Are you planning to expand your business and need long-term financing options? Growth often requires significant capital. The good news is that long-term business loans are available to help you manage costs without straining your cash flow.
In this article, you’ll learn about common long-term loans examples and how they can provide the financial support you need for a successful expansion. Whether you’re aiming to grow now or preparing for future opportunities, understanding long-term business loans can help you make smarter financial decisions for your business.
What are Long-Term Loans?
So, what is a long-term loan? It is a straightforward way for your business to get financing. You’ll receive a lump sum of money upfront and repay it through fixed, regular installments (usually monthly), over an extended period (typically 3-25 years), plus interest.
The usual repayment period for long-term business loans is flexible, depending on factors like your business’s cash flow, revenue, business and personal credit score, loan amount, and how you plan to use the funds. In many cases, requirements for long-term loans include collateral—assets that act as security for the loan, such as real estate, equipment, invoices, or inventory.
Once approved, you can access loan amounts ranging from $500,000 to $5 million (for SBA loans). You can then use these funds for a variety of business needs, including:
- Working capital
- Expanding your business
- Purchasing inventory and supplies
- Covering payroll
- Hiring new employees
- Renovating or improving your facilities
- Acquiring another business
- Buying equipment
- Refinancing existing debts
Business lenders typically offer competitive interest rates because long-term loans have extended repayment periods. If you provide valuable collateral, you may even qualify for lower rates thanks to the added security.
How Do Long-Term Business Loans Work?
1. Apply for the loan – You must submit an application showing your business’s financial health, credit score, and how you plan to use the money.
2. Get approved – If approved, you’ll receive a lump sum of money that can be used for business expenses like equipment, renovations, or expansion.
3. Repayment – You’ll pay back the loan in fixed monthly payments over 3 to 25 years. Each payment includes part of the loan amount (the principal) and interest.
4. Collateral – Lenders may require collateral, such as real estate, equipment, or inventory, to secure the loan. If you don’t repay, the lender can take the collateral.
A long-term business loan is ideal for covering large expenses like business expansion, equipment purchases, or refinancing debt, giving you time to pay it off gradually.
Types of Long-Term Financing Options for Businesses
1. Small Business Administration (SBA) Loans
The SBA loan 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 SBA loan has repayment terms that can last up to 25 years, depending on the amount borrowed. SBA long-term loans can be as much as $5 million. The borrower and lender agree upon the interest rates, but they can’t exceed the maximums set by the SBA, which are tied to the prime rate or an optional peg rate.
To be eligible for an SBA long-term business 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
2. Business Line of Credit
With a business line of credit, lenders assign you a credit limit on which you are free to withdraw whenever you need to. You only have to repay the money you’ve withdrawn plus the interest. You can pay weekly or monthly, depending on the terms you and the lender have agreed to. Since it’s structured as a revolving credit, your credit limit will be restored to the original amount once you’ve paid your long-term loans. You can 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 around 8.99%. Startup businesses and those with a limited credit history typically apply for a line of credit 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. 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 start at 7.99%.
4. Multi-Year Term Loan
A multi-year term loan is designed for businesses that need funding over a period of 2 to 10 years. This type of loan helps cover major costs like business expansion and provides extra cash flow to keep daily operations running smoothly. One key advantage of a multi-year term loan is its low monthly payments, making it easier to manage alongside your other business expenses.
Loan amounts for multi-year term loans range from $25,000 to $5 million, giving you flexibility depending on your needs. Interest rates typically start at 8.99%, which is competitive for this type of financing. Whether you want to grow your business or maintain steady cash flow, a multi-year term loan can be a solid option for long-term financial stability.
5. Asset-Based Loan
An asset-based loan is a common type of secured loan that uses your business assets as collateral. This means the loan is backed by the value of your inventory, real estate, equipment, accounts receivable, marketable securities, or even intellectual property. The most common assets used for these loans are accounts receivable (money owed to you by customers) and inventory.
Asset-based loans are flexible and can provide anywhere from $25,000 to $10 million, depending on the value of the assets you pledge. Interest rates usually start at 7.99%, making it an affordable option for businesses with valuable assets. This type of loan can be helpful for ventures needing a significant amount of capital, but it requires careful management of the assets used as collateral to avoid any risks.
Pros and Cons of a Long-Term Business Loan
Long-term business financing allows businesses to access larger amounts of capital with more manageable monthly payments. However, not all types of long-term loans work for every business. Therefore, it’s important to weigh both the benefits and challenges before making a decision.
Pros:
Predictable Loan Repayment
Long-term business loans spread out repayment over several years, so you’ll have lower, more manageable monthly payments. This helps maintain healthy cash flow, allowing you to cover ongoing expenses like payroll, rent, and inventory without straining your finances.
Higher Loan Amounts
With long-term loans, you can borrow large sums of money, often ranging from $25,000 to several million dollars. This can provide the capital needed for significant investments such as expanding your business, purchasing equipment, or acquiring another company.
Better Interest Rates
Longer repayment periods often come with lower interest rates than short-term business loans, especially if you provide collateral. This makes long-term small business loans more affordable over time and can save your business money in interest payments.
Flexible Usage
Long-term business loans can be used for a variety of purposes, from funding business growth to purchasing equipment or refinancing existing debt. This flexibility allows you to address multiple financial needs with one loan.
Cons:
Longer Commitment
A long-term loan requires a longer commitment, sometimes up to 25 years. This means your business will be obligated to make payments for many years, even if your financial situation changes. If business conditions decline, it may become challenging to keep up with the payments.
Collateral Requirement
Many long-term loans require collateral, such as property, equipment, or inventory, to secure the loan. If your business fails to make payments, the lender can seize these assets, putting your business at risk of losing valuable resources.
Lengthy Approval Process
Getting approved for a long-term loan can take time. Lenders usually require extensive documentation, including financial statements, credit reports, and proof of collateral. This can slow down the process if you need funds quickly.
Higher Total Interest Costs
While the interest rate may be lower, the total amount of interest you pay over the life of a long-term loan can be substantial. Since the loan is spread over many years, the overall cost of the loan might be higher compared to a short-term business loan.
How to Get a Long-Term Loan Through SMB Compass
Getting a long-term business loan is a straightforward process. Here’s how it works in three easy steps:
- Simple Online Application ProcessFill out our secure online form in just a few minutes to check your eligibility. We’ll collect important details about your business, like annual revenue, to get a clear picture of your financial health.
- Minimal Documents, Fast ApprovalYou only need to provide a few essential documents, such as bank statements or tax returns, which can be securely uploaded. We streamline the paperwork process to ensure quick approval and avoid unnecessary delays.
- Quick Access to FundsOnce approved, we take care of the final steps and deposit the funds directly into your account. You’ll have immediate access to the capital, allowing you to focus on growing your business.
Tips for Comparing Your Long-Term Loan Options
When comparing long-term small business loans, several key factors must be considered. Each can impact the total cost of your loan, how it fits into your business, and your overall experience with the lender.
- Interest RatesInterest rates play a significant role in determining how much you’ll pay over the life of the loan. Even a slight difference in rates can add up over time. Be sure to compare fixed versus variable interest rates, as fixed rates remain the same, while variable rates can fluctuate. A lower rate may mean more affordable monthly payments, so finding the best rate for your situation can save your business a lot of money.
- Minimal Documents, Fast ApprovalYou only need to provide a few essential documents, such as bank statements or tax returns, which can be securely uploaded. We streamline the paperwork process to ensure quick approval and avoid unnecessary delays.
- Quick Access to FundsOnce approved, we take care of the final steps and deposit the funds directly into your account. You’ll have immediate access to the capital, allowing you to focus on growing your business.
- Loan AmountsEvaluate whether the loan offers enough business funding to meet your needs. Some traditional or online lenders may offer higher loan amounts, which can be useful if you’re planning a large expansion or major purchase. On the other hand, you don’t want to borrow more than necessary, as this can increase the amount of interest you’ll pay. Make sure the loan amount aligns with both your short-term and long-term financial goals.
- Repayment TermsRepayment terms define how long you have to pay back the loan. Longer loan terms lower your monthly payments, making it easier to manage cash flow, but they may result in more interest paid over time. Shorter loan terms help you pay off the loan faster, reducing the overall interest cost, but can increase your monthly payments. Consider your business’s current and future financial situation when deciding which term length works best.
- Collateral RequirementsSome lenders may require you to pledge assets like real estate, inventory, or equipment as collateral to secure the loan. If you fail to repay, the lender could seize these assets. Understanding what’s at risk and ensuring you’re comfortable with these loan terms is essential, as this requirement can affect your business’s financial stability if things don’t go as planned.
- FeesAdditional fees can significantly impact the overall cost of the long-term business loan. Watch out for origination fees, application fees, and penalties for early repayment. Some lenders charge extra for paying off the loan before the term ends, which can be frustrating if you plan to pay it off early to save on interest. Be sure to read the fine print to understand all associated costs before committing to a loan.
Alternatives to Long-Term Business Financing
If any of the long-term business loan options mentioned above don’t seem like the best fit for your business, you can consider several other financing options. Each alternative offers different benefits, depending on your business’s needs and situation.
Invoice Financing
Invoice financing allows you to borrow money based on your outstanding invoices. A lender advances you a percentage of the invoice value, and once your customers pay, you settle the balance with the lender. This option is especially useful if your business faces delays in receiving customer payments, helping you maintain a steady cash flow. The downside is that fees can add up quickly and are only viable if you have reliable accounts receivable.
Merchant Cash Advances (MCA)
With a merchant cash advance, you receive a lump sum of money upfront and repay it through a percentage of your daily sales. This option works well for businesses with high credit card transaction volumes. It’s fast and easy to get approved, but MCAs often come with very high fees and can put pressure on your cash flow if sales slow down.
Crowdfunding
Crowdfunding platforms allow businesses to raise money from a large group of people, usually through online platforms. You present your business idea or product, and people contribute funds in exchange for rewards or equity. Crowdfunding is great for start-ups or businesses with innovative products, but it can be time-consuming to manage and may not always reach the funding goals you set.
Revenue-Based Financing
Revenue-based financing provides capital in exchange for a percentage of your future revenue. Payments are based on your monthly revenue, meaning you pay more when business is good and less when revenue slows. This flexible repayment model can be attractive to companies with fluctuating income, but it’s important to understand that costs can be higher due to the variable nature of repayments.
The Bottom Line
To wrap up, long-term business loans offer a great way to finance growth, large purchases, or significant projects for your business. Choosing the right loan type and repayment terms is key to ensuring your business thrives while managing financial commitments.
Ready to Secure Your Long-Term Funding?
Apply now to compare the best loan options available to you. If you have any questions or need guidance on how to get a long-term loan, don’t hesitate to reach out at info@smbcompass.com or give us a call at 888-853-8922. Our team at SMB Compass is always ready to help you take the next step toward growing your business!
Common Questions. Straight Answers.
What is the longest term you can get on a business loan?
The longest term you can secure on a small business loan depends on the type of loan and the lender you choose. Generally, most long-term business loans offer repayment periods of up to 25 years, especially for significant investments like commercial real estate or major equipment purchases. However, some specialized loans, like a commercial real estate loan, might offer terms that extend beyond this, particularly for large-scale projects or government-backed financing.
Can I get a business loan for 20 years?
Yes, a 20-year small business loan is possible, but qualifying for such a long-term loan often requires meeting strict criteria. Lenders typically look for established businesses with strong financial performance, solid credit history, and a clear plan for using the loan. In many cases, you may also need to offer collateral, like real estate or valuable assets, to secure the loan and reduce the risk for the lender.
Does the SBA offer long-term loans?
Yes, the SBA offers long-term loans through programs like the SBA 7(a) and SBA 504 loans. These loans are specifically designed to help small businesses access capital with favorable terms. SBA loan programs can have repayment terms of up to 25 years, particularly for real estate purchases, making them an excellent option for businesses looking for long-term financing with lower interest rates and flexible terms.
How many years can you pay off a business loan?
The number of years you can take to repay a business loan depends on the loan type and the lender’s terms. Short-term loans usually have repayment periods of 1 to 3 years, while long-term loans can range from 10 to 25 years. For example, equipment financing might have a term that matches the lifespan of the equipment, whereas real estate loans tend to have longer terms.
