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Capital & Financing

What Is a Term Loan? (eCommerce Context)

A term loan is a lump sum of capital you repay on a fixed schedule, usually monthly, over one to five years. For ecommerce operators it is the cleanest way to fund a large inventory purchase or warehouse buildout. The total cost is predictable, unlike a merchant cash advance, which reprices constantly.

· 2 min read·By Matt Putra, Managing Partner

A Term Loan is a fixed lump sum borrowed once and repaid over a fixed period. The right tool for one-time large capital needs, acquisitions, equipment, warehouse buildouts, but the wrong tool for ongoing working-capital variability.

Structures

  • Standard bank term loan: 17 years, monthly principal + interest amortization, prime + 13% APR
  • SBA 7(a): up to 10 years, government-backed, prime + 2.75% capped, longer underwriting
  • Alt lender term loan: 13 years, faster underwriting, 1225% APR
  • Venture debt: for VC-backed brands, 3048 month term, 914% APR plus warrants

Example

A DTC brand acquires a complementary brand for $1.2M. Bank term loan: $1M at SOFR + 3% = ~10% APR, 5-year amortization, $21,250/month payment. Total interest over 5 years: ~$275K. Total cost of capital: $1.275M for the $1M loan.

When term loans make sense

  • One-time large capital need with predictable use
  • Asset with useful life longer than the loan term (matching principle)
  • Cash flow stable enough to service amortizing debt
  • Refinancing higher-cost debt (MCA, expensive RBF)

The most common mistake

Using a term loan for working capital. The fixed-payment schedule creates inflexibility, working capital needs flex monthly, but a term loan payment doesn't. Use LOC instead for variable needs.

Frequently Asked Questions

term loan vs LOC?

Term loan = one-time fixed. LOC = revolving variable.

what about SBA loans?

Government-guaranteed term loans. Slower but lower rate + longer term.

when is a term loan right?

One-time large capital with predictable use, asset matched to term.

Related Terms

Browse the full ecommerce finance glossary for every metric and money term a DTC operator needs.

Need a CFO to compare term loan vs alternatives? Talk to a CFO.

About the Author

Matt Putra, Managing Partner

Matt is the Managing Partner of Eightx, a fractional and interim CFO firm managing $650M+ in revenue across 35+ ecommerce, DTC, and CPG portfolio brands across the US, Canada, Australia, and the UK. A former PE investor with $500M+ deployed, Matt specializes in benchmark-driven financial leadership for apparel, beauty, food and beverage, and household brands.

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