About 40% of American business owners apply for loans each year. In total, they borrow right around $600 billion.
Some of these business owners take out loans to invest in inventory. Others do it to expand into new markets. But all of them share one common goal when trying to get their hands on loans: They want to use them to help their businesses grow.
Could your business benefit from a loan? There are short-term business loans as well as long-term business loans that you can apply for when your business needs cash.
If you don’t want to have to worry about paying a loan back right away, long-term business loans are usually the best way for business owners to go. Check out five of the biggest advantages associated with long-term loans below.
1. Longer Repayment Periods
There are some businesses that only need a quick cash infusion for one reason or another when they decide to apply for loans. Maybe they need to make a repair in their business right away or cover the cost of an unexpected bill from a vendor.
In these cases, it often makes the most sense to go with a short-term business loan. Businesses can get access to the money that they need in a hurry and repay it within just a few months.
This isn’t always an ideal arrangement for businesses, though. There are many businesses that need to take out a loan and know that they aren’t going to be able to repay it right away.
Long-term business loans are much better options for these businesses. With long term loans, businesses will have the freedom to take anywhere from two years all the way up to 25 years in some cases to pay down the balance of a loan.
As a result, business owners won’t have to freak out as soon as they take out a long-term loan. They’ll get the peace of mind that comes along with knowing they have plenty of time to pay back the money that they borrowed.
Some business owners will make it their mission to pay back loans as soon as they can. But those who know they aren’t going to be able to do that don’t have to lose sleep at night over it.
2. Higher Funding Amounts
Many of the short-term business loans that are handed out to businesses are on the smaller side. Businesses that only need to find a way to come up with a few thousand dollars can usually benefit the most from those types of loans.
But what about if you need a much larger loan to pay for something that’s very expensive? That’s where long-term business loans come in. They’re designed to help businesses get tens of thousands and even hundreds of thousands of dollars.
Over the years, business owners have turned to long-term loans time and time again for a variety of reasons. They’ve used these loans to pay for things like:
- Real estate
- Improvements to their commercial properties
They’ve also utilized them to establish working capital for their businesses. It’s amazing what a business can do when it has some working capital on its side.
It wouldn’t be possible for businesses to get the kind of money that long-term business loans can offer otherwise. It could hurt their ability to grow, and in certain situations, it could even force them to shut down and disappear forever.
3. Lower Interest Rates
It’s not always easy for businesses to qualify for long-term business loans. The reason is that lenders need to be 100% sure that businesses are equipped to pay back long-term loans before they give them out.
There are a bunch of different things that a lender will consider prior to approving a business for a loan. Each lender operates a little bit different. But generally speaking, lenders consider these factors when trying to decide whether or not to give a business a loan:
- How much income a business is bringing in every month
- How much of a personal investment a business owner has made into their own company
- What a business owner’s business plan looks like
- How established a business’ track record is
- What a long-term loan is going to be used for
These factors might make it tough for your business to qualify for a long-term loan. But if you are able to qualify for one, one of the best parts about it is that you’ll usually get a very favorable interest rate.
A low interest rate will be great because it’ll soften the blow when you go to make payments on your loan every month. You’ll save a significant amount of money with a long-term loan versus a short-term loan thanks to your interest rate.
Different lenders will extend different interest rates to businesses. So it’s a good idea to compare the rates available through lenders if your business is strong enough to qualify for a long-term loan.
4. Lower Monthly Payments
People used to borrow money to buy cars and commit to paying auto loans back within three or maybe four years. But today, there are a lot of people who take anywhere from 72 to 84 months to pay off a car.
Do you know why? It’s because it allows people to lower their monthly payments by stretching their payments out over time.
There are many people who will tell you that this is a bad approach for people to take when buying cars. But it’s an excellent approach for those who are borrowing money on behalf of their business.
Let’s say you’re taking out a loan to pay for a new building for your business. That building is going to be used for at least the next few decades and, in theory at least, it’s going to help your business make money over that time.
With this in mind, there is nothing wrong with spending five, ten, or even 20 years paying off that building. You’re essentially going to be devoting a portion of the income that the building brings in to pay off your business loan—and you’re going to be doing it without saddling yourself with super high monthly payments.
Shorter-term loans would make it pretty much impossible for you to do this. Your monthly payments would be so high that you would be at risk of falling behind and not being able to repay what you borrowed. It’s why it makes so much sense to stretch large loans out over longer periods of time.
5. Customization Options
When your business takes out a long-term business loan from a lender, that lender is going to be more than just someone providing you with a large sum of money. They are, in essence, going to turn into a partner to you.
That lender will want to see you succeed at all costs so that you’re able to pay them back the money that you borrowed. That means that they’re going to be willing to do whatever it takes to put you in a position to win.
That includes coming up with ways to customize your loan so that it fits your specific needs. Most lenders have loan customization options that they can extend to businesses to help them out.
When you’re customizing a long-term loan through a lender, you can choose:
- Exactly how long you want to take to pay back your loan
- What you want your monthly payments to be both now and in the future
- When you want to make payments on your loan and how you want to make them
As we alluded to earlier, lenders really pull out all the stops when it comes to approving businesses for long-term business loans. They check (and then re-check!) that a company qualifies for a loan before giving it out.
This builds up a certain level of trust between long-term loan lenders and their clients. Lenders are often more open to the idea of setting customized loan terms for those who have earned their trust.
It creates a much better situation for lenders and borrowers alike, and it ensures that borrowers are able to pay back their loans in a predetermined amount of time without running into any issues.
Apply for Long-Term Business Loans Today
Has your business kicked around the idea of borrowing a significant amount of money to help fuel your growth?
Long-term business loans are almost always the right way to go. They’ll give you the money you need and provide you with more than enough time to pay it back.
They’ll also set you up with a low interest rate and other terms that will work in your favor. It’s easily the better option when you compare a long-term loan to a short-term one.
The long-term loan application process can take some time, so make sure you apply for a long-term loan sooner rather than later. It’ll help you get the money you need when you need it.
Want to learn about some of the other types of loans available for businesses? Read our blog to discover what they’re all about.