Long-Term and Intermediate-Term Loans

Debt Financing for Your Business

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Small businesses may need capital to grow, expand, or just get started. There are many different types of business loans that can give business owners the assistance they need. Long-term or intermediate-term business loans might be able to help you with your business needs.

Key Takeaways

  • Long-term business loans are best if you're making a big investment in your company
  • You'll most likely need to put down collateral or make a personal guarantee when getting a long-term loan
  • Intermediate-term loans typically last one to three years

Long-Term Business Loans

Long-term business loans usually carry fixed maturities and interest rates and come with a set repayment schedule. A long-term loan usually has a maturity of two to five years, although some long-term loans may give you a repayment term of twenty-five years.

Long-term loans are usually repaid by the company's cash flow over the life of the loan or by a certain percentage of profits that are set aside for this purpose.

Although you don't have to put up your assets as collateral if you're trying to get a long-term loan for your business, It's usually easier to get a loan if it can be supported by you or your company's collateral. That means that if you aren't able to pay back the loan, the lenders will be able to take the collateral and use it to get back some or all of their money. You might also be able to get a loan with a lower interest rate if you have collateral.

If you don't have collateral, lenders will most likely require a personal guarantee, which means that you would be personally responsible for repaying the loan even if your business defaults on it.

The Purpose of Long-Term Loans

Long term business loans allow businesses to turn debt into smaller, more manageable payments. That way, as your business makes more money, you'll be able to gradually pay down your debt.

These loans are best if you need capital to fund a major investment in your business. You might want to buy real estate, new equipment, or something else that will help grow your business.

You should also try to tie the length of their financing to the life of the asset they are financing. So, if a business needs to make a major capital improvement, such as purchasing a piece of equipment for their manufacturing process that will last 10 years, a long-term business loan would be the appropriate type of financing.

Obtaining a Long-Term Business Loan

Long-term business loans are more difficult for start-up businesses to obtain. It's easier for an established business to be approved for a long-term loan. Your business should have been around for at least six months before you begin applying for a long-term business loan.

The more money your business makes, the more likely you are to be approved for a loan. You should try to find out how much annual revenue a lender wants to see from a business.

Your personal credit score and business credit score will also be considered when you apply for a long-term loan. It may be difficult to qualify for a loan if you have a personal credit score of less than 600.

How Much Can You Take Out?

Long-term business loans are usually used when you need a large amount of capital. You will typically not be able to take out more than $5 million. The more money you need, the more rigorous the approval process becomes.

Intermediate Term Loans

Intermediate-term loans usually have a term of one to three years. They are used to fund assets that aren't long-term in nature. For example, you might want to get a new computer system, which may have an economic life of only around 3 years. The approval process for an intermediate term loan is almost as rigorous as it is for a long-term loan.

Frequently Asked Questions

What is an intermediate-term loan?

An intermediate term business loan is a loan that typically lasts one to three years, and has a fixed maturity date and repayment terms. You might be able to get as much as $1 million in funding from an intermediate-term loan. The interest rate can be fixed or variable. Interest rates for this type of loan usually fall somewhere between 6% and 30%.

What are the benefits of a long-term loan?

A long-term loan gives a business the capital to make investments in their business and grow their business. These loans allow you to take the debt and break it into smaller, more manageable payments. You'll have more time for your business to grow and make more money before you have to fully pay back your investment.

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  1. National Business Capital. "Long Term Business Loans: 7 Things You Need to Know."

  2. SBA. "Terms, conditions, and eligibility."

  3. Funding Circle. "Intermediate Term Loans Explained."

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