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Long Term Business Loan Options For Small Businesses

Long Term Business Loan Options For Small Businesses
Written by Publishing Team

Smart business owners know they can do more with extra working capital. And when they don’t have extra cash, they take out small business loans.

Sounds simple, doesn’t it? There are actually many types of business loans, so to find the best one for you, do your homework.

Let’s start this journey by understanding 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 have longer repayment periods, sometimes up to 25 years.

The interest rates for these types of loans may be lower than those for short-term loans, depending on your qualifications and lender approval criteria.

How do long term business loans work?

Once you are approved for a long-term loan, the loan amount and repayment terms are presented to you. You will be notified of the time period in which you have to repay the loan. You’ll usually be able to pay off the loan sooner, but look out for prepayment penalties, as some lenders charge them a fee.

What are the types of long-term business loans?

Now let’s look at the types of loans that are considered long-term.

bank loans

Many banks and credit unions offer long-term loans to businesses with low interest rates. To qualify, you will need to have established your business for at least two years and have good personal credit scores.

Business line of credit

If you do not want a large amount of money at the same time, a line of credit is a good option for long-term loans. You pay off what you borrow against the line and can continually borrow and pay back over time.

Note that sometimes the line of credit must be paid off within a few months, but the line is open indefinitely, so we include it in our long-term loan options.

SBA Loans

The U.S. Small Business Administration offers several long-term loan programs such as SBA 7(a), Small Loans, and 504 Loans. Some have repayment periods of up to 25 years.

commercial real estate

If you need to purchase real estate such as an office building or commercial property, know that the loan will not have to be repaid anytime soon. This makes getting a $1 million loan, for example, more feasible if you have contracts to pay it back.

Best Financing Options for Long Term Business Loans

Now that you have a better idea of ​​what type of loan might be good for you, let’s take a look at some commercial lenders that offer great loan options for getting the best long-term business financing.

Medium Term Loan Options

If you want a loan longer than a few months but less than 25 years, Kapitus has a five-year medium term loan of up to $5 million. Credibility Capital lends up to $500,000 with repayment periods ranging from one to five years.

Line of Credit Options

OnDeck, Fundbox, and Kabbage offer lines of credit.

OnDeck offers lines of credit from $6000 to $100,000, with payment terms of one year.

Fundbox offers financing options of up to $150,000 with repayment terms of up to 12 or 24 weeks. You can borrow money again once you pay it off.

Cabbage has lines of credit ranging from $1,000 to $150,000. Each withdrawal must be repaid within six, 12 or 18 months, and can be borrowed back.

Long Term Loan Options

You have two options in this category, including OnDeck and Newtek. With OnDeck you can borrow $5,000 to $250,000 and pay it back over two years. Newtek offers long-term loans from $1,000 to $15 million, with tenures ranging from seven to 25 years.

SBA Loan Options

Smartbiz is a great option for SBA 7(a) loans. You can borrow $500,000 to $5 million with a repayment period of 25 years.

Long-Term Business Loans vs. Short-Term Business Loans

So in the long run, is a long-term loan better for you?

Here’s an important thing to note: Long-term loans may have lower interest rates, but you can still pay more interest overall, since you’re paying it over years, not months.

If you borrow $1 million at 3%, with a 25-year repayment, you’ll pay 3% over the life of the loan. If you borrow $10,000 and pay it back in two years at 10% interest, while the interest rate is higher, you may pay less interest overall because it is a much shorter term.

In fact, if you have bad credit, you may not qualify for long-term bank loans or SBA loans. Your only option may be to get short term loans with alternative lenders with higher interest rates. Keep in mind that some online lenders also charge set-up fees, so this can add to your expenses.

Sometimes a shorter period is better, as when purchasing equipment. Since equipment has a limited life, equipment financing tends to have repayment periods of a few years.

If you don’t qualify for a longer repayment period, perhaps because you’re running a new startup and haven’t yet built your credit, look at loans that require a minimum credit score or that look at other factors, such as your annual revenue. You may also qualify for business credit cards.

Other than that, you can take time building your credit so that you are eligible for long-term business loans at low interest rates.

What is the longest term of a business loan?

Borrowers need to understand how long they will have to pay their monthly installments Before take out a loan. Each type of loan may have different terms. On the short end, you may only have one year to pay off the loan.

On the other end of the spectrum, some loans can be repaid over 25 years. These tend to be larger loans, such as mortgages or SBA loans.

How to Qualify for Long Term Business Loans

Before beginning the application process, find out what the lender requires to approve your loan. Are there business or personal credit score requirements? Do you need a certain amount of annual revenue? How long do you have to be at work?

Well-established companies with a proven track record of financial stability may have an easier time getting lower interest rates, so look at your qualifications to understand what kind of rates you may qualify for.

Before applying, review the documents you will need to submit. Bank loans 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 on.

How to choose the right long-term business loan

The type of financing your business needs is unique and unparalleled. If you’re looking for long-term financing, explore options with traditional banks, credit unions, and online lenders.

Before applying, make a plan for how the loan proceeds will be used. Are you looking to expand your business or just keep your cash flow steady? Can you afford to pay installments every month? How will money help you expand your business?

Small business owners need to monitor 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.

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