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As a small business owner, you're always looking for ways to grow. That's where long-term business loans come in. These loans give you the money to make big moves, like buying commercial real estate, expanding or renovating your space, launching new products or services, hiring people you couldn't afford before, and consolidating high-interest debt.
Long-term business loans typically range from five to 30 years. Longer loan terms help spread out the cost of borrowing, reducing your monthly payment.
I'm Bryan Gerson, co-founder of Clarify Capital, and below I'll outline what's out there, what each option costs, and how you qualify.
The Basics of Long-Term Business Loans
A long-term business loan provides you with a lump sum of capital that you repay the lender over a specified period of time. This is usually five to 10 years or longer. Each month, you pay a fixed and equal amount to the lender. This allows you to easily plan for the future because you'll know exactly what to budget each month.
Almost all long-term loans follow an amortized schedule. In the beginning, most of your monthly payment goes toward interest on the loan, while toward the end of the term, almost all of it covers the principal. Regardless of where you are in the term, your monthly payment stays constant, making it much easier to create a financial plan.
Selecting the Right Long-Term Business Loan for Your Company
The right type of small business loan depends a lot on your circumstances. You can choose the appropriate loan for your company depending on what you're purchasing or using the funds for, how soon you need the money, and what your company looks like on paper. Below, I cover some of the most common long-term business loan options.
| Type of loan | Term | Rate | Secured by | Qualifies based on |
|---|---|---|---|---|
| SBA loans | 10 to 25 years | Among the lowest available | Sometimes, depending on loan size | Small business revenue, two years in business, 640 FICO score |
| Traditional bank loans | 5 to 7 years | Lower than alternative lenders | Often | Small business revenue and credit history, typically a 700 or higher FICO score |
| Online business loans | 6 to 36 months | APRs starting at 6% | None | Small business revenue, six months in business, 550 FICO score |
| Home equity line of credit | Up to 30 years | Variable, as low as the prime rate | Home equity | Your personal income, credit history, and home equity |
SBA Loans
SBA 7(a) and 504 loans are guaranteed by the U.S. Small Business Administration. They include some of the most favorable terms for a small business. SBA loan amounts go up to $5 million. The typical loan terms for SBA loans include up to 10 years for working capital and equipment purchases, and up to 25 years for real estate purchases.
What lenders look for
Two years of business history, excellent annual revenue, and a personal FICO credit score of approximately 640 or higher.
Collateral
Sometimes required, depending on loan size and program
Traditional Bank Loans
Traditional banks provide long-term business loans that generally last anywhere from five to seven years. These loan rates tend to be lower than those charged by alternative lenders. Traditional lenders tend to be far more selective and may require significantly longer processing time.
What lenders look for
An established business with significant annual revenues and a good personal credit rating, often a 700 FICO or higher.
Collateral
Possibly required to secure the loan.
Online Business Loans
Online lenders such as Clarify Capital move faster than banks and request fewer items. Online lenders can often approve financing within a day or sooner. You don't have to have a perfect credit rating to qualify.
Clarify Capital's own term loans are short-term loans ranging from six to 36 months. Our long-term options include equipment financing (12 to 72 months), SBA loans (10 to 25 years), and a HELOC (up to 30 years). Your lending advisor will direct you toward whichever term fits your time horizon requirements.
What lenders look for
Gross monthly revenues of $10,000 or more, a minimum credit score of 550, and six months or more in business.
Collateral
None required.
Home Equity Line of Credit (HELOC)
A HELOC is an entirely different type of financing. Unlike the other options on this list, it's not a business loan. Rather, it's a line of credit secured by your equity in your home, which you can then use in your business.
Lenders evaluate your personal income, your credit history, and how much equity you have in your home (the value of your home minus what remains owed on your mortgage). Your small business's profit history or length of operation doesn't factor into this evaluation.
You access funds as needed during the draw period and then begin repaying them over a predetermined period. The maximum draw period offered through Clarify is five years, and repayment can continue for up to 30 years, the longest possible term among all of our options.
Because of this lengthy repayment window, your monthly payments are often low. Still, if you can't make payments on a HELOC and fail to satisfy its obligations, you could lose ownership of your home. That represents a far greater risk than an unsecured small business loan.
What lenders look for
A 620 FICO credit score plus sufficient equity in a property you own, one to four unit properties.
Collateral
Your home equity.
When Long-Term Financing Makes the Most Sense
While long-term financing may not fit every company's needs, it's certainly a valuable tool when applied correctly. Below are instances where it tends to make sense.
Expand your business
When expanding your operations (opening additional locations, hiring employees, or investing in improving office space), long-term financing lets you cover these expenses while protecting cash flow.
Purchasing large equipment
Commercial real estate or large pieces of equipment can cost tens of thousands of dollars or more. Using long-term financing enables you to keep your monthly payments reasonable and manageable.
Creating steady growth
Instead of providing your company with multiple short-term injections of capital, long-term financing enables consistent and gradual growth.
Replacing expensive debt obligations
Refinancing expensive short-term financing with a long-term option reduces your monthly expenses and frees up cash for reinvestment.
Investment opportunities that take time to yield returns
Long-term financing is well-suited for opportunities that generate returns beyond the near future, like developing products or services that lead to increased sales volumes, or entering new markets that require substantial investment.
