Long-term business loans are a type of financing with extended repayment plans, typically five to ten years. Some can even be up to 25 years. Long-term small business loans are typically used for purchasing real estate, buying equipment, and funding large-scale projects.

With long-term business financing, business owners are able to undertake significant investments that they otherwise may have been unable to fund on their own.

In this guide, we’re exploring the best long-term business loans, how they work, and how your business could qualify for one.

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.

These loans are ideal for large-scale investments. Real estate purchases, heavy equipment purchases, acquisitions, and extensive growth projects are just some of the things that can be pursued with long-term business financing.

Starting or expanding a business requires a significant amount of money, and most entrepreneurs won’t have the necessary capital upfront. Financing makes it possible to access growth opportunities that business owners may have otherwise been excluded from.

How Do Long-Term Business Loans Work?

With a long-term business loan, you’ll agree on a set funding amount, interest rate, and repayment schedule with your lender. Your funds will be deposited upfront and in a single lump sum. From there, you’ll be able to use your financing for your intended project and pay back your debt over regular payments.

The repayment period for long-term business funding can extend up to five years, and perhaps even longer, depending on the lender. In fact, it’s not entirely uncommon for terms to span as much as 25 years.

Unlike short-term loans, which typically have a repayment period of less than a year, long-term business loans give borrowers the opportunity to pay off debt over a longer timeframe. Because debt is stretched out over several years, monthly payments are typically smaller and easier to manage compared to shorter financing solutions.

On the flip side, long-term small business loans often feature higher overall costs, as borrowers end up paying interest on the loan for a longer period of time.

The process of obtaining a long-term business loan is not unlike obtaining other types of financing. However, depending on the funding amount, the application process may be slightly more rigorous than applying for a credit card or a short-term loan.

Pros and Cons of Long-Term Business Loans

Long-term business funding is a commitment not to be taken lightly. By weighing the pros and cons associated with financing, you’ll be able to make the right decision for your company.

Pros Cons
  • Resources for Growth – Most significantly, long-term business loans provide much-needed capital to expand and grow your business. Whether you need to purchase new equipment, hire additional staff, or open a new location, funding can help make it happen.
  • Easier on Your Cash Flow – Long-term funding allows businesses to borrow large sums of capital and pay off the debt over several years. As a result, monthly payments tend to be smaller, which causes less strain on your business’s cash flow. Interest rates on long-term loans are also often lower compared to short-term loans. However, keep in mind that long-term financing tends to cost more over the entire lifetime of the loan.
  • Stability and Predictability – Long-term business loans offer a degree of stability for your business. With fixed, regular payments, you’ll be able to plan your finances and budget for the future.
  • Opportunity to Build Credit – By making regular payments on time, you’ll improve your credit history and be able to demonstrate that you are a responsible borrower. This can make it easier to obtain future financing and even help you negotiate better terms and interest rates.
  • Possible Tax Benefits – With long-term business funding, you may even be able to access certain tax benefits for your business. Interest payments on business loans are tax-deductible, which can work to lower your overall annual tax burden.
  • More Interest Payments – Although long-term small business loans feature lower interest rates, borrowers typically end up paying more in interest over the lifetime of a long-term loan vs a short-term loan. This is because borrowers will pay interest for an extended period of time, so total interest costs will be higher overall.
  • Collateral Requirements – Depending on how much funding your business is seeking and the term length of your loan, your business may be required to provide collateral. With real estate or equipment purchases, the asset you’re buying typically counts as collateral for the loan. However, if you’re looking to finance a growth project, you may be required to provide collateral or put down a 20% down payment. You’ll also need to keep in mind the risks associated with collateral. If your business owner defaults on the loan, lenders reserve the right to seize your collateral.
  • Long-Term Financial Commitment – In a way, long-term business funding can limit your flexibility as a business owner. You’ll have to adhere to a set repayment schedule for several years as you work to pay off your loan. In some cases, this may limit your ability to take advantage of new business opportunities. You may also find yourself with a larger debt-to-income ratio, making it harder to acquire additional financing.

Long-Term Business Loan Vs. Short-Term Business Loan

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.

When would a business need a long-term loan as opposed to short-term financing? There’s no easy answer; The best option for your business depends entirely on your needs and goals.

Type of Financing Pros Cons
Long-Term Financing – Best for bigger projects and significant investments.
  • High funding amounts
  • Extended repayment schedule
  • Lower interest rates
  • Great for long-term projects, where you won’t see an immediate ROI
  • Restrictive eligibility requirements (high credit score, lengthy time in business, etc.)
  • May require collateral
  • Lengthy application process
  • Longer repayment can increase how much you pay in interest
Short-Term Financing – Best for investments with near-immediate ROI and quick infusions of capital.
  • Less intensive eligibility criteria
  • Fast approvals & funding times
  • Quick turnaround time (get out of debt faster)
  • Often no need for collateral
  • Higher interest rates
  • Lower funding amounts
  • Frequent repayment schedule

It’s easy for a business to identify when it needs a capital infusion, but when would a business need a long-term loan? 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 and costly technological investments.

Overall, expenses that don’t drive short-term revenue are best covered by long-term loans. 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.

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.

Type of Financing Description
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 the opposite of 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.

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.

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. Because of this, it’s one of the most popular types of long term business loans.

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.

Term 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.

How to Get a Long-Term Business Loan

Applying for a long-term business loan is a fairly simple process. We’ve broken it down into 3 easy-to-follow steps.

Step 1: Shop Around

There are many lenders and loan options available, which is why you’ll need to compare rates and terms to find the best long-term business loan for your company. The most convenient and comprehensive way to compare multiple loan offers side-by-side is through National. Learn more about the process here.

2. Complete the Application

Once you’ve selected the lender and loan option that meets your needs, it’s time to apply for the loan. This typically involves completing the application and providing the required documentation, including financial statements and tax returns. Be prepared to answer questions about your business and how you plan to use the loan funds.

3. Close on the Loan

Keep in mind that the review and funding process can vary depending on the lender you’re working with. Banks and credit unions have extensive wait times that can range up to several weeks. Online lenders are the fastest when it comes to approving your application and processing your loan funds.

How to Qualify for a Long-Term Business Loan

The most important thing when qualifying for long-term business funding is to prove to lenders that your business is a sound investment and that you’re capable of repaying your loan. Take a look at some tips to help you qualify:

580 Credit Score

A strong credit score communicates a history of responsible borrowing and a greater likelihood of repaying your loan. This gives lenders extra security and can even result in better long-term business loan rates.

If your credit score is not up to par, it may be wise to improve it before applying for a long-term business loan. Make sure to pay your bills on time, keep your credit utilization low, and dispute any errors on your credit report. Although there are options for long-term loans for bad credit, these solutions can come with higher interest rates.

$500,000 in Annual Revenue

Your business’s annual revenue communicates your ability to manage ongoing expenses as well as future loan payments. Lenders will want to see that your business has a solid financial history and a track record of profitability. Having robust revenue may help you qualify for higher funding amounts or even better long-term business loan rates.

One Year of Business History

Newer businesses are often viewed by lenders as having greater inherent risks. To increase your chances of approval, you’ll need to demonstrate that your business has been established for a considerable amount of time. Although certain lenders, like banks, may have more stringent standards, most lenders will require at least one year of business history.

Long Term Business Loan: Fast & Easy Application Process

At National Business Capital, 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! Here’s what to expect:

  • Apply Securely Within Minutes: Move through our digital application swiftly, then upload your business documents through our secure system.
  • Review Your Offers: Receive multiple personalized offers and compare them alongside expert advice from our team.
  • Get Funded: With your money in hand, you can take advantage of opportunities and tackle challenges with confidence.

Our Business Financing Advisors take the time to understand your business needs and goals, as well as answer any questions you may have about financing. There’s no one-size-fits-all solution for every business; We’ll work with you until you’re confident in your ability to grow to greatness.

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

Frequently Asked Questions

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)

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 15%.

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.

What Is the Typical Repayment Period for a Long-Term Business Loan?

On average, most long-term loans will tend to fall between one and 10 years. If you need a shorter/longer term for a specific reason, make sure to speak about it with your lender.

How Can You Use Your Long Term Business Loan Funds?

Use of funds is dictated by the type of financing. For example, long term equipment loans can only be used for equipment purchases, but term loans can be used for almost any business purpose.

Some products, like lines of credit, are best suited for recurring expenses or projects where you don’t know the exact cost. If you’re looking for more information about which financing product is best for your specific use case, reach out to our team.

Can I Take a Long Term Business Loan With Bad Credit?

Yes! While you might have trouble reaching an approval with a bank or credit union, non-bank lenders are more willing to look past a troubled credit history and listen to the whole story.

Instead of credit score, they focus on your business’s profitability and potential. Make sure to apply to multiple lenders, so you can compare and contrast approvals.

What Documents Do You Need for Long-Term Business Financing?

The exact documents you need will depend on the lender you’re working with. Take a look at some of the most common required documents so you can start preparing ahead of time.

  • Government-issued ID
  • Business bank statements (at least one year)
  • Business credit score
  • Financial statements
  • Time in business
  • Proof of ownership (K1, schedule C, EIN, certificate of corporation, etc.)
  • Business tax returns
  • Collateral (if you’re applying for a secured loan)
  • Cash flow statements
  • Business plan (especially if you’re applying at a bank)

Some require all of the above, while others may require specific ones. For the best results, research the lender(s) you’re applying with and find this information ahead of time.

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About the Author

Joseph Camberato

Joe Camberato is the CEO and Founder of National Business Capital. Beginning in 2007 out of a spare bedroom, Joe and his team have financed $2+ billion through more than 27,000 transactions for businesses nationwide. He’s made it his calling to deliver the educational and financial resources businesses need to thrive.

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