Long Term Business Loans: 7 Things You Need to Know (2024)

10 min read.June 6, 2022by Joe Camberato

Whether you anticipate it or not, the need for cash can put a financial strain on your business, especially when your working capital goes toward day-to-day operating costs. Long term business loans can help you cover these expenses, without costing you a fortune in the short term.

Considering a long term small business loan to fuel your business growth or expansion? Here’s what you need to know about longer term lending products, and whether or not they make sense based on your goals.

Considering long term business loans to fuel your business growth or expansion? Here’s what you need to know about longer term products, and whether or not they make sense based on your goals.

1. What is a Long Term Business Loan?

A long-term business loan is a type of loan that you’ll repay over an extended period of time – typically one year or more. The average repayment term on a long-term business loan falls between two to five years, but some can be as high as 25 years.

Long-term loans are typically used to finance major investments or purchases. For example, long-term loans are ideal for launching expansionary projects. They are also frequently used to buy real estate, heavy equipment, or an existing business.

Long term business loans allow you to break down large amounts of debt into more manageable payments that can extend over time. This way, you’ll be able to pay down your debt as your business grows and continues to generate revenue.

This type of loans typically feature lower monthly payments compared to shorter-term loans. Which means they tend to be easier on your cash flow on a month-by-month basis.

However, the downside is that you’ll stay in debt for longer with a long-term business loan and you may end up paying more in interest over time. Depending on your business and your goals, this may or may not be an acceptable solution.

Long term business loans function like most other types of financing solutions. You’ll receive a lump-sum of capital, which you’ll pay back according to agreed-upon repayment terms in your contract. You may make payments on a monthly or bi-monthly basis, or another type of frequency depending on what you and your lender agree on.

Long-term loans are noticeably distinguishable from business lines of credit or business credit cards. The latter may not have a set repayment schedule. Instead, they feature flexible repayment schedules that are also revolving in some cases – meaning you can pay down your balance and in turn regain access to that capital.

2. What are the different types of long term business loans?

There are different types of long term business loans, including equipment financing, commercial real estate loans, SBA loans and term loans. Depending on the loan, the period for repayment may vary between 3 and 10 years, although some loans may have even longer terms of up to 25 years.

1. Equipment financing

Equipment financing provides you with the capital needed to purchase heavy equipment or machinery for your business. These loans are popular with manufacturing and construction firms, but they can also be used to finance software systems, vehicles, office supplies, restaurant materials, and more.

You may also be able to take out an equipment loan to make upgrades or repairs on existing assets.

Equipment financing is opposite to equipment leasing, where you’re essentially renting a piece of equipment from a provider and will have to return it at the end of your contract. Equipment financing can be more economical over the long-run and allows businesses to build up equity in an asset.

The great thing about equipment loans is that you may be able to finance between 80% to 100% of the equipment’s final costs. Even better, equipment financing allows you to break up the entire lump cost of the equipment into manageable payments.

The underlying equipment itself will also function as collateral for the loan – meaning you won’t have to put your own assets at risk. However, there may be cases where you’ll be expected to provide a down payment. In the event you’re unable to repay your loan, the lender will seize the equipment to recuperate their funds.

2. Commercial real estate loans

Commercial real estate loans help business owners to finance commercial spaces. These can include offices, warehouses, retail locations, or even income-producing properties.

Commercial real estate financing can also be used to construct a property, renovate existing real estate, or refinance real estate debt on a property you already own.

With funding amounts as high as $25 million, commercial real estate loans are some of the longest term loans available. They work similarly to traditional residential mortgages, since a portion of your payments will go towards building equity in your property.

Keep in mind that if you’re unable to meet your payment obligations the lender has the right to seize the property.

3. SBA loans

Small Business Administration (SBA) loans are government-backed financing solutions offering a multitude of benefits for entrepreneurs. With the government covering a portion of your loan amount, lenders receive an extra layer of security – which can translate to lower interest rates on your end.

SBA loans feature low-interest rates, high funding amounts, and repayment terms as long as 25 years. Plus, these business financing options can be used for a large variety of purposes. You can use SBA funding to cover working capital costs, hire employees, mitigate cash flow disruptions, invest in marketing expenses, real estate purchases, equipment purchases, and more.

In exchange for all their benefits, you’ll have to meet the SBA’s additional set of requirements alongside the participating lender’s requirements. Your business will have to be in good standing and meet the qualifications for revenue, credit scores, size standards, and more.

4. Terms loans

Most long-term business loans are set up as traditional term loans – which refers to how the financing product is structured. With term loans, you’ll receive a lump sum investment that will be broken down into set payments for the duration of the loan. Most equipment loans, real commercial estate loans, and even SBA loans are set up as term loans.

Term loans are great when you know exactly how much capital you’ll need to finance your goal. They help make large purchases or investments more manageable by distributing payments over a lengthy period of time. This way, you’ll be able to repay your debt alongside generating income rather than all at once.

With term loans, payments are typically fixed, so you’ll know ahead of time how much you’ll be paying and how frequently.

3. What is the longest term for a business loan?

Long term loans typically start with repayment terms higher than one year and typically max at 25 years. Generally speaking, it’s rare to find a long-term loan with a duration greater than 25 years. On average, most long-term loans will tend to fall between one and 10 years.

The term length you’ll qualify for can depend on a number of factors, including:

• Requested loan amount
• Financials (credit score, annual revenue, and other details)
• How long your business has existed, or your years in business
• The purpose of the loan
• The lender’s programs
• Availability of collateral (which isn’t always required)

Before agreeing to the first long term loan option presented, be sure to do your research. There may be other options on the market that are better suited for your business.

4. What are the benefits of long term business loans?

Long-term loans have the benefit of lower monthly-payments. Most long-term business loans are also typically associated with higher funding amounts and fixed payment terms, which can be helpful as your business strives towards its goals.

4.1. Main benefits of long term business financing

Smaller monthly payments

Long-term loans have the benefit of lower monthly payments compared to short-term loans. Since long-term loans spread out debt over an extended period of time, your business will face lower costs on a month-by-month basis. This can be helpful if you’re struggling with cash flow or if you want to keep your expenses low.

Despite lower monthly payments, long-term loans are actually more expensive over the total lifetime – because you’ll be in debt for longer.

Fixed monthly payments

When you apply for a long-term loan, your lender will work with you to come up with payment terms that will remain fixed for the entire loan’s duration.

You’ll know exactly how much you’ll be shelling out each payment cycle and you won’t have to worry about this figure changing at any point in the future. This will allow you to effectively plan your budget for coming business cycles.

Plus, if you’re fortunate enough to secure a long-term business loan at a lower interest rate, you’ll stay locked into that rate even when interest rates in the market rise.

Higher funding amounts

Generally speaking, long-term loans are typically associated with higher funding amounts – as high as $5 million in some cases. Although there’s no guarantee you’ll qualify for this amount, your debt will be spread out over an extended period of time, making it easier to manage your loan.

Long-term loans with large funding amounts are typically used to purchase real estate, machinery, refinance existing debt, or cover construction expenses. But you can also make use of larger funding amounts by expanding to a new location, hiring new employees, investing in new merchandise, debt refinancing, and more.

Lower interest rates and fees (possibly)

The exact interest rates you’ll qualify for will depend on factors like your business history, credit score, financial standing, and more. That said, long-term loans tend to feature lower interest rates than shorter financing solutions. In some cases, you may even be able to negotiate down closing costs or other types of fees.

That said, lower interest rates don’t automatically mean the loan will be cheaper compared to a financing solution with a faster repayment schedule – but it will be easier to manage. You’ll need to weigh a variety of different factors if you want to ensure you’re getting the best deal.

4.2. Term loans vs. short term options

If you need financing and want the longest payment term possible, then you’re not alone. Most business owners approach the financing process with the same mindset. However, a longer payment term isn’t necessarily always beneficial to you, as the business owner.

The best option for your business depends entirely on your needs and goals.

Generally, long term business loans are best suited for business owners with large expenses ahead. Some common examples include expansion and acquisition, but also expensive equipment. Overall, expenses that don’t drive short-term revenue are best covered by long term loans.

Long-term programs tend to have lower interest rates than short term business loans, but can also take longer to process. Nonetheless, you can normally still get the funding you need within the time window of your opportunity.

If you’re putting cash toward expenses that will generate revenue right away, then a short term loan may be the better choice. While your interest rates may be slightly higher, your additional revenue can help you pay down the balance at a faster rate. Funding can also be available in a shorter time window.

5. What are typical long term business loan rates?

In general, average long-term business loan rates start at 3.25%. Depending on the financing product and the type of lender you work with, they can be upwards of 6%.

The interest rates you’ll receive will depend on several factors, including the type of lender you work with, your credit score, your financials, and your time in business.

Maintaining a longer time in business and strong credit can help you secure the best rates. These credentials will communicate your trustworthiness to lenders, which will end up working in your favor.

Another important factor to consider is the type of lender you’re working with or the loan product itself. SBA loans have some of the best interest-rates on the market. Banks and credit unions are also known for offering low interest-rates. The downside is that they can be fairly difficult to get approved for.

You’ll find it’s much easier to get approved for a long-term business loan when you work with an online lender. Credit score requirements are more relaxed and you may only need six month of business history. Nevertheless, these companies offer long-term business loan rates that are on the higher end.

6. Qualifying for a long term business loan

Because long term business loans vary significantly, there are no universal requirements that you need to meet to qualify for them. Instead, qualifications vary based on the type of program, the lender’s qualifications, the desired loan amount, and more.

While all lenders look at loan applicants differently, most will boil down to a few key factors:

• Business and personal credit score: Your credit score tells the lender how you’ve handled previous financial obligations. If you’re applying for long term financing, then a credit score above 600 can go a long way. Through fintech lenders, you can normally find long term options even with bad credit.
• Years in business: Having an established business boosts your chances of qualifying for a long term business loan. At minimum, you should have at least 6 months under your belt.
• Annual revenue: Your annual revenue gives the lender a vivid picture of your business’s financial performance. $120K is generally the minimum required number, although a higher number can help you qualify for better options.

While it’s not always required, lenders may be more likely to approve your application if you have collateral. In the event you default on payments, lenders can seize collateral and put the proceeds toward the balance. Collateral may also push the lender toward more favorable terms.

However, it’s also important to understand that you can normally find long term business loan options without collateral. If you don’t have any to put up, or don’t want to put your assets at risk, there may still be options available.

In most cases, though, lenders will require a personal guarantee. This makes you personally responsible for repaying the loan in the event that your business defaults.

Some lenders offer monthly payments, but daily payments have become the norm. Though you may have to make more payments, this structure takes the stress of large payments off your shoulders.

Qualifying For Bank & SBA Loans

To get bank loans with longer terms, you may need even stronger financials on your side. Banks also take a longer time to process and review your application.

SBA loans, which are backed by the Small Business Administration, are also set at a longer term than most products on the market. However, qualifying can be challenging. Applying through a bank can be difficult and time-consuming, but marketplaces like National can help you learn your options without piles of paperwork.

7. Applying for a long term business loan: fast, simple & easy

If your business is growing, the last thing you need is a complicated application process. National is here to help!

At National, you can apply through a quick, simple and easy process. You can complete the application process right away by connecting your bank accounts, then learn your options in minutes!

Our Business Financing Advisors will take the time to understand your business needs and goals, as well as answer any questions you may have about financing.

Ready to get started taking your business to the next level? Apply now!