Everything You Need to Know About Long Term Business Loans

This post was last updated on November 6, 2020 to include more information about long term business loans.

In the course of growing or problem solving, all business owners encounter a need for cash, and lots of it. 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 costs, 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 products, and whether or not they make sense based on your goals.

long term business loans

What is a Long Term Business Loan?

Simply put, a long term business loan is a type of loan that you repay over a longer period of time. Like other types of business loans (and unlike lines of credit), the lender gives you a set amount of cash, which you pay back based on the agreed-upon repayment terms. Most business owners prefer this to credit cards, which may not provide enough cash.

Generally, long term business loans refer to any loans that last longer than 1 year. However, there are no precise guidelines about the exact timeframe. Some products may last from 2-5 or 10 years, and while it’s rare, other programs can last as long as 25 years.

The longer repayment period allows you to pay down the balance of the loan as you generate revenue, rather than the next few months. However, longer terms also hold you financially responsible for the debt for an extended period of time.

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.

Understanding Term Lengths on Long Term Loans

As mentioned earlier, long term loans have term lengths that tend to go beyond 1 year. That being said, not all long term loans are the same—they generally fall between 1 and 10 years.

The term length you 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.

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.

When is a Longer Term Beneficial for Your Business?

Should you look for a short or long term business loan? The answer to this question usually depends on your business’s needs and goals, and specifically, how you’re planning to spend the funds.

When you want to drive short term revenue by purchasing additional inventory, or need extra cash to cover everyday expenses, then short term loans might make the most sense. Larger business expenses that are outside this scope, on the other hand, are better suited for long term business loans.

Long term business loans are best suited for growth and expansion costs like:

  • Opening one or several new locations
  • Expanding your current location 
  • Acquiring another business
  • Purchasing real estate
  • Undertaking construction costs like remodeling existing buildings
  • Purchasing expensive new equipment that’s essential to your business
  • Hiring a team of new employees as your business expands
  • Refinancing existing debt
  • Pivoting into new or related markets

In short, it makes the most sense to seek long term business loans when you have larger expenses that won’t immediately drive your bottom line.

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!

National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.

Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.

We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!

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About the Author, Megan Capobianco

Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.


Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advise from National Business Capital & Services and the author. Do no rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely in this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there maybe errors, omissions, or mistakes.