What is a Long-term Business Loan?
A long-term business loan is any loan that involves a repayment period of over one year. Any form of business-related debt that is to be repaid gradually over the course of time may be considered a long-term business loan.
Business expenses have a range from pennies to millions of dollars. When it comes to big expenses, such as equipment breakdown, hiring new employees, acquiring real estate, etc., a long-term loan is quite a viable option. Long-term business loans allow owners to take care of big expenses up front, paying the lender back over the course of years.
American Business Credit is your one-stop shop for all things business loan. What follows is an FAQ-like series of data, designed to accompany you on your journey toward success in business if you so choose to apply for a long-term loan.
What Can I Spend Long-term Loans On?
A long-term loan is not a specific type of loan. It is simply any loan with a repayment period that is longer than usual, (again, over one year). See the terms and conditions of the actual type of loan you apply for when it comes to how you can use the funds.
What Term Lengths Can I Expect?
The overwhelming majority of long-term loans have a term length of 3-10 years. That being said, some will have lengths that meet or exceed 20 years, especially when it comes to commercial real estate. What actual term length you wind up with will depend on many factors, including but not limited to loan amount, lender policy, and how the funds will be used.
How Are Interest Rates Affected by a Long-term Loan?
First and foremost, your interest rate will be determined by your financial strength – way more so than by your loan’s term length. However, in general, interest rate tends to increase with term length.
Will I Qualify for a Long-term Loan?
The length of a loan’s term is almost always negotiable. Ask your specific lender prior to applying with them. Still, a few general rules apply to qualifying for a long-term loan. You should own at least 20% of your business yourself. You should have a minimum credit score of 600. You should have been in operation for at least two years. Also, be prepared to offer collateral.
If my Credit Score Stinks, can I still Qualify?
Many financial institutions will still offer loans to individuals and/or businesses with poor credit scores, even loans with long-term repayment. Just expect to incur a higher interest rate than average. The number one factor in all of investing is risk, and most investors see a score below 600 as a risk. That should never deter you from seeking investment in your business. After all, no risk, no reward.
Is my Startup Eligible for a Long-term Loan?
Yes, we just said that two years is typically the minimum amount of time an investor would like to see your business have been running. However, it’s not impossible for a startup to receive long-term funding. A strong enough business plan, combined with a healthy financial history, is a heck of a way to start. Prove without a doubt that you can pay the loan back, and you may just qualify.
Why Would my Business Require a Long-term Loan?
Any large expense that can’t be immediately be covered out-of-pocket would suffice as good reason for a long-term loan. You’ll take care of the initial problem and have plenty of time to repay. Maybe you’re expanding, remodeling, acquiring another business, purchasing large amounts of supplies, or maybe you’re refinancing pre-existing debt. Just make sure your return on investment outweighs the total cost of the loan, including fees and interest.
What are the Pros and Cons of a Long-term Loan?
Here are some pros:
- A longer term of repayment entails smaller monthly payments.
- With a strong credit score, an interest rate as low as 5% (even long-term) is possible.
- Using long-term loan capital to consolidate high-interest debt can save lots of money.
- You simply have more time to pay the loan back.
And some cons:
- It’s common for long-term loans to have variable interest rates that fluctuate with the market. This is risky, but can also yield reward.
- Overall costs of long-term loans rank among the higher of all repayment conditions for most loan types.
- Collateral will very likely be required.
- Requesting a long-term repayment schedule could cause for a longer amount of time to lapse before receiving funding.
Where Should I Look for Long-term Loans?
The vast majority of lenders will offer some sort of long-term loan. That being said, many businessowners seek long-term loans through the Small Business Administration, (a government-backed institution which offers low-interest loans for those who qualify), through banks and/or credit unions, or through alternative lending, (a wide range of non-traditional loan options).
Any Final Thoughts?
Yes – we will leave you with this… contact us right now if you have any more questions at all, or if you have any concerns, or just to talk business. American Business Credit exists to serve your business loan needs. This isn’t just a sales pitch. This is us saying that it’s critical to seek expert advice when it comes to applying for ANY type of loan, business-related or not. You’re the expert of your business. We’re the experts of business loans. Contact us today.