Smart business owners know they can do more with a little extra working capital. And when they don’t have extra cash available, they take out small business loans.
Sounds simple, doesn’t it? There are actually many types of business loans, so to find the one that’s best for you, you’ve got to do your homework.
Let’s start that journey by understanding a little more about long-term business loans.
What is a Long Term Business Loan?
Business loans have different repayment terms. Some need to be repaid within a few months. But long term business loans typically have longer repayment periods, sometimes as much as 25 years.
Interest rates for these types of loans may be lower than those for short term loans, depending on your qualifications and the lender’s approval criteria.
How Do Long Term Business Loans Work?
Once you are approved for a long term loan, you are presented with the loan amount and repayment terms. You’ll be told the period of time you have to repay the loan. Typically you are able to pay the loan off sooner, but look out for prepayment penalties, since some lenders charge them.
Which Types of Business Loan are Long Term?
Now let’s look at which types of loans are considered long term.
Bank Loans
Many banks and credit unions offer long term loans to businesses with low interest rates. To qualify, you’ll need your business to be established for at least two years and have good personal credit scores.
Business Line of Credit
If you don’t want a large amount of money all at the same time, a line of credit is a good option for long term loans. You pay back what you borrow against the line and can continually borrow and repay it over time.
Note that sometimes the line of credit has to be repaid within a few months, but the line is open indefinitely, so we’re including it in the long term loan options.
SBA Loans
The U.S. Small Business Administration offers many long term loan programs like the SBA 7(a), microloans, and 504 loans. Some have repayment periods as long as 25 years.
Commercial Real Estate
If you need to purchase real estate like an office building or commercial property, know that a loan won’t need to be repaid any time soon. This makes taking out a loan of, say, $1 million, more feasible if you have decades to repay it.
The Best Financing Options for Long Term Business Loans
Now that you have a better idea of the type of loan that might be good for you, let’s look at some of the business lenders that offer great loan options for the best long-term business financing.
Intermediate Term Loan Options
If you want a loan longer than a few months but less than 25 years, and are both favorable options:
Line of Credit Options
OnDeck, Fundbox, and offer lines of credit.
offers , with .
offers funding options of with . You can borrow the funds again once they’re repaid.
offers funds in the range of . The repayment terms vary:
Long Term Loan Options
You’ve got a couple of options in this category, including OnDeck. With the you can borrow and repayment of .
SBA Loan Options
is a great option for SBA 7(a) loans. You can borrow with .
Long Term vs. Short Term Business Loans
So in the long run, is a long term loan better for you?
Here’s something important to note: longer term loans may have lower interest rates, but you still may pay more in interest overall, since you’re paying it over years, not months.
If you’ve borrowed $1 million at 3%, with repayment of 25 years, you’ll be paying that 3% over the life of the loan. If you borrow $10,000 and repay it within two years at 10% interest, while the interest rate is higher, you may pay less interest overall since it’s a much shorter term.
In truth, if you have bad credit, you may not qualify for long term bank loans or SBA loans. Your only option may be to take out shorter-term loans with alternative lenders at higher interest rates. Keep in mind that some online lenders also charge origination fees, so that can add to your expense.
Sometimes a shorter period is better, such as when you buy equipment. Because equipment has a limited lifespan, equipment financing tends to have repayment periods of a few years.
If you don’t qualify for a longer repayment period, maybe because you run a new startup and haven’t yet built your credit, look at loans that have a minimum credit score requirement or that look at other factors, such as your annual revenues. You may also qualify for business credit cards.
Otherwise, you can take time to build your credit so that you qualify for long-term business loans with low interest rates.
What is the Longest Term for a Business Loan?
Borrowers need to understand how long they’ll have to make their monthly payments before taking out a loan. Each type of loan may have different term lengths. On the short end, you may have just a year to repay a loan.
On the other end of the spectrum, some loans can be repaid over 25 years. These tend to be larger loans, like those for real estate or SBA loans.
How to Qualify for Long Term Business Loans
Before starting the application process, find out what a lender requires to approve you for a loan. Is there a business or personal credit score requirement? Do you need a certain amount of annual revenue? How long must you have been in business?
Established businesses that have a proven track record of financial stability may have an easier time getting lower interest rates, so look at your qualifications to understand what sort of rates you might qualify for.
Before applying, see what documents you will need to provide. Bank and SBA loans may want more financial information, such as tax returns, financial statements, and bank statements. They may also look at your credit history, so take a look for yourself before applying to see what you’re working with.
How to Choose the Right Long Term Business Loan
The type of financing your business needs is unique and like no other. If you’re looking for long-term financing, explore options with traditional banks, credit unions, and online lenders.
Before applying, have a plan for how you’ll use the loan proceeds. Are you looking to expand your business or just keep cash flow steady? Can you afford to make repayments each month? How will the money help you expand your business?
Small business owners need to keep an eye on the future of their companies, and long term business loans are a great tool to help.
This article was originally written on January 7, 2022 and updated on February 3, 2023.
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