Quick answer
A term loan is a lump sum borrowed once and paid back through scheduled repayments over a set period, called the term. In Australian business lending, terms run from a few months for unsecured fintech loans to 15 years or more for loans secured by commercial property. Unlike a line of credit, the money can't be redrawn once repaid, so it suits one-off purchases with a clear cost.
Key points
- One lump sum, paid out up front and repaid on a fixed schedule
- The term can be months (unsecured) or many years (property-secured)
- Best matched to a single purpose with a known cost, like equipment or a fit-out
- Repaid principal can't be redrawn, unlike a line of credit or overdraft
If a lender says “term loan”, picture the simplest shape of debt: you receive a set amount on day one, then pay it down on a timetable until nothing is owed. The word “term” refers to that timetable, the agreed length of the loan. Most of what people call a plain business loan is a term loan.
What makes something a term loan?
Three features define it:
- Single drawdown. The full amount is paid out at settlement (or in a small number of scheduled draws for construction work).
- A fixed end date. The loan term is written into the contract, whether that’s six months or twenty years.
- Scheduled repayments. Each repayment covers interest and, in most cases, part of the principal, so the balance falls steadily. That gradual reduction is called amortisation.
Variations exist. Some term loans are interest-only for a period, and some finish with a balloon payment that clears a large chunk of principal at the end. What they share is that, once you’ve repaid principal, it’s gone: you can’t redraw it the way you can with revolving credit.
Term loan or revolving facility?
| Term loan | Line of credit / overdraft | |
|---|---|---|
| How money is received | One lump sum | Draw as needed up to a limit |
| Balance over time | Falls to zero by the end date | Goes up and down |
| Interest charged on | The outstanding balance | Only the amount drawn |
| Best for | A purchase with a known price | Uneven cash needs, stock, wages gaps |
| Discipline | Built in: the schedule forces repayment | Relies on you to pay it down |
We go deeper in line of credit vs term loan. As a rule of thumb, borrow on a term loan for things that last (a vehicle, an oven, a fit-out, buying out a partner) and use a line of credit for the everyday ebb and flow.
Short terms and long terms in the Australian market
The term on offer depends mostly on security.
- Unsecured term loans from fintech and non-bank lenders typically run a few months to about three years. They’re assessed largely on bank statements and turnover, can fund within days, and usually ask for a director guarantee.
- Asset-secured term loans, such as equipment finance or a chattel mortgage, tend to match the useful life of the asset, often three to seven years.
- Property-secured term loans run longest. Banks and specialist lenders lend against commercial or residential property over terms that can stretch to 15 years or beyond.
If the bank has said no, non-bank lenders offer term loans across all three categories, usually at a higher cost but with more flexible criteria. Our business term loans page compares them side by side.
Worked example: same loan, two terms
A Geelong landscaping business wants $80k for a skid steer, trailer and attachments. It’s offered two term loans, each with a $990 establishment fee.
- Option A, 3 years: total repayments over the life of the loan come to roughly $99k, so the borrowing costs about $19k plus the fee.
- Option B, 5 years: monthly repayments are noticeably lower, but total repayments are roughly $112k, so the cost rises to around $32k plus the fee.
Option B is easier on monthly cash flow. Option A is about $13k cheaper overall. Neither is wrong; the right choice depends on how comfortably the business can meet the larger repayment. Run your own figures in the business loan repayment calculator. (These figures are illustrative only and not a quote.)
Want to see what term and amount might be possible for you? Start a quick enquiry.
What to check in a term loan contract
- Whether the cost is shown as a rate or a flat fee or factor, and the total dollar repayable.
- Early repayment fees, break costs on fixed loans, and whether paying out early actually saves anything.
- Default fees and what triggers a default.
- Whether a personal guarantee or general security agreement is required.
Small businesses also have some protection from unfair terms in standard-form contracts, and banks that subscribe to the Banking Code of Practice make extra commitments to small business customers.
Ready to put a term loan to work?
A term loan is at its best when you know exactly what it’s paying for. Tell us the purpose and the amount, and we’ll look at whether a short unsecured loan, an asset-backed loan or a longer property-secured loan fits. Our form takes about a minute, and enquiring leaves your credit file untouched. We don’t forward your details to a crowd of lenders; one specialist reviews them and phones you. Please fill it in carefully, because accurate numbers mean the first suggestion is far more likely to be the right one.
Frequently asked questions
What's the difference between a term loan and a line of credit?
A term loan pays out once and is repaid on a schedule until the balance reaches zero. A line of credit gives you a limit you can draw, repay and draw again, paying interest only on what you use. Term loans suit one-off costs; lines of credit suit uneven, recurring cash needs.
How long can a business term loan run?
Unsecured term loans from online lenders often run from three months to around three years. Loans secured by residential or commercial property can run much longer, commonly up to 15 years and sometimes up to 25 or 30 years.
Can I pay a term loan off early?
Often, but check the contract. Some lenders charge an early repayment fee, some fixed-rate loans carry break costs, and some short-term loans charge the full agreed cost no matter when you repay.
Do term loans need security?
Not always. Shorter unsecured term loans are common for trading businesses, usually with a director guarantee. Larger amounts and longer terms are usually secured by property or by the asset being bought.
Are repayments always monthly?
No. Banks and property-secured lenders usually collect monthly, but many online lenders collect daily or weekly from your business account. Match the frequency to how money comes into your business.