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Tata Capital > Blog > Loan for Business > Long Term Business Loan – Pros and Cons

Loan for Business

Long Term Business Loan – Pros and Cons

Long Term Business Loan – Pros and Cons

If you’re looking to make a significant investment for your company, consider taking a long-term business loan, where a lender provides a lump sum cash that you can comfortably repay over a longer tenure. You can use the funds to cover various expenses, such as purchasing inventory, repairing broken machines, hiring staff, etc., while repaying the loan in equated monthly instalments.

However, long-term business credit may not always suit your business requirements. So, how can you tell? Here is a list of its pros and cons to help you decide if it is the right fit for you.

The pros

  • Comfortable repayment terms - Business loan interest ratesare generally lower for long-term loans than short-term ones. So, they usually have smaller monthly payments, as the entire amount is divided over a longer period. Hence, you can manage the loan repayment effectively.
  • Higher loan amount - A long-term business loan is excellent when you need a higher loan amount. Compared to a small-term loan, a long-term loan will provide you with the required money to cover business expenses, investments, and other costs for the long run.
  • Meet long-term goals – Long-term loans are immensely beneficial if you want to invest in long-term projects like opening a new business facility, making acquisitions, etc., where you need to invest large amounts of funds. Since these loans have affordable EMIs, your operational cash flow isn't affected.
  • Build business credit – Long-term loans typically have longer tenures going up to 30 years. So, when you repay the monthly instalments on time and over an extended period, you can build your business creditworthiness without difficulty. This will also boost your eligibility to get a loan for business in the future quickly.

Additional Read: Top 7 Ways to Build Business Credit

The cons

  • Requires collateral - Long-term loans are usually secured. Thus, financial institutions may ask you to pledge collateral to qualify for the loan.
  • Stricter eligibility terms - Since they’re providing funds for a longer tenure, lenders might impose more stringent business loan eligibility criteria for long-term loans. This can also include a higher CIBIL score requirement.
  • Rigid cash flow requirements - In most cases, you can only afford long-term loans if your business has a healthy and regular cash flow. Thus, if you’re a small-to-medium sized company with variable cash flow, such a loan might be difficult to avail of.

Additional Read: Is a Long-Term Business Loan Option Right for You?

Turn to Tata Capital!

Looking to get a long-term loan quickly? All you have to do is turn to Tata Capital, where we offer exclusive business credit facilities, be it long-term or short-term. Apart from the competitive interest rates, collateral-free loans, and numerous other benefits, we also provide an easy-to-use business loan EMI calculator. You can use this to check your potential EMIs in seconds! To know more, check out our website.

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