Business Loans

Long-Term Business Loan Options

Sep 02, 2022 • 10+ min read
Couple reviewing loan options
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      If you’re looking to make a significant investment in your business, you might consider applying for a long-term business loan. These loans come with low interest rates and fixed repayment terms, so they’re a stable form of financing for companies of all sizes.

      However, it’s important to understand the different types of long-term loans and long term financing available and the pros and cons of taking one out. This article will serve as a guide to finding and applying for a long-term business loan. 

      What Are Long-Term Business Loans?

      A long-term business loan is a loan you’ll repay over a specific period of time. The average repayment term lasts between 5 and 7 years, but some loans come with terms up to 25 years. 

      Long-term loans are typically used to finance a major investment in the company—for example, for the purchase of real estate or equipment, or the hiring of additional employees. When you take out a long-term business loan, you’ll receive the money for such a purchase in one lump-sum payment, which you’ll then repay over time. 

      These loans are usually best for established businesses with good credit history. And the application process can be quite lengthy—when you apply, you can expect to submit the following documentation:

      • Social Security Number 
      • Personal and business tax returns
      • Personal and business bank statements
      • Employer Identification Number (EIN)
      • Proof of business registration
      • Business plan
      • Profit and loss statement
      • Cash flow statement
      • Balance sheet

      Long-Term vs. Short-Term Business Loans

      Long-term business loansShort-term business loans
      Interest rates are usually low.Interest rates are typically higher than those of long-term loans.
      Repayment terms are typically between 5 and 7 years.Repayment terms are usually less than a year.
      Required documentation is usually extensive.Application process is less intensive, because the loan amounts are smaller.
      Only established businesses with excellent credit tend to qualify.Startups and individuals with poor credit are more likely to qualify than with long-term loans.

      Occasionally, your business may need a quick infusion of cash to help you get through payroll or manage your working capital needs. In this scenario, it may make sense to apply for a short-term business loan.

      The biggest difference between short-term and long-term business loans is that long-term loans are designed for long-term investments. In comparison, short-term loans can help you meet your immediate financial needs. 

      Short-term business loans are usually available in smaller amounts and have to be repaid in less than a year. These loans also typically come with higher interest rates than long-term business loans.

      However, the application and approval process is less extensive than that of long-term loans. And it may be easier for startups and borrowers with poor credit to qualify for a short-term business loan. 

      Types of Long-Term Business Loans

      There are several different types of long-term small business loans available depending on your business’s needs. Here are four different loan types you can choose from. 

      SBA loans

      An SBA loan is a business loan that’s backed by the Small Business Administration (SBA). Since the SBA partially guarantees the loan, this lowers some of the risk to lenders. 

      And these loans often come with low interest rates and lengthy repayment terms. SBA loans come in all shapes and sizes, with loan amounts between $500 and $5.5 million and repayment terms between 5 and 25 years. 

      However, SBA loans can be difficult to qualify for and the approval process can take a long time. If you decide to go this route, you should expect to provide your lender with extensive paperwork. And it may take several months for you to receive the funding for your loan.  

      Bank Loans

      Another option is to apply for a term loan through a bank. Like SBA loans, bank loans come with low interest rates and lengthy repayment terms, making them an affordable way for small businesses to get access to financing. 

      However, these loans are best for established businesses with excellent credit history. You can expect to provide a lot of documentation when you apply, and the approval process will take longer than other types of loans. 

      Equipment Financing

      Equipment financing is a form of business financing that’s used to purchase business-related equipment or machinery. These loans can be a good option for heavy equipment needs, like restaurants and manufacturing and construction firms.

      This business financing allows you to purchase the expensive equipment you need, and break the cost into manageable monthly payments. And since the equipment serves as collateral for the loan, equipment financing may be easier to qualify for. 

      Commercial Real Estate Loans

      A commercial real estate loan is a loan used to purchase property for your business, like an office, warehouse, or retail location. These loans are offered by the SBA, banks, credit unions, and online lenders. 

      Commercial real estate loans can be used to purchase new property, renovate an existing location, or even refinance your real estate debt. These loans are available up to $2 million, and usually come with repayment terms between 5 and 20 years. 

      Pros and Cons of Long-Term Business Loans

      A long-term business loan can help you finance a major business investment, but it isn’t the best choice for everyone. It’s important to understand the pros and cons of these loans before applying. 

      Pros
      • These loans typically come with lower interest rates and fixed payment terms.
      • Long-term business loans come with low fees compared to other types of loans.
      • Most lenders don’t put any restrictions on how you can spend the funds.
      • These loans can help you build your business credit. 
      Cons
      • These loans come with a lengthy approval process, especially if you apply for an SBA loan.
      • It may be hard for borrowers with poor credit to qualify for a long-term business loan.
      • Lenders usually prefer to give long-term business loans to established businesses.
      • You may be required to put down some type of collateral to secure the loan. 

      How to Qualify for a Long-Term Business Loan

      Here are the four steps you’ll take to apply for a small business loan.

      Decide Which Type of Loan You Need

      There are several types of long-term business loans you can choose from. The one that’s best for you will depend on where you’re at in your business and what you plan to use the funds for.

      For instance, if you’re an established business and are looking for low rates and flexible repayment terms, you may want to consider a bank or SBA loan. If you need to purchase equipment or large machinery, then equipment financing may be the right choice for you.  

      Start the Application Process

      Once you know what type of loan you need, you can start the application process. Depending on the type of lender you work with, you’ll either complete this online or in-person. 

      When you apply, the lender will ask for some basic information about you and your business. They will also check your credit score to determine how risky you are as a borrower. A low credit score doesn’t necessarily rule you out from qualifying for a business loan, but you may receive a higher interest rate. 

      Provide the Necessary Documentation

      Next, you’ll have to go through the approval process and provide the necessary documentation. The exact documents required and timeline for approval will depend on the lender you’re working with. 

      For instance, online lenders tend to offer a shorter approval process and faster funding. Whereas if you’re applying with a bank or the SBA, you can expect the approval and funding process to take much longer. 

      Compare Your Options 

      And finally, you don’t want to just take the first business loan that’s offered to you—it’s a good idea to compare loan offers from several different lenders. Comparing your options will help you find the loan with the best rates and terms. You should also consider any fees those lenders charge, like origination fees, late fees, and prepayment penalties.

      Comparing your loan offers is easier when you use a service like Lendio. With Lendio, you apply for a loan once and receive offers from multiple lenders. 

      The Bottom Line

      A long-term business loan is a loan that’s repaid over a specific period of time. You’ll receive a one-time lump sum payment, which you can use to invest in long-term business growth. 

      If you’re looking for a way to compare small business loan options, you may want to consider using Lendio. We offer a variety of small business loans, including SBA loans, term loans, cash advances, and much more. 

      We offer a secure online application process, and you’ll receive loan options from our network of over 75 lenders. This will help you find the right business loan for your situation. 

      FAQs

      The exact credit requirements will depend on your lender and the type of loan you’re applying for. For instance, SBA and bank loans usually require good to excellent credit history. Whereas online lenders may be more flexible about the credit requirements. However, you can expect to receive higher interest rates if you have poor credit history.

      Most long-term business loans come with repayment terms between 5 and 7 years, but some loans are available with 25-year repayment terms. The repayment terms will also depend on your lender and the type of loan you’re applying for.

      A short-term business loan is typically used for working capital and other daily expenses in your business. These loans are available in smaller sums and typically come with repayment terms that are under a year. 

      A long-term business loan is used for long-term business investments, and typically comes with repayment terms that are over a year. For instance, a 24-month business loan would be considered a long-term business loan. 

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      The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. Any content provided by our bloggers or authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything. The information provided in this post is not intended to constitute business, legal, tax, or accounting advice and is provided for general informational purposes only. Readers should contact their attorney, business advisor, or tax advisor to obtain advice on any particular matter.
      About the author
      Jamie Johnson

      For the past five years, she's dedicated more than 10,000 hours of research and writing to more than 2,000 articles about personal finance topics, including building credit, mortgages, and personal and student loans.

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