A business term loan provides one lump sum repaid in scheduled installments over a fixed term. Orchardmark Financial, a small-business funding broker in Scranton, Pennsylvania, explains amortization, balloon payments and covenants to Lackawanna County owners and sends term loan requests to lending partners, which approve, decline and set every rate and term.
| Built for | One-off costs with a firm price |
|---|---|
| Repaid | Set installments covering principal and interest |
| Watch for | Balloon payments, prepayment charges, covenants |
| Lackawanna County employers | 83.9% have fewer than 20 employees (CBP 2023) |
| Who decides | The lending partner |
How a business term loan works, from closing to payoff
At closing, the partner pays the whole amount out. From then on the business makes payments on a set schedule, usually monthly, until the balance is gone. The rate may be fixed for the life of the loan or may move with a benchmark, and the agreement spells out the term, the payment, any collateral and the conditions the business must keep meeting.
Because the payment is fixed, a term loan is easy to plan around. Because the money arrives all at once, it suits one defined cost, not a series of small, unpredictable ones. For those, a line of credit is usually the better tool.
Amortization on a business term loan, in plain terms
Amortization is the payment timetable: it shows how much of each installment goes to interest and how much reduces the balance. Early payments are mostly interest, because interest is charged on a larger balance; later payments are mostly principal. Ask the partner for the full amortization schedule, not just the monthly figure. It shows how much you would still owe after one, two or three years, which matters if you might sell, refinance or pay off early.
Balloon payments and early payoff
Not every commercial loan is fully amortized. The payments are calculated as if the loan ran for a long period, but the balance falls due earlier in one large final payment, known as a balloon. That keeps monthly payments lower, but the business must either have cash for the balloon or be able to refinance it when it comes due. If an offer has a balloon, note the date and the amount.
Ask too whether early repayment carries a charge, and whether paying early actually reduces the interest owed.
What a loan covenant is
A covenant is a condition the business agrees to keep while the loan is outstanding. Common examples include providing financial statements each year, keeping insurance on collateral, maintaining a minimum ratio of income to debt payments, or not taking on more debt without consent. Breaking a covenant can count as a default even when every payment is on time, so read them before signing, not after.
Expansion in Lackawanna County, PA
In Lackawanna County, the typical employer is small. Of 5,198 employer establishments in 2023, 4,360, or 83.9 percent, had fewer than 20 employees (U.S. Census Bureau, County Business Patterns 2023). For a firm that size, a term loan is often the largest single obligation it takes on, so the project budget needs to be firm before the request goes out.
- A practice adding operatories or moving to a larger suite.
- A restaurant refitting a dining room or opening a second location.
- A specialty contractor buying out a partner or consolidating costlier debts.
- A retailer fitting out a new storefront.
Machines and vehicles usually go through equipment financing instead, where the asset secures the balance. Sector detail is on the sector pages, and county figures on the county's employer profile.
Records a partner checks before a term offer
Expect requests for business and personal tax returns, recent bank statements, a current balance sheet and profit and loss statement, a list of existing debts, and the quote, bid or lease for the project. Partners also confirm that the business name on the application matches its registrations and tax records.
Two Pennsylvania records come up often. If the business trades under a name other than its legal one, Pennsylvania fictitious name registration explains why the names need to line up. For city tax accounts, the business privilege and mercantile tax checklist covers what to have in order.
What to ask about every term loan offer
- Over the full term, what is repaid in total, fees included?
- Is the rate fixed or variable, and what moves it?
- Is there a balloon payment, and when?
- What does early payoff cost, and does it save interest?
- Which covenants apply, and how are they measured?
- Which collateral and which guarantees does it require?
The four steps explain where Orchardmark Financial fits in.
By Orchardmark Financial · Updated
