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A long-term business loan is a business loan that has a lengthy repayment period. You receive a lump sum of cash at the beginning of the loan, then pay that balance back over time.
Typically, long-term business loans have repayment periods of a year or more. However, they can last for as long as decades depending on the loan used.
Many business owners turn to long-term business loans to help them invest in their company and fund their expansion.
Key Points:
- Debt costs money – expect to pay interest on the money you borrow
- Don’t be afraid to borrow – Though debt can be scary, using it properly can speed up your company’s growth
- Be in it for the long-haul – long-term loans have longer repayment periods, so be ready to be paying back the loan for years to come
How does a long-term loan work for small businesses?
For small businesses, long-term business loans are usually used to make a specific purchase or investment in the business. Ideally, this investment will help the company grow and increase its revenue over time.
For example, you might use a long-term loan to buy new equipment to increase production capacity, buy a vehicle, or purchase real estate. You may even use a long-term loan to invest in hiring additional staff.
Steps towards a long-term business loan
The process for getting a long-term business loan is as follows.
- Prepare your financial information. Before you apply for a loan, gather all of your business documents and financial statements. Lenders will want to examine these to ensure your company can repay the debt.
- Decide your preferred loan terms. Figure out how long you’ll need to repay the loan and how much you need to borrow.
- Do your research. Once you know what loan you need, you can examine lenders and find a few options that offer loans similar to what you’re looking for. Compare the costs of loans from each lender you find to get the best deal.
- Application assessed. After you choose a lender and submit an application, work with that company while it looks over your application.
- Receive your funds. If you’re approved, your business will receive the funds. You can then use the money to invest in your company.
Long-term vs. short-term loans
Long-term loans work somewhat differently than short-term business loans.
Short-term business loans usually prioritize quick application and funding over strict underwriting and large loan amounts. This makes them more costly. It also means they’re a better fit for small, immediate financial needs. If you think a short-term loan might be a better fit for your business, visit our list of the best short-term business loans reviewed by financial experts.
Long-term loans have lower monthly payments and give you more time to repay the debt. Underwriting can be more involved as well. These types of loans are designed for more serious investment in business growth. To discover more see short term vs long term loan.
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