Commercial Term Loans in Texas
A commercial term loan is a lump-sum business loan repaid in fixed monthly installments over 1 to 10 years. Unlike working capital products, commercial term loans are used for larger, longer-term purposes: equipment, expansion, debt refinancing, and capital improvements. Texas lenders range from community banks to SBA-approved lenders to non-bank commercial finance companies.
- Typical deal size: $100,000 to $5,000,000+
- Term: 1–10 years for most commercial term loans; up to 25 years for real estate-secured loans
- Collateral: equipment, real estate, or blanket lien on business assets
- Rates: fixed or variable; fixed more common for terms under 5 years
- Minimum time in business: 2 years for most bank term loans
Overview
A commercial term loan is the most straightforward business lending structure: a fixed loan amount, a fixed repayment schedule, and a fixed or variable interest rate. The simplicity makes term loans the benchmark against which other products are compared.
Commercial term loans are used for purposes that benefit from fixed, predictable payments over a defined period: purchasing equipment, financing leasehold improvements, funding a specific expansion project, or refinancing higher-cost existing debt. They are not designed for ongoing, revolving needs — for those, a line of credit is the right tool.
In Texas, commercial term loans are available from the full range of lenders: national banks, regional and community banks, SBA-approved lenders (for SBA 7(a)-structured term loans), non-bank commercial finance companies, and CDFI (Community Development Financial Institution) lenders that serve underserved markets and businesses that cannot qualify with conventional lenders.
The critical variable in term loan underwriting is debt service coverage ratio (DSCR): the ratio of the business's net operating income to its total debt payments including the proposed loan. Most bank lenders require a DSCR of 1.25x or higher — meaning the business generates $1.25 in operating income for every $1.00 of debt service. Some alternative lenders are less rigorous on DSCR but compensate with higher rates.
For Texas businesses, one practical consideration: commercial real estate collateral in Texas is subject to unique state law provisions around homestead protection and deficiency judgments. Lenders who regularly make commercial loans in Texas understand these rules; out-of-state lenders may not.
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Frequently Asked Questions
What is a balloon payment on a commercial term loan?
A balloon payment is a large lump-sum payment due at the end of the loan term, after regular monthly payments that do not fully amortize the principal. For example, a 7-year balloon loan might have payments calculated on a 20-year amortization schedule, with the remaining balance due in year 7. Balloon loans require refinancing or payoff at maturity.
Can I prepay a commercial term loan without penalty?
Depends on the loan terms. Some commercial term loans carry prepayment penalties for early payoff — typically a percentage of the remaining balance or a step-down fee. SBA loans have a prepayment fee schedule for loans over 15 years paid off in the first 3 years. Confirm prepayment terms before signing.
What is debt service coverage ratio?
DSCR is the ratio of a business's net operating income to its total annual debt payments. A DSCR of 1.25x means the business generates $1.25 for every $1.00 of debt payments. Most bank lenders require 1.20–1.25x minimum. DSCR below 1.0x means the business cannot cover its debt from operations alone.
How does a commercial term loan differ from an SBA loan?
An SBA loan is a conventional loan with an SBA guarantee attached. The underwriting is commercial, but the SBA guarantee allows lenders to offer better terms. A conventional commercial term loan has no guarantee — the lender carries the full risk. SBA loans typically offer longer terms, lower down payments, and easier qualification for the same borrower profile.
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Page last updated: August 2026