When most people think about small business loans, they’re generally thinking about traditional long-term business loans. If you’re thinking about applying for one you’re probably also wondering, how long are business loans for? So let’s talk about the usual repayment period for long-term business loans to see if they’ll fit your business.
Long-term business loans are so desirable because true to their name, they give business owners a longer time to repay their debt, with better terms, than other types of business loans. We mean decades longer, in some cases.
Usual Repayment Periods for Long-Term Loans for Small Business
The easy answer is one to five years on most long-term small business loans and up to 25 years on SBA loans. The more specific answer is, as you’d expect, a lot more nuanced. In short, you can expect the repayment periods and the requirements to look like this:
Your repayment period will be determined according to:
- Your lender’s terms and guidelines
- The type of institution that’s funding you
- The loan program you’re participating in, if applicable
- Intended use of funds
- Your business’s overall financial profile
Business loan repayment period by type:
- Business bank loan: 5 – 7 years
- SBA loan: 6 – 25 years
- Business term loan through alternative lender: 1 – 5 years
But there is more to these loans than bullet points let’s go over some essential things to know and questions you might have about long-term loans for small businesses.
What’s the Usual Repayment Structure and When Do You Start Paying Back a Long-Term Business Loan?
Along with your repayment period, your lender will also determine your repayment structure. Usually, you can expect to repay a long-term business loan monthly or bimonthly. So your payments could start in as little as a few weeks after taking the loan.
That’s one of the characteristics that make these loans more desirable. With a short-term loan, on the other hand, the answer to how long are business loans might be a daily repayment schedule over a period of less than a year. Repayment periods for short-term loans can be as short as three months.
Even if your business is able to score a long-term small business loan, that often mentioned 10-plus year repayment period might not apply to your loan. So, how long are business loans? In other words, what is the usual repayment period for long-term business loans?
Well, it depends. The short answer to the question, how long are business loans? Is anywhere from one to 25 years. But since it’s never that simple, repayment terms vary according to a few factors, including the lender you work with, the type of loan you receive, your intended use of funds, and what your business qualifies for.
How Do Lenders Determine the Repayment Period for Small Business Term Loans?
As you might expect by now, the exact repayment periods for long-term loans vary from borrower to borrower—and loan to loan.
Your lender will determine the length of your repayment period after they assess your risk as a borrower. The institutions lending you their money need to feel confident that you’re able to repay your debt on time. This is especially true of long-term loans because they’re usually for a higher amount than other loan types. So when we’re asking the question, how long are business loans? The answer can greatly vary.
From the lender’s perspective, the longer the repayment period, the greater the risk to the lender—and they’re going to need to calculate that risk.
That means the length of your repayment period really depends on the kind of financial credentials you bring to the table as a business owner, as well as the kind of business financial history you can show. As with any loan, less risk means a less expensive loan.
Things that they’ll evaluate during the small business loan underwriting process to help determine the repayment period for your long-term loan:
- Credit score
- Outstanding debt
- Tax returns
What Exactly Are Long-Term Business Loans?
Let’s make sure we’ve all been talking about the same thing. Long-term loans are generally any loan with a repayment period of a year or longer.
Long-term loans (sometimes just called “term loans”) are the most common type of small business loans. They’re generally the first thing that comes to mind when you think about small business financing.
After you accept a long-term business loan, your lender will deposit a lump sum of cash directly into your business bank account. By then, you’ll have already established a repayment period with your lender for your business term loan that’s specific to you (more on that in a bit). You’ll need to repay the loan according to that timeline, generally in monthly or bimonthly installments.
3 Kinds of Small Business Bank Loans and Their Usual Repayment Periods
These three types of long-term business loans could be options for your small business to pursue. Read up about them, and see the usual repayment periods you can expect of each.
1. Business Bank Loans
Although banks offer more than one type of loan product, most business bank loans are generally long-term loans. Traditional institutions like commercial banks, local banks, and credit unions offer some of the best long-term loan deals you’ll find. Meaning the largest capital amounts at the lowest rates.
That said, banks only want to work with the top eligible borrowers. This means the vast majority of business owners won’t be considered for a business bank loan or they will very likely be denied if they do apply. Think you might be eligible? Your bank will generally want to see at least three years in business, profitability, and tip-top credit. Plus, you should have a good reason for why you need a loan in the first place—like needing a new piece of equipment or planning an expansion for the business.
The usual repayment period for a long-term business bank loan is…
Usually about five to seven years. Like with any long-term loan, the repayment period with a long-term business bank loan is contingent on the lender. On top of that, each bank might also offer different loan programs, and repayment periods, for different fund uses.
Again, the only way to find out if you’re eligible for a bank loan (and what kind of terms a bank is offering, too) is to visit your bank branch directly. Generally, however, repayment periods tend to be between about five to seven years of monthly payments for a working capital loan.
2. Term Loans
It’s absolutely worth trying to score a long-term business loan from a bank. But if you’re among the vast majority of small business owners who can’t go the traditional route, a term loan from an alternative lender is a great option.
These days, the majority of small businesses struggle to fund their ventures through traditional routes. That’s one of the many reasons that the emergence of new online lending platforms have been so great for small business. Along with the ability to lend to a wider group of people, alternative lenders can be more flexible with their qualifications than banks. Plus, you can often receive your funds pretty quickly.
The trade-off, though, is that a loan from an alternative lender will likely come with a steeper interest rate than it would from a bank loan. But the access to capital can end up being priceless if it’s the difference between being able to fund your business and not.
The usual repayment period for a long-term loan for a term loan through an alternative lender is…
Usually one to five years. If you work with an alternative lender, you can generally expect the answer tot he question, how long as business loans? To be a repayment period ranging from one to five years.
And if you’ve read this far, you’ll probably be able to predict what’s next. The exact length of your repayment period depends upon the lender you’re working with, your business’s financial profile, and the terms you’re offered by your lender during underwriting.
These small business loans, as well, will usually be repaid in fixed monthly or bimonthly payments.
3. SBA Loans
For small business loans, SBA loans are something of the gold standard.
A common misconception about SBA loans is that the Small Business Administration itself provides the capital. These loans are actually issued by banks that participate in the SBA loan program. If a bank successfully issues an SBA loan, then the agency uses federal money to guarantee that a portion of that loan goes to the bank. (In simpler terms, the SBA backs up a portion of the bank’s small business loan, meaning less risk for lenders—and more capital available for you.)
That all means that your SBA loan application will be sent directly to eligible banks, not to the government.
These loans offer the longest repayment periods available—up to 25 years. Plus, interest rates on SBA loans can start at around 5%, which are among the most reasonable rates you’ll find. The repayment period on an SBA loan depends on which of the three SBA loan programs you participate in.
The usual repayment period on an SBA loan is…
Up to 25 years depending on the loan. The SBA offers a few loan programs, and the repayment period varies among those programs, plus what you’ll be using your funds for. The three most popular SBA loan programs are the SBA 7(a) loan, the SBA CDC/504 loan, and the SBA microloan.
SBA 7(a) loan
If you’re looking for basic working capital to help launch your business (or to refinance existing debt), the SBA 7(a) loan is probably right for you. This is by far the most popular SBA loan program.
Repayment terms for this type of loan depend on how you use the funding. Generally, you’re looking at the following maturity terms: 25 years for real estate, 10 years for machinery, and up to seven years for working capital.
SBA CDC/504 loan
The CDC/504 loan can be used to buy major assets in order to expand or improve your business, like purchasing equipment, acquiring commercial real estate, and building or renovating existing facilities.
Like the SBA 7(a), the repayment terms of SBA CDC/504 loans also depend on how you use the funding. If you’ll be purchasing equipment, the loan term is 10 years. If you’re using your loan to finance land and buildings projects (such as landscaping and facility renovations), then the loan term is 20 years.
The SBA’s microloan program is exactly what it sounds like—a smaller loan amount, with a shorter repayment period. Microloans can be used toward costs associated with starting up or expanding businesses, such as stocking up on supplies, buying equipment, or working capital.
True to its name, the repayment period for an SBA microloan is up to six years, the shortest of all the SBA loan programs.
Another Long-Term Business Loan Option: Business Lines of Credit
Like we said before, when you think of a “small business loan,” you probably think of a traditional term loan.
But if you haven’t done a lot of digging into different types of small business loans, or it doesn’t look like you’ll be able to qualify for a long-term business loan, you might want to consider opening a business line of credit. Especially if you’re looking to supplement your cash flow.
When you open a line of credit, the lender gives you a specific amount of funds to draw against, which you can access whenever you need it. (Like a credit card, but generally with lower interest.) Unlike a term loan, you only need to pay back—and pay interest against—what you use.
Repayment periods on business lines of credit can be as short as six months, but they might also be as long as four years. The other nice thing here is that lenders also often offer monthly or bimonthly repayment schedules like with a long-term business loan, even though the lending term is more like a short-term loan.
And, if you repay your line of credit balance in full and on time, it will re-up—that’s called a “revolving” line of credit. This is how business lines of credit can help you build your credit, too and improving your credit score can help you work toward a long-term loan down the line.
How Much Money Can You Borrow With a Small Business Term Loan?
How much you can borrow will, of course, always depend on the kind of credentials you bring to the table as a borrower. That said, lenders do usually cap off long-term business loans at certain dollar amounts:
- SBA loans: $5 million
- Long-term business loans through alternative lenders: $500,000
- Bank loans from local or community banks and credit unions: ~$500,000
- Bank loans from major commercial institutions: This one varies from bank to bank—but the most creditworthy have borrowing potential into the millions.
These big numbers are offered to the most qualified borrowers. Still, though, you can see why long-term business loans are so sought after, keep in mind that long-term loans are among the hardest to qualify for, and often require collateral to secure.
Who Qualifies for Long-Term Business Loans?
Business owners with very strong borrowing profiles are typically those who qualify for long-term business loans. Because term loans include favorable terms like lower interest rates, more access to capital, less restriction on how to use the money, and longer repayment periods, too, lenders can be much pickier with whom they lend out to.
General qualifications for small business term loans often look like:
- 600+ credit score
- $90,000+ annual revenue
- At least a year in business
If you’re considering an SBA loan, you’ll need an even stronger profile if you want to be a good contender:
- 620+ credit score
- $100,000+ annual revenue
- At least two years in business
Although none of these are hard and fast rules, they’re a good gauge for who often gets funded for these competitive small business term loans.
The Bottom Line
There’s no magic answer for the usual repayment period for a long-term business loan—and the range can be from one to 25 years. That said we did lay out some general timelines for different types of loans that you’re probably now familiar enough with to know which might be a good fit.
Remember that long-term loans are desirable but they can also be pretty tough to qualify for, especially if you’re looking to get one from a bank. Explore both alternative lenders and alternative types of loans and you might be able to find ways to secure capital you didn’t expect.
Caroline Goldstein is a contributing writer for Fundera.
Caroline is a freelance writer and editor, specializing in small business and finance. She has covered topics such as lending, credit cards, marketing, and starting a business for Fundera. Her work has appeared in JPMorgan Chase, Prevention, Refinery29, Bustle, Men’s Health, and more.