Long-term business loans
A guide to long-term business loans of up to 30 years.
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If you're considering making a large capital investment or need a significant cash injection for your business, consider a long-term business loan. Here's what you need to know.
Understanding long-term business loans
A business may seek a long-term business loan for a variety of reasons, such as a significant purchase of inventory, business expansion, the purchase of business premises or other real estate, or a one-off purchase of business machinery.
Whatever the reason, a long-term business loan gives an eligible business access to a substantial cash injection to be repaid over an extended time period, generally up to 30 years. For the right business at the right stage of expansion, a long-term business loan can be the ideal means to reach that next business level in a structured, predictable way.
Compare a range of business loans with longer terms
How does a long-term business loan work?
Long-term business loans involve a set loan amount which is released to the business upfront, allowing for the purchase of equipment, real estate, or other significant business expenditure to aid the growth of the business. Loan repayments are made at preset regular intervals, with the entirety of the loan being paid back over a number of years, generally up to 30.
With the longer loan term comes the ability for a larger amount to be accessed upfront, making long-term business loans an ideal solution for businesses who need access to capital to make a large one-off purchase. Long-term business loans offered by major banks may require residential property as security, while non-bank lenders typically do not require security.
Is your business eligible for one of these loans?
A long-term business loan can be a major investment for any business. Before loaning a significant amount over an extended period of time, lenders will need you to provide detailed particulars about various aspects of your business, particularly its financial history and projected forecasts. When assessing your eligibility for a long-term business loan, lenders may consider the following:
- Business tax returns. As a minimum, ensure that you have full audited tax and other financial information for your business for at least the past two years.
- Personal tax returns. In some instances, you will also need to provide your personal tax returns and other financial documents, including bank statements, for the same time period.
- Business plan. Work closely with your accountant to prepare a business plan including cash flow forecasts and detailed profit and loss projections. The business plan should also include general and demographic information about the business, including the number of employees and any plans for expansion.
- Turnover. Some lenders will require evidence of a specific level of turnover on either an annual or monthly basis, with levels related to the amount you are seeking to borrow.
- Credit status. The credit rating of the company will be considered, potentially along with the credit rating of the individual directors, especially if the business has not been operating for a significant period of time.
What features come with a business loan paid over a longer term?
Long-term business loans can have a variety of features, depending on the amount of the loan, the purpose for which the funds are to be used, whether security is being offered, and the industry the business is in. Example features of a long-term business loan can include:
- Loan amount. Loan amounts for long-term business loans can range from as low as $5,000 to $1 million or more. The loan amount will be linked to the loan term and the strength of the application overall.
- Loan term and repayment schedule. Long-term business loans typically refer to loan terms of two years or more, with terms unlikely to be longer than 30 years. A feature of a long term business loan is that it has a set maturity date, with regular repayments, typically by direct debit. Monthly repayments are common, with quarterly, biannually, and even annual repayments offered by some lenders.
- Interest rate. Similarly to home loans, long-term business loans can carry either a fixed or a variable interest rate. Fixed interest rates tend to be set at a rate slightly higher than the current variable interest rate at the time of the loan's creation, and have the advantage of providing a level of predictability when budgeting for business loan repayments. Variable interest rates fluctuate over time, introducing a level of risk for business owners while also offering the potential to get ahead on repayments in the event of an interest rate drop.
What to be careful of with long-term business loans
Before applying for a long-term business loan, ensure that you obtain as much information as possible about the loan you are considering applying for, while comparing it to similar business loans. Also consider the following:
- Fees and charges. Ensure that you understand all fees and charges applicable to the loan. Can you make additional repayments or pay out the loan early without penalty? Is there an application fee for the loan? What is the fee in the event of a missed repayment?
- Interest rate and ongoing repayments. The interest rate of your loan will determine your future repayments. Make use of a loan repayment calculator to ensure you are fully aware of what the ongoing repayments will be.
- Loan purpose. Before applying for a long-term business loan, be satisfied that the intended purpose of the loan funds is likely to be a stable investment. A one-off experimental or high-risk advertising campaign, for example, could potentially not bring the return you were hoping for, leaving your business making repayments in the long term on an unwise investment.
Have more questions about taking out a business loan for the long-term?
Will a long-term business loan application affect my credit file?
Every time a person or a business applies for finance, this is noted on your credit file. Too many applications in a short period of time can negatively impact your credit score. Check your eligibility carefully before putting in a formal application for a long-term business loan.
Should I go through a bank or an alternative lender?
The choice between a bank or alternative or online lender will always depend on the individual circumstances. In general, however, big banks can typically offer more favourable repayment terms and lower interest rates, although their eligibility requirements can be stricter. Online alternative lenders can be more open-minded when considering applications and can have a more streamlined application process, however fees and interest rates tend to be higher.
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