Whether you are a serial entrepreneur, vintage collector, or visual artist, launching your own business can be daunting. Got passion and skill? Great, but that’s just half the battle. Financing your creative business is a whole different beast.

From confusing jargon to cryptic fine print, it can be hard to navigate the world of financing. So, we set out to unpack some options you have at your disposal. For many aspiring creative entrepreneurs, taking out a term loan is step one.

What is a term loan?

term loan is a sum of money (the “loan amount”) borrowed from a lender and paid off at specific time intervals, over a predetermined amount of time (or “term”). Term loans are a standard loan that is often used to cover costs when you open a new shop, invest in equipment, or redesign your website.

As if there weren’t enough financial jargon already, it’s helpful to familiarize yourself with the following terms before you commit to financing your business:

  • Intermediate-term loans vs long-term loans: Term loans are typically classified as intermediate or long-term loans. Intermediate-term loans usually run less than three years, and are generally repaid in monthly installments. On the other hand, long-term loans can run between three and ten years.
  • Secured vs unsecured term loans: Secured loans are protected by an asset or collateral. For example, the bank may hold legal ownership over your assets until all debts are paid. Unsecured loans are not protected in this way, and as a result, involve greater risk for the lender. For this reason, unsecured loans have higher costs and shorter repayment terms for the borrower.
  • Interest: The amount (expressed as a percentage) that a lender charges for the use of capital.
  • Fixed vs floating interest: floating interest rates are also known as “variable” or “adjustable” interest rates. These change with the market over time, while a fixed interest rate remains steady throughout the term of a loan. If you anticipate an increase in the market interest rate, a fixed rate will save you money. However, if market rates are expected to decline, a variable rate is a better choice.
  • Annual percentage rate (APR): The total interest payable on the loan, on a yearly basis, averaged over the duration of the loan. This is inclusive of fees and service charges, and reflective of the cost of capital.

In a nutshell, your term-loan costs depend on how much you borrow, the interest rate, and the time you take to repay.

Do I Need Financing?

Are you an artist, designer, or collector looking for additional finances to cover temporary costs? If the answer is “yes,” a term loan may be the right form of financing for you. For example, a jewelry designer looking to expand or purchase new equipment may benefit from taking out a term loan.

Based on your financial records, credit rating, and a few other factors, a bank or lender will offer a personalized rate for your loan.

What Can Creative Entrepreneurs Use a Term Loan For?

Term loans can be used to address a variety of needs that creative entrepreneurs face. For example, you may need extra cash in order to:

  • Accommodate holiday surge orders from
  • Thanksgiving through New Years
  • As a form of cash flow finance to cover day-to-day operating costs in your studio
  • Invest in outsourcing a new logo design and marketing collateral
  • Expand to a brick-and-mortar store now that your online business is grown
  • Open a new studio space or renovate an existing space
  • Purchase additional supplies to take part in a crafts expo
  • Revamp your business’s website

Take it from Erin Ozer, found of Knot & Bow, a Brooklyn-based provider of bespoke gift, craft, and party supplies. What began as a small Etsy shop in 2010 soon transformed into a booming business embraced by Martha Stewart Living, The Today Show, and more.

She describes Knot & Bow’s transition from a small online shop to a wholesale business as very quick. “That first year we were on Etsy, I only sold a few thousand dollars’ worth of product in the first few months. After three or four months, we got our very first wholesale inquiry from a very reputable store in Brooklyn.”

When Erin was considering the first Knot & Bow brick-and-mortar shop in 2013, she realized that financing was something she should look into.

She shares: “I’ve always operated debt-free. I was really scared of the concept of taking on debt. But all of a sudden, I was trying to open a store and buy tons of merchandise all at once. On top of that, I was having to buy tons of merchandise for our wholesale line because holiday orders were coming. I realized I was going to tie up all of our cash trying to open the store. So financing became something I had to look into.”

Pros and Cons of Term Loans

As with anything, there are pros and cons to term loans. While they are one of the most straightforward methods of financing your creative endeavors, it’s important to take all considerations into account. Let’s break them down:

The pros:

  • Predictable repayment schedules allow you to plan ahead.
  • Increased flexibility in repayment timeline. For example, you can take 3-12 months to pay the loan off (short-term loan) or 5 years (long-term loan).
  • Higher borrowing limits are available in comparison to other financing methods. This can be useful if you are opening a new studio and need to front initial construction costs.
  • Quick turnaround to access funding. In some cases, time to funding can be as little as 48-hours.

The cons:

  • Secured term loans require collateral, often in the form of a personal guarantee. Make sure you are aware of the repayment terms if you opt for a term loan in which lenders claim assets.
  • Lenders require a demonstrated history of profitability in order to assess your qualifications for a loan—usually around two years worth of financial history. So, if you’re a new business, a term loan is likely not the right fit (at least yet).

Alternative Debt Financing Options

If you are considering taking out a loan to jump-start your business, it’s important to look into all of your options. Every business has its own unique financing needs, and a term loan isn’t for everyone.

Merchant Cash Advances

Merchant cash advances are best for established businesses with credit and debit card sales who need funding quickly. The merchant cash advance provider advances you a lump sum of money based on predicted future credit and debit card sales. You pay the money back by remitting a percentage of daily credit and debit card revenues. Be warned: merchant cash advances are one of the most expensive financing options, so weigh your options thoroughly before committing.

Personal Loans for Business

A personal loan for business is an option for business owners who need fast financing and have strong personal credit history. For new businesses that have not established business credit history, taking out a personal loan is an appropriate option. Pros include lower lending limits and unsecured loans. Make sure to do your research to secure the best deal.

Equipment Financing

Buying equipment for your creative endeavors or undertaking a construction project can be costly. Luckily, equipment financing is available to established small businesses with a proven revenue stream. With an equipment loan, the equipment itself is often held as collateral. Depending on how much you borrow, these loans can have shorter or longer repayment terms.

Small Business Administration Loans

Small Business Administration Loans are best suited for startups and businesses who need funding in order to expand. They are also used when borrowers don’t qualify for a traditional loan. The Small Business Administration offers a variety of loan programs. For example, a 7(a) loan may be a good fit if you need long-term working capital to finance inventory purchases, cover expansion costs, or refinance existing business debt. However, when time is of the essence, an SBA loan can be tricky: it often takes a week or even months to get funded.


Regardless of what kind of loan you opt for, it’s important to do your due diligence and weigh your options. If you apply for a term loan, be sure to read the fine print and understand the repayment plan.

As a creative entrepreneur, it won’t be hard to envision how you’ll bring your passion to life, but it’s critical to have a plan outlining how you’ll continue to grow your business.