What Are Long Term Business Loans?

Long-term business loans typically come with lower interest rates, but the lengthy terms mean more interest to pay over time.Learn the types of long-term loans and how to compare and apply.

Jeff Salway, Brean Horne Last updated on 18 May 2022.
What Are Long Term Business Loans?

Most businesses go through periods when they need to source extra finance. For large businesses, there is often the option of raising money through investment markets or using some of their existing assets to release capital.

However, this isn’t an option that small and medium-sized enterprises (SMEs) typically have. However, there are still several routes available to them, with traditional business loans among the most common.

There are a few things to think about when taking out a business loan, including the cost, what you need it for and the type of loan you want. You will also want to consider the duration of your loan, with short, medium and long-term deals available.

What is a long-term business loan?

One of the big differences between business loans and personal loans is that the former are often offered over much longer terms. For example, business loans can be taken out for up to 10 years although in some cases it can be up to 25 years. But while this means your interest payments are likely to be lower, there will be more interest to pay across the whole of the term.

» MORE: How do business loan interest rates work?

What are the types of long-term business loans?

The first port of call is usually a bank or building society. They typically offer secured loan deals, where the borrower puts up some form of security (such as a business property) that the lender can claim if the loan can’t be repaid.

There are some alternative sources of long-term finance too. These include asset financing (such as hire purchase and equipment leasing) and peer-to-peer lenders (online services that connect businesses that want to borrow money with those that want to lend it, with lenders receiving returns in the form of the interest paid by borrowers). Both of these are more strongly associated with short-term loans, but longer-term options can be found too.

» MORE: Funding options for growing your business

Advantages of long-term business loans

Long-term business loans offer several advantages including:

  • Lower repayments: Long-term business loans may take several years to pay back, so the repayments tend to be lower than with short-term borrowing of the same amount.
  • Large loan amounts: Businesses can borrow larger sums of money using long-term business loans, which may help with long-term growth strategies and projects.
  • Fixed interest rates: Interest rates on long-term loans are usually fixed, which means that you can budget for the repayments and avoid any surprises.

Disadvantages of long-term business loans

Long-term business loans have a few risks to consider such as:

  • You may end up paying more: Although lower repayment may be right for your business in the short term, in the long term you may end up paying more with the cumulative interest added.
  • Assets may be at risk: Any assets used as security for a long-term business loan will be at risk until the money is repaid. The business won’t be able to use that asset for another type of secured finance for the duration of the loan either.
  • Cash flow risk: Committing to a long-term repayment plan might not be suitable for businesses that experience income seasonality, which may affect cash flow and the ability to repay on time.

How can I apply for a long-term business loan?

There are a few boxes to tick when you apply for any business loan.

When you compare loans you’ll see an APR figure, which is the annual percentage rate at which you’ll repay the loan. This includes the business loan interest rate and standard charges that will be repayable over the year.

That final part will be evidenced through your credit report, so it’s worth making sure your credit record is clean and up-to-date before you apply. This includes filing your accounts before the deadline, paying your invoices on time and checking that all the details it holds about your business are accurate and up-to-date.

You will also need a current business plan, and details on how your business has performed.

When it comes to applying for a long-term business loan, it’s important to show that you can afford it and that you have a purpose for the money, as this may influence the lender’s borrowing decision and the rate charged.

What is a business bridge loan?

For some businesses it could be worth exploring bridging loans. These are designed to cover gaps in funding, such as while you wait for a long-term finance arrangement to be completed. They are usually secured, meaning assets (such as property or equipment) are put up as collateral.

However, by definition they are short-term loans and rarely appropriate for long-term financing.

» COMPARE: Business bridging loan rates and deals

How can I compare business loans?

One way to check out the different lenders and loans available is to use comparison websites.

Most comparison services offer business loan tables that tell you the amount each provider can lend, the terms and the interest rates. The interest rate gives you an idea of how different providers compare, but does not include charges and fees, but the exact rate you’ll be offered will depend on things such as the length of your loan, how much you’re borrowing and your credit record.

» COMPARE: Business loan rates and deals

Image source: Getty Images

About the authors:

Jeff is a freelance journalist who writes across finance & business. He was the personal finance editor at The Scotsman & Scotland on Sunday & a member of the Financial Services Consumer Panel. Read more

Brean is a personal finance writer at NerdWallet. She covers a range of financial topics and has written for consumer titles including Which?, Moneywise and The Motley Fool. Read more

Find out if you can get a business loan Compare business loans now

If you have any feedback on this article please contact us at [email protected]