Long Term Business Loans

A loan taken out by a small business for a period of 3 to 10 years is referred to as a term loan. Long term business loans allow business owners to increase investment in their businesses and thus pave the path towards possible significant success and growth in the future. It permits firms to be able to afford big expenses by repaying such an expense in affordable monthly payments. Expenses for businesses can be varied and can include remodeling of the factory, purchase of new equipment, etc. Without the help of long term business loans, companies may not be able take that leap from survival in the short-term to growth strategizing in the long-term.

Working of long term business loans

Small businesses generally take out long-term business loans in the range between $30,000 and $250,000, but it can be more as well. The tenure of repayment for such loans typically varies between 3 and 10 years, but it can be more than 20 years as well. The amount of loan and the term is dependent on the amenability of the lender and the needs of the small business. The loan amount has to be repaid by the borrowing company along with interest in the form of monthly payments till the loan term finishes. In some cases, the lenders may permit the borrower to repay every quarter.

Long term business loans are generally taken out by companies for buying particular items that will contribute towards the growth of the firm and increase revenue and profits. Such items can be vehicles, machinery, tools, and real estate, etc. When taking out a long term business loan, companies generally follow one rule, i.e., the term of the loan has to be shorter than or as long as the usefulness of the item that the loan is taken out for. Thus, if a firm wants to purchase a truck, then that truck has to remain useful for the term of the loan or for more than the term of the loan. Long term business loans is not considered to be a good option for purchase of new software systems as software typically needs to be updated within a few years.

The current assets (real estate, inventory, vehicles, etc) of the firm typically acts as collateral for long term business loans. Thus, if the company defaults on the loan then the lender can collect the firm’s assets, sell it, and recover some of the money lent as loan. Companies may usually find it very hard to secure a long term business loan without a good credit score, collateral, and a solid business history.

Advantages and Disadvantages of long term business loans

Some of the benefits of long term business loans are

  • The interest rates are often very low
  • The interest rates are fixed and the monthly repayments are also fixed
  • The credit score of the company can get a boost with the successful repayment of the loan
  • Lenders generally do not direct companies on how they need to use the borrowed money
  • Such loans permit companies to plan for easy repayments

Some of the disadvantages of long term business loans are

  • Long term business loans involve excessive levels of paperwork
  • In some cases, companies may just be plain ineligible for such loans and hence will not be able to avail it
  • Its timeline for time-to-fund is quite lengthy
  • It is necessary for firms to have been in operation for a minimum of 2 years. They also have to provide collateral and should have a robust credit score
  • The processing time for documentation is generally long and arduous