Long-term Business Loans are taken by companies that are looking to make a significant investment. Long-term business loans are loans where a lender provides a huge sum of money that can be paid back comfortably over a long tenure of time. These loans can be used to cover various expenses and requirements like machine repairs, hiring employees, etc., while repaying the loan in monthly instalments according to the equated sum.
What are Long-Term Business Loans?
Long-term business loans are a type of method for borrowing credit that can be paid back to the lender over an extended period with added interest and a fee. When we speak about Term business loans, usually long-term business loans are preferred over short-term business loans.
Generally, these long-term business loans are usually for people who want to avail a large number of loans. These loans are very helpful for business entities as they can repay this amount easily through equated monthly instalments. The maximum duration of long-term loan repayment is usually 5 years. But the duration of the long-term loan repayment can be extended, in some cases as per the requirements of their business or on the supervision of the lender.
What are Term Business Loans?
Term Business Loans are short-term to long-term loans given to a business by banks, which businesses utilize to meet their working capital requirements, asset purchases, expansion, etc. The interest to be paid and the time for that term business loan depends on the type of loan that the business has selected.
Term Business Loans are classified into three types based on the Duration of repayment/tenure of the loan:
- Short-term Business Loans: These loans usually have a tenure of 1 to 3 years. These loans are taken by businesses to meet their working capital requirements. The interest rate is usually higher and the loan has to be paid in full at the end of the agreement rather than paying them in equated monthly instalments.
- Long-term Business Loans: These loans usually have a tenure of 5 to 10 years. These loans are suitable for businesses that are expanding their business, refinancing, etc. The interest rate is lower compared to short-term business loans. These loans are paid back in monthly instalments.
- Interim-term Business Loans: These loans are given to businesses that are reliable and pay their loans on time. These loans are taken by businesses that have run out of cash and have to make urgent payments. The bank keeps a track of the assets of the business like buildings, machinery, etc.
Term Business Loans are classified into two types based on the Security of the loan:
- Secured Business Loans: Secured business loans are ones in which the bank demands some asset of the business as security as collateral for the loan. If the loan is not paid back in time, then the bank has the right to sell the asset and retrieve the money through it.
- Unsecured Business Loans: Unsecured business loans do not have anything as security as collateral damage for the loan. These loans are granted by banks when they are completely sure about the repaying ability of the borrower.
Term Business Loans are classified into two types based on the Facility of the loan:
- Line of credit: These loans are usually availed by small business owners. These loans are used to meet working capital requirements. These loans have a low-interest rate and are paid back through monthly instalments. However, the principal method of repayment can be changed as per our suitability.
- Letter of credit: These loans are availed by businesses indulging in international transactions. A letter of Credit is responsible for the payment of the supplier in another country. If the borrower in the hometown fails to repay the amount to the bank, then the bank can sell its assets and retrieve the loan amount back.
Some examples of Long-Term Business Loans
- Education Loans
- Home Loans
- Car Loans
- Personal Loans
- Small Business Loans
- Long-Term Payday Loans
What is the difference between Long-Term and Short-term Business Loans?
|Parameter||Short-Term Business Loans||Long-Term Business Loans|
|Tenure||Usually, the tenure is for a shorter period that ranges between 1 to 3 years.||Usually, the tenure is for a longer period that ranges between 1 to 3 years.|
|Eligibility criteria||Eligibility criteria are not strict||Eligibility criteria are very strict|
|Interest rate||The Interest rate is usually higher||The Interest rate is comparatively lower|
|Processing time||The access to funds is processed very quickly, sometimes within 24 hours||The access to funds is processed very slowly as all the applications of the borrower have to be checked thoroughly.|
|Documentation||Minimal Paperwork||Heavy Paperwork|
|Disbursal time||Quicker disbursal||Disbursal Time depends on the lender.|
What are the pros and cons of Long-Term Business Loans?
- Comfortable Repayment terms: Interests rate on long-term business loans are usually lower in comparison to short-term business loans. So, the monthly instalments are very small and hence the loan can be repaid to the bank easily.
- Higher loan amount: In comparison to short-term business loans, a larger sum of the amount can be availed under long-term business loans. Hence, a large number of loans can be used for business payments and costs in the long run.
- Meet long-term goals: As long-term business loans provide huge amounts of money, this amount can be used to start new projects or a new business that requires a lot of money. As the equated monthly instalments (EMIs) are affordable, the operational cash flow for the business does not be affected.
- Requires Collateral: Long-term business loans are usually secured loans; that is, the bank asks for security as collateral damage for the bank.
- Stricter Eligibility Criteria: Since the loan is provided for a longer tenure, the lenders may impose very strict eligibility criteria for them to provide the loan to the businesses. One such example could be that the lender looks for a higher CIBIL score.
- Rigid cash flow requirements: If your company has a healthy and regular cash flow, then availing of a long-term business loan would be very easy. But in the case of small or medium-sized companies with variable cash flow, they cannot easily avail of long-term business loans.
Why should you apply for Long-Term Business Loans?
The right business financing option can be selected based on their current situation and financial requirements. The following points can help them decide whether long-term business loans are suitable for their companies:
- Lenders of long-term business loans usually prefer lending loans to established businesses. They prefer established businesses as they are lending a large sum of money and in return, these established businesses can pay it back to them as they have sustainable revenues for the past few years.
- For small businesses that need long-term business loans, they will likely need to provide the following to the lender:
1. Annual Revenue
2. Monthly bank statements
3. Other financial metrics throughout the tenure
- Lenders usually prefer businesses with high credit scores, so, if their credit score matches the requirement of the lender then there is a high chance that the business can avail of a long-term business loan. Therefore, business lenders may be more confident that you’ll have the funds available to pay your loan balance.
- Long-term business loans are a major commitment for the business borrowing it; these loans would affect the business majorly and also impact its financial assets.
Some of the financial commitments are:
1. You’ll need to be able to afford monthly payments.
2. Interest payments can add up quickly.
3. You may not be able to qualify for financing later on.
Before availing of any kind of business loan first, all businesses have to look into their financial merits and they have to try to avail the most optimal and advantageous loan option. So, in this blog we learned what long-term business loans are; that is, they are a type of method for borrowing credit that can be paid back to the lender over an extended period with added interest and a fee.
To make long-term business loans easily available for various businesses, there are various options provided by Tata Capital Business Loans. In case of a shortage of funds, the emergency requirement of money or any other requirement by various businesses, Tata Capital Business loans are here to save the day!