A long-term business loan is a method of funding designed for more established businesses that are looking to grow over a longer period of time.
Long-term business loans are often for larger amounts and are secured loans, meaning they will require collateral. For businesses looking for a quicker solution, a short-term business loan is a much more viable option, and these are often unsecured business loans.
In this article, we will be explaining the different types of long-term business loans and why you might want to use one.
If you are looking for a loan, but aren’t sure what to go for, then Rise Funding you can get an instant business quote in seconds.
Types of long-term business loan
Here are some of the most common types of long-term business loans.
Secured long-term business loans
As long-term business loans are for businesses that operate over a longer timespan, and generally have more working capital at their disposal, they will be likely to use secured long-term business loans.
Unsecured business loans will generally be limited for both the borrowing amount and length of the loan, but a secured business loan will be available for much longer periods and far higher amounts, as lenders will be able to manage their risk via the collateral.
Unsecured long-term business loans
Unsecured long-term business loans are also available, that have term lengths of 5-6 years.
These loans are readily available, however, are best suited for more established businesses, as they will require much larger funding requirements and verification.
Property finance
Due to the long-term nature of property deals and business, property finance generally comes in the form of a long-term business loan.
Property finance comes in multiple forms, but development finance is a longer-term option for construction and property companies to use when they need it. Property developers will need a longer-term solution to aid their property deals, such as funding for planning permission, buying land, and building the property. The financing can be provided at various stages throughout the development phases.
A property finance loan from Rise Funding can have a term of up to 15 years. This is also not just for property developers or buy-to-let (BLT) investors, but can also be for any business simply looking to obtain a loan where they also happen to own property.
Asset-based lending
For larger businesses, asset-based lending may also be an option. This is for businesses looking to borrow loans above £1 million, so therefore, they must provide a significant amount of collateral to secure the loan.
Assets on a balance sheet can form a debt structure, and allow large loans to be borrowed against significant parts of a company. For example, with Elon Musk’s acquisition of Twitter, Musk borrowed a significant amount of the purchasing money with loans backed by Tesla stock.
Why use a long-term business loan?
A long-term business loan is ideal for an established business with a good credit score.
Long-term business loans typically have a 5-year loan term and are designed to help growth over several years. These types of loans are generally not designed to fix short-term problems, but rather to aid businesses in achieving a long-term strategy.
Security against the loan is often required, as these loans are a large commitment from a lender. This is usually secured in the form of a business asset, or over the company as a form of a charge or debenture.
If you are a business with a solid business plan and looking to scale over the next 5-10 years, then a long-term business loan is something that you could consider using.
How much can you borrow with a long-term business loan?
Some secured loans will allow you to borrow up to £15m. Long-term business loans are required for longer periods and are generally larger amounts.
However, this all depends on the lender and the reliability of your business’s cash flow. You must pass more stringent checks in order to obtain a loan over a longer period of time, and generally, these loans are secured. If you have a poor business credit score, or few assets to use as collateral, you may struggle to borrow higher amounts.
Advantages of a long-term business loan
There are many advantages of a long-term business loan. Here are some of the top reasons that businesses opt for this type of borrowing.
Overall cost-benefit
As the length of the loan repayment is much greater, the overall cost-benefit of a long-term loan can be better. Short-term business loans often carry higher interest rates and have much higher monthly repayment requirements. Repayment for long-term business loans will be spread across a much wider timescale, so it can be a lot more manageable and put less stress on cashflow.
Larger loans
As only more trustworthy businesses are given long-term business loans, the amount that can be borrowed is much higher.
Businesses looking to take out loans above £1 million will likely be looking for a long-term business loan and will be looking to use it for long-term projects such as business expansion.
Disadvantages of a long-term business loan
Long-term business loans can be ideal in some circumstances, but there are some disadvantages that you should be aware of.
Lower approval rate
As the loans are much larger, and repayable over a longer period, lenders are much stricter about who they give long-term business loans to.
If you are a business with a poor credit score, or perhaps few assets to use as collateral, you may struggle to get a long-term business loan.
Collateral requirements
Long-term business loans can be huge – which means the collateral requirements can be too.
Lenders often require collateral to secure long-term loans, which can be risky for a business if they default on the loan. This could be disastrous for a business, as they may need to hand over vital assets to repay the loan.
Can you get a long-term business loan with bad credit?
Obtaining a long-term business loan with bad credit will be difficult.
If you have high-value assets that you can use as collateral, such as property or equipment, then a lender may be more convinced to offer you a loan.
However, it is unlikely that a lender will offer a business a long-term business loan with bad credit. Improving your credit score might be the best option before attempting to get a long-term business loan.
What is the longest term for a business loan?
The longest term for a business loan depends on the lender. Some long-term business loans can have terms of up to 25 years.
The US Small Business Administration’s loan program is the USA’s federal business funding scheme, similar to the Growth Guarantee Scheme. This loan is available for up to 300 months (25 years), and is a method of providing support to new businesses from their inception to their full development.
Can you get a 10-year personal loan?
Yes, it is possible to get a 10-year personal loan.
- Natwest offers 10-year personal loans which can be used for home improvements.
- Tesco Bank also offers personal loans of up to 10 years.
Personal loans are generally used for individual circumstances in shorter periods of time, but with lower-interest loans, they can be a great option for the longer term.
Conclusion
Long-term business loans can be a great way to provide stable funding to your business over a longer period of time. These loans generally have lower interest payments and can provide support for longer-term business growth.
Long-term business loans are harder to obtain than other forms of lending, and will likely require significant collateral, but as a result, can be much larger loan amounts.
If you’re looking for a loan for your business, but you’re not sure exactly what you might need, then you can fill out the form below, which will help you find the funding that fits you.
