5 Types of Long-Term Business Loans
Ezra Cabrera
5 Types of Long Term Business Loans
Are you planning to expand your small business in the future? Along with the excitement that comes with business expansion, there are the costs and burdens that most owners experience. Expanding your business isn’t easy on the wallet, but fortunately, there are long term business loans that can help you cover the costs of expansion.
The start-up costs of opening a business, alone, require business owners to prepare a significant amount of money. While they may be able to afford that, they still need to think about the day to day operation expenses, as well as the staff’s salaries. Since they’re still in the early stage of business, it’s possible that there’s still a long way to go before they can break even. They would need to improve their services and purchase more equipment before they can expand.
Entrepreneurs apply for long term business loans for that reason.
Long term business loans typically provide a large amount of money upfront that is often paid back regularly. It can be weekly, monthly or quarterly, depending on the lender – over several years. This type of loan is best for businesses looking to invest in long-term growth like buying real estate, purchasing equipment, or expanding office space. Long-term debt becomes short-term when the period of repayment becomes less than a year.
Here are five types of business loans you can consider when looking to secure long-term financing:
1. Small Business Association (SBA) Loans
The SBA 7(a) and the CDC/504 loans are perfect for small businesses looking to buy new equipment, purchase real estate, or renovate a property. This type of long-term loan has repayment terms that can last up to 25 years, depending on the amount that is borrowed. The loan amounts available range from $100,000 to $5 million with interest rates that generally range from 5.25% to 7.75%.
To be eligible for an SBA loan, you must meet the following requirements:
- Good credit background
- No history of default payments for government-backed loans
- Must be in the business for a minimum of 2 to 3 years
- Show that you’ve exhausted all financing options
Related: 3 Ways Your Business Can Benefit From SBA Loans
2. Business Line of Credit
With a business line of credit, lenders assign you a credit limit which you are free to make withdrawals on whenever you need to. You only have to repay for the money you’ve withdrawn plus the interest. You can pay either weekly or monthly, depending on the terms you and the lender has agreed to. Once you’ve paid your loan, your credit limit will be restored to the original amount. You can then withdraw from your line of credit again whenever the situation calls for another loan.
With a business line of credit, loan amounts range from $10,000 to $5 million and interest rates are usually 5.25% to 29.99%. Start-up businesses usually avail this type of loan because it’s easy to qualify for. They can also choose whether they want to secure the loan or not.
3. Equipment Financing
With equipment financing, lenders provide you with the money you need to buy or upgrade equipment. Repayment terms are usually made through affordable scheduled payments. This means you won’t have to pay for the equipment out-of-pocket.
The upside of equipment financing is that you won’t have to present collateral to secure the loan. The equipment you buy using the loan will serve as the guarantee. This means that if you default on payments, the bank or lender has the right to seize the equipment to pay for the loan.
The loan amounts range from $25,000 to $5 million and interest rates run from 5.25% to 24.99%.
4. Multi-Year Term Loan
A multi-year term loan has a repayment schedule of two to five years. In addition to covering the costs of business expansion, a multi-year term loan provides you with sufficient cash flow for daily business operations, and comes with low monthly payments.
The loan amounts range from $25,000 to $5 million and interest rates range from 5.99% to 18.99%.
5. Asset-Based Loan
As its name implies, an asset-based loan is a type of financing where assets are used to guarantee the loan. Most lenders regard collateral such as inventory, real estate, equipment, accounts receivable, marketable securities, and intellectual property (accounts receivable and inventory being the most important) as acceptable assets that can secure this type of loan
Related: Two Main Types of Asset-Based Loans
The loan amounts range from $25,000 to $10 million and interest rates are usually set at 7% to 12%.
Want to Know More About Long-Term Loans Examples?
Are you interested in applying for a long-term loan? The above examples are sure to address the needs of your business. Be sure to know more about it before applying. Though loans are of big help to your business, it will only be able to do so much if used responsibly.
