Long-Term Business Loans: Choices Explained
Long term business loans are financial debts that you pay back over an extended time frame. They are loans that mostly provide capital for businesses to run and buy assets, inventory and equipment as well as build up more income to run the business.
A long-term business loan is a loan that you can take from your bank, your credit union or your online lender who are responsible for the determination of your loan limit, interest rates and the term of the loan. In order to get a long-term personal loan, your lender first analyses your financial history, your income, past debts and your credit score to determine the terms and conditions of the loan.
There are many lenders today, so you need to be careful when want to get personal loan online for your long-term business loan. In order to identify the most reliable and effective lenders, the Online Lenders Alliance comes into play to help you with Long-term business loan shopping.
What you can use a long-term business loan for
People take up long-term business loans for various reasons. There is no definite use of a long-term business loan because the terms of the loan do not include its usage. As such, you can take up a long-term business loan to do anything depending on your current and long-term needs. These types of loans are mostly effective if you want to invest in the growth of your business in a long-term.
If your business needs more personnel, if you need to expand your product line or if you need to open up a new branch in a new location then you need a long-term business loan. A long-term financing is a good way to expand your business and it provides your business with a huge opportunity to grow.
A long-term business loan can be taken up to any amount depending on the lender you are working with and on your business interests. Traditional institutions such as banks do not lend small long-term loans but online lenders do. If you want to take a business loan for a small amount then it is advisable to use a business lender finder service to help you get a reliable lender in the online lenders market.
Lenders Offer Different Things
Different lenders offer different loan amounts so it is important to do a thorough research before settling for a business loan lender. Processing of loans can be a big task and it requires a lot of time and official identification as well as paperwork. As such, it is easier for banks and other traditional financial lenders to process loans for huge amounts of money than for small amounts. This leaves banks with a preference of $250,000 minimum for long-term business loans.
Despite the fact that long-term business loans have low interest charges, they are not cheap. As such, it is crucial to be very choosy on how you spend your loan to avoid a situation where you are unable to repay the loan. A business loan should be used on a project that is profitable and one that does not risk failing. These loans are right for major investments for your small business. You can use the loan for renovation of your business premises, opening up a new location for your business, expansion of the business, refinancing an existing budget, expansion of your product offering and also a major assets purchase. This means you should use such a loan for only big investments.
Repayment of long-term business loans vs short-term business loans
The advantage of taking a long-term business loan in comparison to a short-term business loan is that there is no pressure repaying it. Short-term loans require to be paid back in daily, weekly and monthly installments which puts a lot of pressure on small business owners. Long-term business loans on the other hand are mostly paid in monthly installments over a period of years, which minimizes the pressure on business owners. Between one to twenty-five years, you can repay your long-term business loan depending on the terms of the lender you took the loan from. A short-term business loan on the other hand must be rapid in three to eighteen months which isn’t enough time for a business to have picked up pace.
The repayment of a long-term business loan is stretched out over a long period of time while the short-term loan is over a very short period of time. The entire loan amount for long-term business loans and the accumulated interest is paid over a time frame that is very manageable and that does not strain the business in any way. A short-term business loan can really cut into a business’ cash flow especially because the deductions are made on daily, weekly and monthly basis which is not the case for long-term business loans. Each repayment for the latter is like a small amount of cash which is manageable.
Different Lenders Carry Different Interest Rates
The type of interest rate also affects the repayment of a long-term business loan. There are fixed interest rate and variable rates. Traditional financial lending institutions have variable interest rates that vary based on the financial market. Online business loan lenders on the other hand offer fixed interest rates for their loans which does not affect the monthly repayments of the loan like variable interest rates do. The monthly payments of the loan are the same for fixed rate loans which makes this a better option especially for small business owners.
Another factor that determines the repayment of the loan is the purpose you are using it for. Purchase of real estate to put up a business, loans for working capital or general business expansion requires a long-term loan which can be quite stressful to repay if you don’t have the necessary income. As such, it is important to take up a loan that does not put pressure on you to repay and use the loan on a project that is going to give back as much as or more than you spend on it.
The repayment of any type of loan is highly determined by the interest rates offered by the lender. Depending on the lender you are working with and the term of the loan, the interest rates of the loan vary. Long-term business loans are the most affordable financial options for businesses. This is because their interest rates range between 4% to 30%. Short-term business loans on the other hand have interest rates ranging from between 9% all the way to 80% which is very strenuous on the business and very costly. These exorbitant interest rates are what make long-term business loans preferable to short-term business loans especially for business purposes.
What do you require when getting a long-term business loan?
Most lenders are very reluctant to give long-term loans to borrowers. This is because these loans are a long-term commitment and a partnership between the two parties for a very long time. As such, people who qualify for them get long-term business loans. Some of the things that they consider when getting a long-term business loan include the nature of the business the borrower is running, a strong personal credit and strong business finances.
In order to get a long-term business loan, your credit must be over 700. This means that if your credit is below that then you only qualify for a short-term business loan. Your business must be profitable also to ensure you can sustain it, manage it, keep it running and pay the loan at the same time without incurring debts and losses. These conditions however apply to traditional financial lending institutions mostly. Online lenders can give loans to young businesses which do not have as much accumulated profit yet and to borrowers who are less credit-worthy.
The risk profile of long-term lending is very low because these loans are given to the most qualified borrowers. The level of default for long-term personal loans is also very low which minimizes the risk of losing their money to defaulters as compared to short-term loans which have a relatively high risk of default.
Where to get a long-term business loan from
There are many financial lending institutions today, both traditional and modern. As such, you can decide who to get your loan from depending on your preference and also on the amount of loan you need.
Banks and online lenders both offer long-term loans but with very different terms and conditions. Nationwide banks and community banks are traditional institutions from which you can get such a loan. They have been the main providers of long-term installment loans for a very long period of time before online lenders came into play.
When getting a business loan, bank loans are the most difficult to qualify for. Approval from banks is never a guarantee especially if you have bad credit, if you are a small business owner, a self-starter of if you don’t have collateral to back the loan. On the upside, if you qualify for a bank loan then you may see lower rates.
If you do not qualify for a long-term business loan from the bank then consult the Online Lenders Alliance to aid you in finding an online lender. Despite the fact that the interest rates for online lenders can be very high, these loans are not as difficult to get. You don’t have to meet a lot of requirements to qualify for a long-term personal loan from an online lender. Online lenders lend money to borrowers with bad credit, small business owners, self-starters for business and all other borrowers who don’t qualify for bank loans for any reason whatsoever.
Application for a long-term business loan
Long-term business loans are the hardest to qualify for. This is because the level of competition is very high. When applying for such a loan you need to be ready to avoid frustrations and distresses in case there is a lot of procedure. Application of this loan form banking institutions entails a lot of paperwork. The condition of your business and your personal finances are issues of great concern before the bank underwrites the loan for you.
When applying for a long-term loan from the bank, it is important to submit a complete business loan application to increase the chances of qualifying. When writing a business loan application, you need to include the following;
Documentation included in the application
Your bank statements; These are used to give a perception on how well you can manage the cash flow into your business.
Balance sheets are used to show that your business is in good standing and to generally show the lender how your business functions.
Credit rating is used to show the lender how reliable you are with your financials and with your business. The more reliable you are the higher the chances of being approved for a loan.
Some lenders require Personal tax returns to verify other sources of income to determine the overall net worth of your business and the collateral.
Your time in business report is used by the lender to verify how long your business has been running. It is not easy for a new business to be approved for a long-term loan because the risk is too high. The longer you have been in business the higher the chances of getting approval for a long-term business loan. Small businesses are riskier and so harder to lend compared to long-term established businesses.
Business Loans May Require Tax Returns
Business tax returns show how responsible you are with your business finances; a responsible person has a high chance of getting this loan because the responsibility reflects they are running the business smoothly.
Lenders use profit and loss statements are used to show where your money comes from and how you spend it. The statements also show how you manage your finances to ensure that you will not mismanage the loan and end up as a defaulter.
When writing a business loan application, there may be other additional documentation that the lender might request for such as business licenses, permits, approvals, collateral documentation, your cash flow forecast, business debt schedule, the type of industry you are running and the exact use of the loan you are applying for.
Online lenders are a little less extensive when it comes to application for long-term loans. They mostly use technology in the processing and underwriting of loans. The documentation is insight to know if you are a reliable borrower and it also gauges your eligibility for a long-term commitment.
Collateral Requirements for Business Loans
Like any other type of loan, business loans also may need collateral. Long-term loans are generally a little less expensive than other forms of business loans for this reason. Most of these loans are secured by the borrower’s collateral. The collateral is usually an asset that is valuable such as the borrower’s home, a personal savings account or commercial real estate.
They may use collateral for security of the loan. It is a way for the lender to show that they have accepted less risk when underwriting the loan for you. incase you default on your payments; the lender has the right to seize your assets and recoup their losses through the collateral you had initially signed for them.
In case you don’t have any form of collateral to offer, you can still get a long-term business loan. The banks may not give you one but online lenders will. There are some online lenders who give these loans without asking for any collateral upfront. All these lenders require is a personal guarantee from the borrowers after evaluating the business assets to determine their value versus that of the loan.
Best Lenders for Business Loans
There are specific lenders who offer long-term business loans today. The Wells Fargo, SBA and online lenders are some of these lenders who guarantee a long-term business loan for clients.
Local banks loans from local banks.
These loans are mostly for businesses purposes. The local community banks are among the lenders who offer long-term loans today. The local banks understand the condition of local businesses which makes it easy for them to underwrite loans for people living in their localities. The trust accorded by local bankers when giving business loans to locals is important to ensure friendly terms and conditions and a good partnership during the term of the loan repayment.
A bank where you have an account or your mortgage is also a good place to get a long-term personal loan. This is because of your familiarity with the bank; you know your bank given you may be an existing customer already, which makes it easier for the bank to extend its services to you. Small business friendly local banks such as Wells Fargo offer both short-term and long-term personal loans.
Small Business Administration loans
Banks offer these types of loans for long-term financing. The term small business means that the loan is for business purposes, meaning that the bank will get its money back incase the borrower defaults because the business acts as a guarantee. Small Business Administration loans makes the bank a little more comfortable when underwriting a loan compared to when you apply for a direct long-term loan with no business involved.
The government guarantees the repayment of these loans which makes them easier to get versus other traditional long-term loans. This loan however has some requirements too. In order to qualify for an SBA loan, your business must be profitable. You must also ascertain that you are a top-notch borrower. If you are starting a business and it is not very profitable yet, you van still qualify for an SBA microloan. However, the business must show signs of future profitability.
There are different SBA lenders including traditional banking institutions and a few online lenders such as SmartBiz. The lenders who offer SBA long-term loans are such as Wells Fargo, Huntington, National Bank and Live Oak.
Online Business Loans
These are the most used lenders for business loans. This is because their loans are very easy to qualify for, most of them do not require collateral which is a big limitation especially for small businesses. Online lending is not cumbersome, it does not require a lot of paperwork and documentation. These loans have easier approval criteria, they don’t take long like bank loans.
When applying to get a business loan online, you need to do a thorough research to avoid getting an unreliable lender. The lenders listed on Loanry.com are online lenders. They operate under a code of conduct that ensures professionalism and fairness between the lender and the borrower. Among the online lenders who offer online long-term business loans are the Lending Club, the Foundation and the Funding Circle all of who have different rates, terms and conditions for their loans.
About the Author – Erika F
Ethan founded OfferEDGE in Dec 2013 with the mission to unify the financial quadrants through a system that allows businesses to be seen when consumers use a Single Sign On across Lending, Credit, Money and Real Estate. Taub invents the offers and IP, while overseeing all aspects of the company. He also has orchestrated the company’s earned media across the brands Loanry®, Cashry®, Debtry®, Budgetry®, Billry®, Taxry® and more. This includes over 500 publications that have been featured across the web.