How to compare long-term business loans
The best long-term loan for your business will likely be the one with the most affordable rates you can qualify for that meets your needs. Here are some factors to consider as you compare loan options:
Loan type. You should consider the types of business loans that a lender offers — and which type is best suited for your needs. If you’re looking to finance a car purchase, for example, you might look for a lender that offers dedicated business auto loans.
Repayment terms. Some long-term business loans offer repayment terms up to 10 — or even 25 years. Although longer repayment terms will have smaller monthly payments, keep in mind that you’ll also pay more in interest over the total loan period.
Interest rates. To get the most competitive business loan rates, it’s helpful to be an established company with good credit and strong finances. Online lenders may offer more flexible qualification requirements, but they typically charge higher rates. You’ll want to compare multiple options to find the lender that can offer you the lowest rates.
Funding speed. Long-term business loans can be slower to fund, especially when issued by banks and SBA lenders. Online lenders can offer faster business loans with streamlined applications — but you might pay a little more in interest as a result.
Customer service. Customer support options and additional perks vary from lender to lender. Credit unions, for example, are often well known for their personalized customer service. Nonprofit lenders, on the other hand, may be able to offer general business training in addition to financing support.
What is a long-term business loan?
A long-term business loan is one with a lengthy repayment period, often defined in years instead of months. The repayment period typically ranges from three to 10 years; although, some loans, like SBA loans, can have even longer terms of up to 25 years.
Long-term small-business loans can be a good option for purchasing real estate, financing equipment, purchasing company vehicles, renovating or expanding your business, hiring new employees, refinancing existing debt and more.
Long-term business loans vs. short-term business loans
Short-term business loans usually have repayment terms of 12 months or less — although they may extend to 24 or 36 months. Here’s an overview of the key differences between long-term and short-term business loans:
Repayment schedule. Long-term business loans typically have monthly repayments, whereas short-term loans may require weekly or daily payments.
Interest rates. Short-term business loans generally have higher annual percentage rates compared to long-term business loans — although the interest rate you receive will vary based on the lender and your business’s qualifications.
Borrower requirements. Lenders often have stricter business loan requirements for longer-term funding; you may need strong annual revenue, multiple years in business and good personal credit to qualify. Short-term lenders are usually more lenient and may work with startups or borrowers with bad credit.
Funding speed. Long-term financing can be slower to fund, especially with large business loans. Short-term loans, on the other hand, may fund in as little as 24 hours.
Use cases: Whereas long-term loans are best used for large investments in your business growth or expansion, short-term loans are well suited for working capital needs and covering emergency expenses.
» MORE: Best working capital loans
How do long-term business loans work?
Long-term business loans provide borrowers with lump sums of capital. They are usually repaid on a monthly basis, with fixed, equal payments over the course of the term. Generally, this type of financing follows an amortization schedule, where you pay more toward interest at the beginning of the loan and more toward the principal at the end.
Depending on the loan product, you may have a choice between a fixed or variable interest rate. Long-term business loans are offered by banks, online lenders and credit unions, among other types of lenders.
Types of long-term business loans
Here are some of the most common types of long-term business loans:
SBA 7(a) and SBA 504 loans
These government-backed small-business loans typically have some of the lowest rates and the longest repayment terms in the market. To qualify for these long-term business loans, you work with banks and other lenders, approved by the U.S. Small Business Administration. The typical repayment period for SBA loans is up to 10 years, but you may receive up to 25 years for large fixed asset or real estate purchases.
SBA microloans
The SBA also offers microloans, which are distributed through nonprofit community institutions. These institutions often focus on working with underserved business owners, such as minority business owners and women business owners. SBA microloans have terms up to seven years — but they are only available in amounts up to $50,000, which may not be ideal for funding larger projects.
» MORE: Compare the best SBA and nonprofit microlenders
Bank and credit union business loans
Traditional lenders provide long-term business loans, often with repayment terms between five to seven years. Bank business loans used to purchase commercial real estate may have longer terms of up to 25 years, in some cases. Banks tend to offer lower interest rates than online lenders, but your exact rate will depend on your qualifications.
Aside from big banks, you can also apply for a long-term business loan at your community bank or credit union.
Online business loans
If you don't qualify for an SBA loan or bank loan — or you want funding faster — consider long-term business loans from online lenders, such as Funding Circle. This online lender offers repayment terms of up to 84 months.
Although online lenders tend to have less stringent requirements than traditional lenders, they typically charge higher interest rates and may offer smaller loan amounts.
Pros and cons of long-term business loans
Pros
May have low interest rates.
Fixed monthly payments over a longer period of time make cash flow easier to manage.
Can be used for a variety of business purposes.
Cons
Can be difficult to qualify; strong credit and revenue typically required.
May be slow to fund, with extensive documentation needed.
Often require physical collateral.
How to get a long-term business loan
You can follow these steps to get long-term financing for your small business.
1. Evaluate your financing needs
You’ll want to determine how much funding you need and why you need it. This will help you orient your loan search in the right direction. If you’re looking to purchase a truck for your business, for example, dedicated semi-truck financing might be the best option.
2. Review your qualifications
To qualify for a long-term business loan, you may need to meet strict eligibility requirements. Many lenders want to see at least two years in business, good credit and strong finances. You may also need to provide collateral.
If you have a lower credit score or less than one year in business, you might consider alternative options:
Compare the best business loans for bad credit.
Learn more about startup business loans.
3. Compare business lenders
Once you have an understanding of your financing needs and qualifications, you can start researching and comparing lenders. The best small-business lender will offer the product you need, has requirements you can meet and charges affordable interest rates.
🤓 Nerdy Tip
When comparing loan options, consider how the repayment term affects the overall loan cost. For example, let’s say you can get a $100,000 term loan with an APR of 10% and a term of 10 years. With this loan, you’d make monthly payments of approximately $1,322, for a total repayment of $158,581, which includes $58,581 in total interest.
If you repay this same loan over seven years, on the other hand, you’ll have a larger monthly payment (about $1,660), but you’ll save over $19,000 in interest. Your interest costs will be $39,450.08 for a total repayment of $139,450.08.
Use our business loan calculator to estimate a loan’s monthly payment and costs.
4. Gather your documentation and apply
The application process will vary based on your lender and loan type. Banks and credit unions may ask for extensive documentation and require you to visit a branch location to apply. Online lenders, on the other hand, typically offer streamlined applications with fewer documentation requirements.
In general, you may need to provide:
Basic information about you and your business.
Personal and business bank statements.
Personal and business tax returns.
Business financial statements.
A description of your collateral, if necessary.
5. Sign your loan agreement and get funds
Once your application is approved, your lender will send you a business loan agreement to review and sign. You’ll want to read through the agreement carefully and ensure you understand all of the terms and conditions. If you have any questions or concerns, you should reach out to your lender directly for clarification.
After you’ve signed the agreement, your lender will typically transfer your funds directly into your business bank account. This process may take a few days, depending on your bank.
» MORE: How to apply for and get a business loan
Frequently asked questions
Most long-term business loans have a maximum repayment term of 10 years. But some types of loans, like commercial real estate loans or construction equipment financing, may have longer terms. For instance, the maximum term for SBA loans used for commercial real estate purposes is 25 years.
Many lenders will require that you have strong personal credit in order to qualify for a long-term business loan. If you have bad credit, however, you may be able to access capital through an SBA microloan. These loans max out at $50,000 but are distributed through nonprofit organizations, which often have more flexible requirements and are willing to work with newer businesses or those with bad credit.
It depends on the interest rate and term length of your specific loan, but in general, the longer the loan term, the more interest you’ll pay over the life of the loan. Although you may pay less in total interest on a short-term loan, your monthly payment will typically be higher than with a long-term loan of the same amount.
Long-term business loans are often used when a business needs a lump sum of cash for expenditures such as the purchase of real estate or equipment, renovation of an existing business, business expansion or refinance of existing debt.
