Synopsis: Long-term business loans are credit borrowings that can be repaid over a prolonged period of time, along with added interest and fees. Read along to know if it’s the right decision for your business.

While income from sales can help you keep a healthy cash flow and take care of different business needs, there are times when you’ll need to get loans to keep your business running. These days, you can get both short-term and long-term loans for a sizable sum. 

One of the benefits of choosing long-term business loans is that they can help you cover costs without breaking the bank in the short term. But are long-term loans the best option for your business? In this article, we talk about what long-term business loans are, their pros and cons, and if they are suitable for your business.

What is a long-term business loan?

A long-term business loan is one that you’ll pay back over a protracted period, usually one year or more. The loan typically has a repayment period of two to five years, but some have terms as long as 25 years.

Long-term loans are commonly used to fund large investments or purchases, such as initiating expansionary projects, purchasing heavy machinery, commercial real estate, or expanding an already operating business.

Long-term business loans let you divide hefty debt into manageable payments that can accumulate over time. By doing this, you’ll be able to reduce your debt as your company expands and its revenue stream continues.

Long-term business loans operate similarly to most other forms of financing. You will be given a lump sum of capital, which you will repay in accordance with the conditions laid out in your contract for repayment. Depending on what you and your lender agree upon, you may make payments on a monthly, bimonthly, or another schedule.

Pros of long-term business loan

Some of the pros of availing a long-term business loan for your business are:

1. Improves business credit

Debts can be advantageous as well as detrimental. When you take out a loan but can’t pay it with interest, within the specified timeframes, the implications on your business can be severe. Failure to pay off the debt on time will harm your creditworthiness, making it much more difficult for you to get loans from any other lender.

On the contrary, debts can be advantageous if you pay them back on time and with the proper interest. Your creditworthiness will increase as a result, enhancing your ability to get loans from banks and other lenders.

2. Higher loan amount

A long-term loan generally allows you to borrow significantly more than a short-term loan, sometimes more than Rs 50 lakhs. Although there is no assurance that you will be approved for this sum, the fact that your debt will be spread out over so much time will make it simpler for you to manage your loan.

You may use this loan amount for important purchases like the acquisition of high-cost machinery or the construction of a new building. Additionally, you can keep a portion of the loan amount to use as working capital insurance or for future needs.

3. Promotes business scalability

Any business’s main goal is to survive and expand, and these funds provide the necessary assistance to set you on this course. These loans will provide your business with a one-time capital infusion that can be used for expansion. The money can be used for inventory, new equipment purchases, marketing initiatives, hiring new staff members, or new business altogether.

4. Fixed monthly payments

Your lender will work with you to determine fixed payment terms for the duration of the loan when you apply for a long-term loan. You won’t have to worry about this amount changing in the future because you’ll be aware of the exact amount you’ll be paying each payment cycle.

You can then use that information to plan your budget for upcoming business cycles effectively.  Moreover, if you’re lucky enough to secure a long-term business loan at a lower interest rate, you’ll be locked in at that rate, regardless of market interest rates rising.

5. Saves money in the long-run

The majority of funding options, including overdraft facilities, require a fixed deposit as collateral and have brief loan terms. Despite the potential for easy access to cash, there is a chance you might get entangled in a vicious cycle of debt.

With a long-term business loan, you can apply for a loan of up to Rs 50 lakhs for an extended period with low-interest rates, which enables you to make long-term financial savings. Additionally, because of the flexible tenure options and straightforward monthly repayment options, you can easily include the cost of the loan to the creditor in your monthly business expenses.

6. Lower interest rates

The specific interest rates you’ll be eligible for will depend on several factors, including your credit score, business history, financial situation, and more. Nevertheless, compared to shorter-term financing options, long-term loans typically have lower interest rates. In some situations, you might even be able to reduce closing costs and other types of fees.

That being said, a loan with a lower interest rate won’t necessarily be less expensive than one with a faster repayment schedule; it will just be simpler to manage. If you want to make sure you’re getting the best deal, you’ll need to consider several different factors.

Cons of long-term business loan

While long-term business loans come with a lot of pros, they have drawbacks as well that can negatively impact your business. Some of the cons of applying for a long-term business loan for your business are:

1. Need for collateral

Assume you’ve decided to take out a secured loan against property to expand your business and benefit from a long-term business loan. In that case, you should be aware that if you are unable to make your loan payments, the lender may seize your asset as collateral.

2. Stringent eligibility requirements

You typically need a long business history, a solid track record of revenue, and strong personal credit (usually a FICO score of over 700) to be eligible for a business loan from a bank. Sometimes, you might also be required to offer collateral, like real estate or equipment, to secure your financing, depending on the bank and the loan type. 

Additionally, most banks will ask you to sign a personal guarantee that makes you personally liable for the debt if your company is unable to make payments.

3. Long-drawn process

As with any other loan, business owners must submit a written loan application and all supporting documents to the lender. This is usually followed by a verification process to ensure the borrower’s application, supporting documents, and credit score is in order. 

After that, the company’s loan is only approved. This process is a pretty long draw, but it might not be in your best interests if you need the money right away. This becomes increasingly apparent if you don’t have all the paperwork handy.

Apply for a long-term business loan with Protium

A long-term business loan is ideal for meeting a variety of business needs, such as developing a new product or expanding your stores to other locations, as these loans rarely place restrictions on how the money is used.

If your business is growing and you are thinking of applying for a long-term business loan, the last thing you need is a complicated application process. This is where Protium – a finance company building powerful and transformative financing solutions, comes to your rescue! Applying for a loan with Protium means a quick process with less paperwork and affordable interest rates. To know more, give us a call at 8828827800.