What’s a business loan?
Today, that question could have many correct answers. With traditional banking institutions getting more innovative and alternative lenders entering the small business lending space, there are many different types of business loans.
But if you were to answer that question 10 or 15 years ago, you’d probably respond in one—maybe two—different ways. Odds are, you’d describe a term loan (a long-term business loan, specifically) because that was pretty much the only type of business financing available to entrepreneurs.
Despite the many flavors of financing available nowadays, long-term loans are still the most common type of business loan—or any loan, for that matter.
And for an entrepreneur, long-term loans—whether from a bank, the government, or an online lender—are probably the best kind of capital you can receive to finance a company.
Where can you find a long-term loan for your business? We’re here to walk you through the ins-and-outs of long-term loans—and tell you exactly where to find the best long-term business loans on the market.
When you hear the words “long-term loans,” you’re probably thinking:
“What makes a business loan ‘long-term’? Long-term compared to what?”
Great question. It’s not an industry standard to give term loans a kind of modifier like this.
And regardless of what’s in front of the word—“long-term,” “medium-term,” or “short-term”—a term loan can generally be described as a lump sum loan in which a lender offers a borrower a sum of capital that they have to pay back (with interest) over a set period of time.
That repayment period you and your lender agree upon is what distinguishes the different kinds of term loans.
And from here, it’s pretty obvious where the main differences between long-term loans and short-term loans lie.
A long-term loan has a repayment period of a few years—anywhere from 1 to 10 years. A short-term loan, on the other hand, has a repayment period of 3 to 18 months. (And you might hear of a medium-term loan, which falls somewhere in between: terms range from 1 to 5 years.)
And while all these loans are “term loans,” distinguishing them by their term length is an easy way to get a sense of what kind of financing you’re working with.
The term set on long-term loans is the fundamental difference between them and their shorter-term counterparts.
However, there are other differences between the two types of term loans (that make long-term loans a small business owner’s best financing option).
When you’re on the hunt for small business loans, there’s a wide variety of options laid out on the table in front of you: long-term loans, short-term loans, invoice financing, business lines of credit, equipment loans, etc.
There’s a time and place for every type of business loan now offered. But in almost every scenario, long-term loans are the most desirable kind of business funding.
Mostly because these loans offer a hefty sum of capital, are paid over a long term, and come with a very affordable price tag.
Here’s what you need to know.
Whereas a shorter-term loans come with daily, weekly, or biweekly payments, long-term loans don’t put that kind of repayment pressure on business owners.
With a long-term loan, you’ll likely have fixed monthly payments over a long period of time.
The repayment period set on your long-term loan depends on the lender you’re working with. We’ll get into the specifics of each of the best lenders for long-term loans in a minute, but you can essentially bet on the following:
SBA loans (a specific type of long-term loan—issued by a bank but guaranteed by the government) have the longest terms of the long-term loan bunch. Terms on a long-term loan from the SBA could go up to 10 years for their most common loan program, the 7(a) loan program, and up to 20 years for their CDC/504 loan program.
Other long-term loans have repayment periods ranging from 1 to 5 years.
And over the term of your loan, you’ll be repaying the loan in fixed monthly payments—meaning you’ll know exactly how much you have to set towards loan repayment each month.
With a shorter-term loan, you have to repay the entire loan amount (plus interest) over a shorter period of time. This means that any given short-term loan repayment might be a large sum of money—which can really cut into a business’s cash flow. The repayment of long-term loans, on the other hand, is stretched out over many, many more months. This means that each repayment is likely a smaller amount of cash—which can be less painful on your business’s pockets.
Another reason why long-term loans for businesses are the top financing options available to entrepreneurs is their cost.
Whereas a short-term loan can come with sky-high interest rates (starting at 14%, but soaring as steep as the triple-digits), a long-term loan usually comes with a much more affordable interest rate.
What kinds of rates are we talking here?
Well, at their best, long-term loans can come with interest rates as low as 5% to 6%. At their worst, long-term loans could have interest rates of up to around 20%.
Like any type of financing, the affordability of long-term loans depends on the type of lender you’re working with and your qualification as a borrower (more on that later).
There are a few reasons why you’ll get a better price tag on a long-term loan over a short-term loan or other short-term financing products.
First off, lenders usually only extend long-term loans to more qualified borrowers. We’ll get to exactly what kinds of qualifications you need to be approved for long-term loans in a minute. But as it relates to the cost of a long-term loan, the type of long-term borrower has a big effect. Because long-term lenders generally only work with the most qualified borrowers, they can charge lower interest rates on the long-term loans. This is because their qualification assures the lender that they’ll get their money back.
Another reason why long-term loans are generally less expensive than other business loans is the issue of collateral. Most long-term loans are secured by a borrower’s collateral—a valuable asset like a home, commercial real estate, car, or savings account. By offering collateral on a long-term loan, the lender has less risk extending credit to you. In the worst case that you default on the loan, the lender can seize your collateral to recoup their losses. And as with all business financing scenarios, less risk for the lender means lower interest rates for business owners.
Another main difference between long-term loans and short-term loans is who the lenders are behind these loans.
Who are these lenders we keep talking about?
Generally, two types of lenders offer long-term loans.
Let’s start with the most traditional kind of long-term lenders: the banks.
Traditional banking institutions (both commercial and community) have been the main players in long-term loans.
These lenders are the hardest long-term lenders to qualify for. But if you can manage to score one of their long-term loans, you can probably get the lowest-rate possible on your financing.
Not all business owners qualify for long-term loans from a bank, but they do have options in online, non-bank lenders. These lenders (we’ll get into the list of them in a minute) offer long-term loans to borrowers who wouldn’t necessarily qualify for the same loan product from a bank.
This isn’t to say that long-term loans from online lenders are easy to qualify for, but the approval rate tends to be a little higher. But in exchange for an easier chance at approval, you’ll likely pay a little bit more in interest with an online long-term lender.
Just because long-term loans are some of the best financing products on the market doesn’t mean they’re the right kind of loan for any type of business financing purpose.
Why, generally, would you filter your loan search for long-term loans?
Because long-term loans are paid over the long term and offer large amounts of capital (think up to $5 million—if you’re applying for an SBA loan or long-term loan from a bank), they’re usually the right fit for any major investments in store for your small business.
While there’s (usually) not a set use for long-term loans, you could use a long-term business loan to finance the following:
Whatever major business goal your long-term loan goes toward, you want to be sure that it leads to business growth that will help you pay off your loan.
When you run through the differences between long-term loans and their shorter counterparts, it becomes clear why long-term loans are some of the best financing products available to small business owners.
But as to be expected, the most desirable loan products aren’t the easiest to qualify for. In fact, they’re the hardest to qualify for!
Does your business have what it takes to score a long-term loan?
Here’s what you need to show on your business loan application:
While those are some important business loan requirements you absolutely need to be aware of when applying for long-term loans, the list of requirements could go on.
You should be prepared to also provide the following:
As you can tell, applying for long-term loans is no easy task. If you’re working with a bank lender, you’ll spend hours compiling your loan application. Because alternative, online lenders use more technology in the whole processing and underwriting process, their applications for long-term loans might be a little less extensive. However, it’s no “one and done” kind of process.
And the reason why longer-term loans come with longer application processes is because lenders are really checking out your business to see if you’ll be a reliable borrower. Every document used is a piece of the larger puzzle of your entire eligibility. And because long-term lenders only work with the most reliable borrowers, they require a lot of information to check your qualification.
Now that you have the full picture of what long-term loans are and why you’d would want one, let’s run through the list of where to find the best long-term loans.
Here are the top lenders offering long-term loans.
The most traditional source for long-term loans has been and still is a traditional banking institution.
Whether that’s your preferred commercial bank or a smaller one in your community, banks are one of the best options out there for long-term loans—that is, if you can qualify with one.
Banks have the most stringent requirements for approving long-term loans, so not many small business owners will be able to score one. If you think you have what it takes to qualify for a long-term loan from a bank, check out some banks that are lending the most to small business owners.
Another fantastic option for long-term loans are those guaranteed by the SBA—known as SBA loans.
SBA loans are issued by banks, but guaranteed by the SBA. The SBA guarantee makes banks a little more comfortable lending to smaller businesses, knowing that they’ll get at least most their money back in the case of a default.
If the SBA loan-route seems like the right path for you, then get familiar with the many different SBA lenders out there.
Out of a list of the 100 most active SBA lenders, Wells Fargo, Live Oak, and Huntington National Bank lend the most in SBA loans.
Bond Street (along with the remaining lenders on this list) is a top online lender for longer-term loans.
This lender has a term loan product that’s structured similarly to a traditional bank loan product. Loan amounts range from $50,000 to $1 million, but on average, Bond Street’s loans are about $175,000. Terms on these loans last from one to three years—with a three-year term being the most common. When you take on a Bond Street loan, you’re on the hook for bimonthly repayment—a schedule common to a lot of different longer-term loans.
When compared to a bank, Bond Street does work with slightly less qualified borrowers. That’s not to say that qualifying for a Bond Street loan is easy, but you need to show at least the following to qualify:
And because Bond Street works with slightly less qualified borrowers than a bank—and approves an application much faster than a bank—you’ll get a slightly higher range of interest rates. Bond Street can go as low as 6%, but as high as 23%.
Read more Bond Street reviews.
Lending Club is another online lender offering long-term loans.
And while they lend a little less in loan amounts than Bond Street (starting at $5,000 and going up to $300,000), Lending Club can lend to you over a longer term: ranging from 1 to 5 years.
In terms of their minimum requirements for qualification, Lending Club is pretty similar to Bond Street. You need to show:
And when it comes to interest rates with Lending Club, it’s a similar case: They can approve longer-term loans in 1 to 30 days after submission, but they’ll charge more than a bank would. Interest rates on a Lending Club long-term loan can range from 5.90% to 25.90%.
Read more Lending Club reviews.
Next on the list of long-term, online lenders is Funding Circle.
Funding Circle offers a term loan that’s structured similarly to the kind of financing you’d find at a bank.
Loan amounts range from $25,000 to $500,000, with terms of 1 to 5 years. Interest rates on a Funding Circle loan range from 5.49% to 27.79%.
They can approve your loan application in 5 to 15 days, provided you have a full application showing the following:
Funding Circle doesn’t require that your business is profitable, but you have a better chance at approval if it is.
Read more Funding Circle reviews.
All said and done, long-term loans are the top financing option for small business owners in need of capital.
Whether you score one from a bank or from one of the top online lenders listed above, you can be confident that you’re growing your business with the best kind of loan on the market.
See If You Qualify for Long-Term Loans