As business magnate Warren Buffett wrote, “Cash is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.” If you’re looking for cash to purchase property or new machinery, a long term loan can help you get the funds you need to meet your goals.
Long term business loans, as a definition, are a type of financing meant to be repaid in years, not months. Terms can extend 5, 10 or 25 years, depending on the loan type and lender.
Best Long Term Small Business Loans
When you’re thinking about what might be the best long term small business loan, you might instantly think of a conventional bank term loan. While conventional bank loans can offer competitive rates and terms, the application process can be lengthy and approval requirements difficult to meet. Here are additional options to consider if you’re seeking to stretch your financing costs and payments over more than a year.
An SBA loan refers to loans offered through lenders that partner with the Small Business Administration (SBA), a federal government agency. Depending on the type of long term small business loan, repayment terms can range from 5-25 years.
With this type of funding, the SBA guarantees a certain percentage of each approved loan — up to 85% in some cases. With the assurances the SBA provides, these long term business loans equate to less risk for lenders. Borrowers who’ve been denied for conventional bank loans can often qualify for SBA loans.
SBA 7(a) Loans
SBA 7(a) loan repayment terms range from 7-25 years, with loan amounts of up to $5 million per borrower available. SBA 7(a) loans can be used for long term working capital, property purchases, site improvements, construction projects, inventory purchases, working capital, debt refinancing and more. Time to funding for this type of long term business loan can range from 60-90 days.
SBA Express Loans
If you’re looking for a fast-track long term business loan, consider an SBA Express loan. Repayment terms range from 5-10 years, and approval and funding for these loan types can be as quick as 30 days. The tradeoff is usually a higher interest rate than you’d find with a 7(a) loan as well as lower loan limits, with a maximum loan amount of $350,000.
Term loans are a type of longer term business loan offered through banks as well as non-bank lenders. Term loans are sometimes referred to as medium term business loans, and repayment terms can range from 1-5 years. Some lenders will fund long term small business loans up to $500,000, making them ideal for costly investments, debt refinancing, long term working capital or more.
Long Term Business Loans for Bad Credit
While the term “bad credit” means something different to everyone, if you’re looking for long term business loans for bad credit because you have a less-than-stellar credit score, consider the following options.
Business Lines of Credit
If your credit score is in the high 500s and your business has at least 6 months in business, you could qualify for a business line of credit. A business line of credit is a type of long term business loan that is similar to a credit card. How? When you’re approved for a business line of credit, a lender grants you a certain credit limit that you can tap into as you need.
Like a credit card, you don’t have to use that credit line right away. You can wait until you need funds, and even then, you don’t need to use your entire credit limit at one time. Lines of credit can remain open for several years. Plus, most business credit lines are revolving, meaning as you pay down your debt, your credit line increases accordingly, up to your original credit limit.
If your credit score is in the high 500s to low 600s, you could qualify for equipment financing to loan or lease equipment. If your long term business loan needs are exclusive to the purchase of machinery, consider this type of funding. With equipment financing, the length of your repayment term generally doesn’t exceed the useful life of the equipment you’re acquiring. A long term business loan for equipment would likely extend 5 years.
Long Term Business Loan Interest Rates
Long term business loan interest rates vary depending on different factors, such as lender, loan type, loan amount and borrower credit history.
For instance, the maximum interest rate that lenders can charge for SBA 7(a) loans range based on loan amount and repayment term, from a base rate plus 2.25% on the low end to a base rate plus 4.75% on the high end. The former rate is for loans of $50,000 or more that mature in less than 7 years. The latter is for loans of $25,000 or less with a maximum maturity of more than 7 years.
Term loan interest rates can start at 7% and go into the double digits. Business line of credit interest rates can be found as low as 5%-8%, though it’s not uncommon to see significantly higher rates too, depending on the lender, loan amount and creditworthiness. You can find many equipment loans with interest rates starting in the single digits, at 8% in some cases.
Advantages of Long Term Loans for Businesses
The main advantage of long term loans for businesses is that your payments are spread out over a longer period of time. This typically equates to smaller, more manageable payments than you’ll likely find with a shorter term loan, as well as lower interest rates. They’re meant to support long term needs, such as construction projects, business purchases and long term equipment purchases.
Where to Find Long Term Business Loans
When you’re looking for a long term small business loan, you have options. You can walk into your local brick-and-mortar bank or credit union. Or you can search online for lenders offering financing that matches your needs.
To obtain a long term small business loan with conventional banks and credit unions, you’ll undergo a lengthy application process, followed by what could be a lengthy approval process. You’ll also be required to submit a slew of documents, which could include a business plan, profit-and-loss statements, tax returns and bank statements.
With alternative, non-bank lenders, you can usually apply for financing by simply providing several months of bank statements. The trade-off for simplicity and speed is usually a higher interest rate and condensed repayment terms.
Additionally, banks, credit unions and alternative lenders will require you to meet certain requirements, including minimum time in business, annual revenue and credit score, which will vary by lender and loan type. For example, for a term loan, you may be required to have at least 1 year in business, an annual revenue of $100,000 or more and a credit score of at least 600. Be sure to ask prospective lenders about their specific requirements.
Questions to Ask Before You Get a Long Term Business Loan
Before you get a long term business loan, ask yourself a few questions:
- How much funding do I really need?
- How fast do I need funding?
- How much of an installment payment amount can I afford?
- What will the loan repayment terms look like?
- What is the lender’s Better Business Bureau rating?
Use this information to help you decide which long term business loan and lender is right for you, and consider these closing words from Warren Buffett, who made his fortune by wisely investing his time, money and efforts. “We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.”