Long-Term Loans: Where to Find the Best in 2019

The ultimate guide to finding low-rate, long-term financing for your business.
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Where to Find the Best Long-Term Small Business Loans

Long-term loans are loans that you repay over a period of one year or longer, usually in monthly installments. The benefits of a long-term loan are low-interest rates and low monthly payments, since payments are spread out over a long time. But you’ll need good credit and an established business to qualify for long-term financing.

Both traditional banking institutions and alternative lenders provide long-term financing nowadays, making it easier than ever for small business owners to get this type of loan. The variety of lenders makes it harder, however, to compare your options and know exactly which one long-term lender is right for your business.

As an entrepreneur, a business loan will be one of your largest financial transactions, so it’s important to know all the options at your disposal. Learn all the ins-and-outs of long-term loans—and find out exactly where to find the best long-term business loans on the market.

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How Long-Term Loans Work

Although long-term loans generally refer to loans with a repayment period of at least one year, there’s no agreed-upon industry definition.

Regardless of what’s in front of the word—“long-term,” “medium-term,” or “short-term”—a term loan is when a lender offers a fixed amount of capital that the borrower has to pay back (with interest) over a set period of time. The repayment period you and your lender agree upon for your financing distinguishes the different kinds of term loans.

A long-term loan has the longest repayment period, spanning 1 to 25 years. A short-term loan, on the other hand, has a repayment period of just 3 to 18 months. And you might hear of a medium-term loan, which falls somewhere in between, with repayment terms ranging from 1 to 5 years.


Long-Term Financing vs. Short-Term Financing

The biggest advantage by far of long-term financing is the affordability. Long-term financing, especially if you secure it through a bank, has the most affordable rates that you’re likely to find when applying for business financing. The rates are often 6 or 7 times less expensive than short-term financing.

But long-term financing is not for everyone. First off, it’s difficult to qualify for long-term loans. They are not a realistic option for many business owners.

Long-term loans are best for business expansion, purchasing real estate, hiring, and other large projects. Business owners can opt for short-term loans to buy inventory, buy supplies, cover emergency expenses, or address other unanticipated opportunities.

Here’s a comparison of long-term and short-term loans:

 

Long-term Loans
Short-term Loans
High credit borrowers
Lower credit okay
Established businesses with strong financials
Younger businesses okay
1- to 25-year term
3- to 18-month term
Monthly payments
Daily or weekly payments
4% to 30% APR
8.5% to 80% APR
Best for long-term investments
Best for one-off expenses
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Long-Term Business Loans in Detail

Long-term loans are ideal if you want to invest in the long-term growth of your business. Perhaps your business has reached the stage where you can afford to hire more people, expand your product line, or open a new location. Those are all huge growth opportunities, and you might need the support of long-term financing.

Here’s what you need to know about long-term loans.

Long-Term Loan Amounts

Long-term loans are available in a range of different amounts, but the amounts vary according to which lender you use. Online lenders lend as little as $5,000, but if you go through a bank or financial institution, it’s difficult to get such small amounts of long-term financing.

Banks must do the same amount of work to underwrite and process a smaller loan or a larger loan. As a result, it’s a lot more profitable for the bank to issue the larger loan, leaving banks with a preference for loans over $250,000. If you need less money than it, you can go through an online lender.

Long-Term Loan Repayment

Whereas shorter-term loans come with daily, weekly, or biweekly payments, long-term installment loans don’t put that kind of repayment pressure on business owners. With a long-term loan, you’ll likely have monthly payments over several years.

The repayment period on your long-term loan depends on the lender you’re working with. The usual repayment period for long-term financing is anywhere from 1 to 25 years.

The exact repayment period depends on how you’ll be using the loan. Long-term financing for working capital or general business expansion usually have terms of 10 years of lower. Long-term financing for purchasing real estate can go up to 25 years.

The other factor that will affect repayment is the type of interest rate. While most long-term loans have fixed interest rates, banks sometimes charge variable rates that change based on the market. When variable rates change, so do your monthly payments. But if you have a fixed-rate loan, your monthly payments will be the same for the life of the loan.

With a short-term loan, you have to repay the entire loan amount (plus interest) over a short period of time—just 3 to 18 months. And the lender deducts payments weekly or daily, 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 months. This means that each repayment is likely a smaller amount of cash—which is less painful on your business’s bank account.

Long-Term Loan Rates

Long-term installment loans have interest rates in the 4% to 30% range, making them some of the most affordable business financing options around. In contrast, a short-term loan can come with sky-high interest rates (starting at around 8.5%, but soaring as high as 80% or more),

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). Online lenders, as you might expect, charge more than banks. But at the same time, online lenders have lower qualification requirements.

Long-Term Loan Requirements

Lenders usually only extend long-term loans to well-qualified borrowers. This means strong personal credit, an established business, and strong business finances will be necessary to access long-term financing.

To get a long-term loan at a bank, you typically must have credit over 700 and a profitable business. Online lenders will provide loans to slightly younger businesses and less creditworthy borrowers.

Since long-term lenders generally only work with more qualified borrowers, they have a relatively low-risk profile. These lenders have fewer defaulted loans, making it much more likely they’ll get their money back. Just 2.27% of bank loans have delinquent payments, compared to 7.5% percent of short-term loans from some lenders. As a result, long-term lenders can charge lower interest rates.

Long-Term Loan Collateral Requirements

Another reason why long-term loans are generally less expensive than other business loans is the issue of collateral. Many (but not all) long-term business 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 accepts 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.

Don’t fret if you don’t have any collateral to offer. Some online lenders offer long-term loans without requiring specific collateral. Instead, they will put a general lien on all your business assets and require a personal guarantee.

Long-Term Loan Uses

Long-term loans are ideal for many small business owners, but they’re not perfect for every scenario.

Although the interest rate on long-term loans is lower than on short-term loans, that doesn’t necessarily make them less expensive. You’re paying interest over a longer time, so the total amount of interest will usually be higher on a long-term loan.

For instance, if you pay 7% interest on a $250,000 10-year loan, you will pay a total of $98,325 in interest over the life of the loan. In contrast, if you pay 40% interest on a $250,000 9-month loan, you would only pay $43,486 in interest.

Long-term loans are usually the right fit only for major investments in your small business, such as the following:

  • A major expansion of your business
  • Opening up a new location
  • Renovating an existing location
  • An expansion of your product offering
  • A major fixed-assets purchase
  • Refinancing existing debt

If you need to borrow money for just a few months or have a small one-off purchase, then a short-term loan might be better.


The Best Lenders Who Offer Long-Term Loans

Generally, two types of lenders offer long-term loans: Banks and online lenders. Traditional banking institutions (both nationwide banks and community banks) have long been the main players in providing long-term installment loans.

Bank lenders are the hardest long-term lenders to qualify for. But if you can manage to get approved for one of their long-term loans, you can probably get the lowest-rate possible on your long-term financing.

Not all business owners qualify for long-term business loans from a bank, and for those borrowers, online lenders might be an option. These lenders offer long-term financing to borrowers who wouldn’t necessarily qualify for the same financing from a bank, but they charge higher interest rates.

1. Wells Fargo Long-Term Business Loans

If you have great credit and a profitable business, it’s definitely worth speaking with a banker about long-term installment loans for small businesses.

Banks across the country offer long-term financing, but it can help to start with your local community bank. Local bankers understand their local economies well and might be on familiar terms with local small business owners. If you know your local banker, then they might be more willing to trust you with a business loan.

Another option is to check out a bank where you have a personal bank account or your mortgage already. Having some of the bank’s products already introduces the bank to you as a customer and makes them more likely to extend you a business loan.

If you don’t already have a bank relationship in place, try Wells Fargo business loans. Wells Fargo is a particularly small business-friendly bank. They offer short-term loans along with more traditional long-term loans. Plus, they’re a very active SBA lender, and SBA loans are a great option for borrowers looking for long-term installment loans.

2. SBA Long-Term Business Loans

Long-term business loans can also come in the form of SBA loans.

SBA loans are long-term installment loans. Banks are the ones that actually provide this form of long-term financing, but the SBA (Small Business Administration) guarantees them. The SBA guarantee makes banks a little more comfortable providing long-term financing to small businesses, knowing they’ll get at least most their money back in the case of a default.

Because of the government guarantee, an SBA loan is easier to qualify for than a traditional long-term loan. But, it’s by no means an easy long-term loan to qualify for. You’ll still need to prove that you’re a top-notch borrower to qualify, and ideally, your business should be profitable. SBA Microloans are an exception and might be open to younger, unprofitable businesses (if you have a business plan showing a clear plan for profitability).

If the SBA loan-route seems like the right path for you, then get familiar with the many different SBA lenders out there. Most of them are traditional banking institutions. However, a few online lenders, like SmartBiz,, originate SBA loans.

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.

3. Online Long-Term Business Loans

Online term loans are a little easier to qualify for than traditional term loans, and online lenders can also process long-term financing much more quickly than banks.

These are some online lenders to consider when searching for long-term loans.

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Lending Club

Lending Club is a popular online lender offering long-term loans. Their loan amounts start at $5,000 and go up to $300,000. Lending Club can lend to you over a long term ranging from 1 to 5 years.

To qualify for Lending Club, you need to show the following:

  •  Annual sales revenue of at least $50,000

  •  At least one year in business

  •  A personal FICO score of at least 620

  •  No recent bankruptcies or tax liens

  •  You must own at least 20% of the business

Lending Club can approve their long-term loans in 1 to 30 days after submission, but they’ll charge more than a bank. Interest rates on a Lending Club long-term loan are fixed, but they range from 9.77% to 35.71%.

Lending Club can be tough to qualify for, so if your Lending Club loan is denied, check out other lenders with less stringent application requirements.

Read our complete Lending Club review.

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Funding Circle

Next on the list of long-term, online lenders is Funding Circle. Funding Circle loans are similar to Lending Club’s offerings, but for larger amounts and lower interest rates. They mimic bank loans more closely.

Loan amounts range from $25,000 to $500,000, with terms of 6 months to 5 years. Interest rates on a Funding Circle loan range from 4.99% to 26.99%. You repay the loan monthly.They can approve your loan application in 5 to 15 days.

To qualify for a Funding Circle loan, your application should show the following:

  •  A personal FICO score of 660

  •  24 months in business

Funding Circle doesn’t require your business to be profitable, but you have a better chance at approval if it is.

Read our complete Funding Circle review.

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Fundation

Another online lender offering long-term business loans is Fundation. Fundation’s product is a term loan with bimonthly repayment.

Fundation offers a term loan that’s a little shorter than most long-term business loans, as terms range from 12 months to 48 months.

However, you can qualify for a similarly large amount of capital—anywhere between $20,000 to $500,000 for your business. As with other long-term business loans, Fundation loans come with low rates starting at 7.99% for the most qualified business owners.

To qualify for a Fundation long-term installment loan, you’ll need to show the following:

  •  A personal FICO score of at least 620

  •  Minimum $100,000 in annual revenue

  •  At least 1 year in business

  •  A business bank account with a minimum average bank balance of $2,000.


How to Apply for Long-Term Loans

Long-term loans are some of the best loan products for small business owners, but that means the level of competition for these loans is high. They’re the most difficult loans to qualify for.

One thing you can expect, especially if you seek long-term loans from a bank, is a lot of paperwork. The lender will want to know a lot about your business and your personal financials while underwriting your loan.

To improve your chances of qualifying, you should submit a complete business loan application, including all of the following.

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Bank Statements

Bank statements are some of the most common documents that lenders require for business loan applications. They give insight into how well you manage the cash flowing into your business. Bank statements show that you can not only make money, but you can keep it in your bank account. Your bank statements give proof that you have enough cash on hand to pay off your loan and enough of a cash cushion to cover emergencies.

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Balance Sheet

Your balance sheet is on the list of business loan requirements as it shows the basic functionality of your business. It’ll also show that your financials are in good standing—giving a snapshot into what you have and what you owe.

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Profit and Loss Statements

In general, a P&L statement shows your business’s net income—proving where your money comes from and what expenses to goes to pay for. A P&L is useful for long-term lenders because it shows whether your business has steady cash flow.

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Personal and Business Tax Returns

In most cases, lenders want to see both your personal and business tax returns. The business tax return gives lenders confidence that you’re responsible with your business’s financials. And lenders also want to see the personal tax return to verify other sources of personal income.

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Credit Rating

Your personal credit score (and business credit score for established businesses) are extremely important when you apply for long-term business loans. These credit ratings show how reliable you (and your business) are with your financials.

If you show that you’re creditworthy—always paying your bills on time, never taking on too much debt, experience with managing multiple credit accounts, and always keeping your credit utilization ratio low—lenders will be confident that they’ll get their money back when they lend to you.

The minimum personal credit score to qualify for a long-term loan is around 620. It should be closer to 700 if you want to qualify for a bank loan or SBA loan. Note that you’re not responsible for submitting your own credit reports. Lenders can look up credit reports from your social security number and your business tax ID.

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Time in Business

Another important factor on your application for long-term loans is how long you’ve been in business. Small businesses are risky—and almost half of small businesses don’t make it a full five years. And if your business doesn’t end up making it while you have debt outstanding, then the lender that worked with you wouldn’t get their money back.

So in general, the newer your business is, the riskier it is to lend to you. Most long-term lenders want to see that you’ve been in business for at least one year before they lend to you.

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Other Documents You Might Need for Long-Term Loans

The above application requirements are must-haves, but lenders could require additional documentation.

You should be prepared to also provide the following:

  • Business plan
  • Business debt schedule
  • Use of loan
  • Cash flow forecast
  • Collateral documentation
  • Industry type
  • Business licenses, permits, and approvals

As you can tell, applying for long-term business loans is no easy task. If you’re working with a bank lender, you could easily spend hours compiling your loan application. Online lenders utilize more technology when processing and underwriting loans, so their applications are a little less extensive. However, it’s no “one and done” kind of process.

The reason why long-term loans come with a longer application processes is because lenders are really checking out your business to see if you’ll be a reliable borrower. Every document is a piece of the larger puzzle of your eligibility.


Does Your Business Qualify for Long-Term Loans?

Long-term loans are the top financing option for small business owners in need of capital.

Whether you obtain 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 Financing