job. This page covers how term loans work, how to pick a sensible length, what lenders look at, and the questions that separate a good offer from an expensive one.
How does a business term loan work?
The lender advances the full amount on settlement. From then on you make instalments, typically weekly with online lenders and monthly with banks, until the balance reaches zero. Each instalment is part interest and part principal, and the split shifts over time: early payments are interest-heavy, later ones mostly reduce the balance. That gradual paying down is called amortisation.
Three features define the product:
- Single drawdown. You can’t take more later without a new application or a top-up. Money repaid doesn’t become available again.
- Fixed schedule. The number and size of instalments are set in the contract, which makes budgeting simple.
- A finish line. The loan ends on a known date, unlike an overdraft or line of credit that can roll on indefinitely.
Term loans come in unsecured and secured versions. As at October 2026, Prospa’s website lists an unsecured small business loan of $5k to $500k over terms up to five years with weekly repayments, while Moula advertises $10k to $500k, also with terms up to five years. Banks offer both, and lend longest when real estate secures the debt.
How long should the term be?
This is the decision most owners get wrong, usually by stretching the term to make the instalment look small. A better rule: the loan should finish before the thing it paid for stops earning.
| What you’re funding | How long it keeps earning | Term that usually fits |
|---|---|---|
| Marketing campaign | Months | Avoid a term loan, or keep it under 12 months |
| Seasonal stock | One season | 3 to 9 months, or a line of credit |
| Shop or office fit-out | Length of the lease | 2 to 5 years, ending before the lease does |
| Vehicles and machinery | 5 to 10 years | Consider equipment finance secured on the asset |
| Buying a business | Many years | 3 to 7 years, often partly secured |
The fit-out row trips people up. A café that signs a five-year loan to fund the fit-out of a premises with three years left on the lease may still be paying for that fit-out after the keys are handed back. Our page on funding shop fit-outs goes through the lease question in detail.
A shorter term costs fewer total dollars but demands bigger instalments. A longer term eases weekly cash flow but adds to the total. Plug both versions into the business loan repayment calculator and look at the two numbers side by side: the instalment and the total repayable.
What do lenders check before approving a term loan?
Because the lender is committing for years, it looks harder at durability than a short-term funder would.
| What’s assessed | Why it matters over a multi-year term |
|---|---|
| Trading history | Online lenders commonly want 6 to 12 months; banks often want two years of financials |
| Monthly turnover | Sets the ceiling. Moula, for example, asks for $10k+ in monthly sales as at October 2026 |
| Profitability | Banks look at profit and loss statements and tax returns to confirm the business can carry the debt |
| Existing debt | Every other repayment on your statements reduces what’s left to service a new loan |
| Purpose | A clear, one-off purpose supports a term loan; a vague one suggests a different product |
| Credit file and ATO position | Defaults, recent enquiries and unmanaged tax debt all weigh on a long commitment |
| Security and guarantees | Above a set amount, expect a director guarantee and possibly a charge over assets |
Banks lean heavily on the debt service coverage ratio: how many times the business’s earnings cover its loan repayments. Online lenders run a similar test using average deposits from your bank statements instead of your accounts.
Want a quick read on which kind of lender your numbers suit? Run your details past us; it takes a minute and your credit file stays untouched.
Bank term loan or non-bank term loan?
Banks are excellent term lenders. When you meet their criteria, a bank term loan is often the cheapest money you’ll find, and it comes with protections worth knowing about.
Under the Banking Code of Practice, which most Australian banks have signed up to, the definition of a small business customer was widened from 28 February 2025 to include businesses with up to $5m in total borrowings (previously $3m). For a covered term loan, the code says a bank generally must give at least 30 days’ notice of a missed payment before demanding the whole balance, give at least three months’ notice if it won’t extend a facility, and avoid relying on vague “material adverse change” clauses in standard small business loan contracts.
Non-bank lenders aren’t bound by that code. Many treat customers just as fairly, but their contracts set their own rules. When comparing a non-bank offer, read the default clauses and ask directly: how much notice will you give before calling the loan in?
Where non-banks win is speed and flexibility. An online lender can often decide within a day or two on bank statement data, lend to a business with less than two years’ history, and look past a tax return that hasn’t been lodged yet. If your bank has said no or can’t move in time, that’s the gap they fill. See bank vs non-bank lenders for a fuller comparison.
What does a business term loan cost?
Cost comes from interest (fixed or variable), an establishment fee, and sometimes ongoing account fees or an early payout charge. We don’t publish rates; offers depend on the business, the term and the security. Judge every offer by total dollars repayable against the amount you actually receive after fees.
An illustrative example. A physiotherapy clinic in Geelong needs $120,000 to fit out a second treatment room and buy equipment. It receives two quotes:
- Option A: 3 years, weekly instalments of $955. Over 156 weeks that totals $148,980, a cost of $28,980.
- Option B: 5 years, weekly instalments of $650. Over 260 weeks that totals $169,000, a cost of $49,000.
Option B frees up $305 a week, which matters while the new room builds a client list. Option A saves $20,020 over the life of the loan. A middle path: take Option B only if early payout is cheap, then make extra repayments once the room is busy. If early payout costs most of the remaining interest anyway, Option A is the better buy. Check whether a fixed or variable structure changes the payout maths.
Pros and cons of term loans
What works well
- Certainty: you know every instalment and the end date
- Suits large one-off costs that pay back over years
- Usually cheaper than revolving credit for the same amount and term
- Builds a clean repayment history for the next application
What to watch
- No redraw: if you need more later, you reapply
- Interest accrues on the whole amount from day one, even if you spend it gradually
- Long terms can outlast the asset or the lease
- Break costs or fixed total costs can make early payout disappointing
When is something else a better fit?
- Recurring or unpredictable needs: a business line of credit. Our line of credit vs term loan comparison sets out the trade-off.
- A gap of a few months: short-term business loans are built for timing problems.
- Buying an asset: equipment finance is secured on the asset itself and can run longer.
- A bigger sum, or a lower total cost: a secured business loan against property.
Funding something with a long payback? Let’s find the right term
A term loan is only as good as the match between its length and the job it does. Getting that right up front saves real money, and it’s the kind of detail we look at on every enquiry.
The form is roughly a minute of your time and asking doesn’t put a mark on your credit history. We keep your details in-house rather than circulating them to a long list of funders. One of our team reads what you’ve told us and phones you to talk through the term, the instalment and the total. Tell us exactly what the money is for and how long it will earn, and we can point you at the right structure on the first call.
Frequently asked questions
What is a business term loan?
It's a loan advanced in full at the start and repaid in scheduled instalments over a fixed period. Unlike a line of credit, you can't redraw what you've repaid. Once the last instalment clears, the loan is finished.
How long can a business term loan run?
Unsecured term loans from online lenders commonly run up to five years. Prospa and Moula both advertise terms of up to five years as at October 2026. Term loans secured by property or equipment can run considerably longer, depending on the asset and the lender.
Is a term loan better than a line of credit?
It depends on the need. A term loan suits a single purchase with a known cost. A line of credit suits recurring or unpredictable needs, because you only pay for what you draw. Using a term loan for a rolling cash shortfall often leads to borrowing again before the first loan is repaid.
Can I pay a business term loan off early?
Usually, but the cost of doing so varies. Variable-rate loans often allow early payout with little or no penalty. Fixed-rate bank loans may charge break costs, and some online lenders fix the total cost at the start. Get the payout calculation in writing before signing.
Do I need security for a term loan?
Not always. Many online lenders offer unsecured term loans up to a set amount, backed by a director's guarantee. Larger amounts or longer terms usually need property, equipment or a general security agreement over business assets.