# Term loan — what it means for tradie business finance > A term loan is a fixed amount borrowed over a set term with regular repayments — best for one-off tradie costs like a fit-out, expansion or a big tool package. Source: https://tradiefinance.co.nz/glossary/term-loan Published: 2026-05-15T08:00:00.000Z Category: business-finance Tags: glossary, business-finance Image: https://tradiefinance.co.nz/images/resources/generated/tradie/glossary/term-loan-primary.jpg Image alt: A tradie reviewing finance options for Term loan — what it means for tradie business finance --- A term loan is the plainest bit of business borrowing there is. You take a set amount, you pay it back over a set time in regular chunks, and when the last payment lands, you're done. No surprises, no revolving balance to manage. It's the structure we reach for most when a tradie has a clear, one-off cost to fund. ## What it is A **term loan** is a lump sum you borrow for a fixed amount, over a fixed term, repaid in regular instalments (usually monthly). Three things are locked in from the start: the **amount** (say $40,000), the **term** (say 3 years), and the **repayment** (a set figure each month that covers principal plus interest). That's the key difference from a [business overdraft](/glossary/business-overdraft) or [invoice finance](/glossary/invoice-finance), which are revolving — you draw down and pay back as cashflow moves. A term loan doesn't revolve. You get the money once, and the balance only ever goes down. Term loans come in two flavours: - **Secured** — the lender registers a [security interest](/glossary/security-interest-ppsr) over an asset (often the thing you're buying, or other business plant). If the loan goes bad, they can recover the asset. Because the lender's risk is lower, secured term loans typically carry a lower rate and let you borrow more. - **Unsecured** — no asset backs the loan. The lender leans on your trading history and usually a [personal guarantee](/glossary/personal-guarantee) instead. Faster to set up and no asset on the line, but you'll typically pay a higher rate and borrow less. ## How it works and when it matters for tradies A term loan suits a **one-off, known cost** — something with a clear price tag that pays for itself over time. Think a workshop fit-out, a second branch, buying out a business partner, a big tool package, or consolidating a few messy debts into one tidy repayment. Here's a worked example. Say a plumber borrows $40,000 over 3 years for a workshop fit-out: | Item | Figure | | --- | --- | | Amount borrowed | $40,000 | | Term | 3 years (36 months) | | Repayment | A set monthly figure (illustrative only) | | Total cost of credit | Principal plus all interest and fees over the term | The appeal is certainty. You know the repayment, so you can build it into your numbers and price your jobs around it. Use a term loan for a one-off, known cost you'll pay off over time — a fit-out, a vehicle, an expansion. Use an [overdraft](/glossary/business-overdraft) for short, lumpy gaps — covering wages while you wait on an invoice, or buying materials before the client pays. A term loan for everyday cashflow is overkill; an overdraft for a big one-off cost gets expensive fast because the balance never really comes down. When a **term loan beats an overdraft**: the cost is large and one-off, you want a fixed end date, and you want a predictable repayment rather than interest that drifts with your balance. Term rates are also typically lower than overdraft rates. When an **overdraft beats a term loan**: the need is short-term and recurring — seasonal dips, slow payers, materials before invoicing. You only pay interest on what you actually use. For ongoing [working capital](/glossary/working-capital), that flexibility usually wins. We're a broker, not a lender — we place your application across a panel of lenders and match the structure to the job, so you're not stuck taking whatever your bank happens to offer. If your need is genuinely business-purpose, a [business-purpose declaration](/glossary/business-purpose-declaration) applies and you sit largely outside the consumer CCCFA affordability rules. How the interest is treated for tax is a separate question — confirm that with your accountant or IRD. ## See also - [Business overdraft](/glossary/business-overdraft) - [Working capital](/glossary/working-capital) - [Asset finance vs bank overdraft](/guides/asset-finance-vs-bank-overdraft) Not sure whether a term loan or an overdraft fits your situation? [Book a call](/book-a-call) and we'll talk it through — no pressure, just a straight answer.