A long-term business loan can shape the next few years of your company. And it’s not just about how much you borrow. The terms and structures of the loan influence how you can use the funds, how you repay the loan, and how much strain it puts on your business finances.
When you compare business loan options, look deeper at how that financing fits with your day-to-day operations and your long-term plans. And consider these five important factors to find the lender and financing that will support your business goals in the coming years.
1. Loan Term Length
In general, longer repayment terms lead to lower payments. If you’re entering a slow season or stabilizing your business, then a longer term may give your cash flow the breathing room you need.
But smaller monthly payments aren’t always the best option. If your revenue is rising and your business is rapidly expanding, long-term obligations can limit your growth. Carrying debt makes it harder to qualify for other financing and ties up funds you could otherwise reinvest in your business. When you need more flexibility, consider a loan with a shorter term.
The best loan term aligns with your cash flow needs and financial rhythm right now, as well as supporting your long-term goals.
2. Interest Structure
Not all loans have a fixed interest rate paired with monthly payments, so make sure you understand how interest applies to your loan.
Fixed-rate loans offer predictability. Your payments remain the same from month to month, making budgeting easier. Variable-rate loans can start lower, but you risk paying a higher monthly amount if the interest rates go up.
Term length also impacts how much total interest you pay. With a long-term loan, you pay more interest overall. Short-term loans can save you money, even if they come with a higher rate. Ask your loan advisor for the amortization schedule for your loan. It will show your full borrowing costs.
If your business is on a strict monthly budget, then a fixed-interest, long-term loan is probably the best. It gives you the most predictable payments. But if you want to save money and can absorb rate increases, consider a variable-rate, short-term loan. Repaying your loan early can save you money on interest.
3. Repayment Schedules
It’s easy to underestimate the long-term effect of monthly payments. Over five or ten years, even a small difference in monthly costs adds up. Compare your monthly obligation to your current projected revenue. If your payments and your revenue are nearly equal, you won’t have much room for growth and expansion.
Some lenders also offer biweekly or revenue-based repayments, providing greater flexibility for businesses with fluctuating income. For example, the best business loan providers for retail stores often can deduct a percentage of your daily, weekly, or monthly sales as repayment. This method adjusts for seasonal changes in revenue and operating expenses.
Consider your business’s monthly cash flow to determine how much you can afford to put toward your loan each month, and decide whether a predictable or flexible repayment schedule would better support your operations.
4. Prepayment Flexibility
Having the option to pay off your loan early without penalties can be a significant benefit that many business owners overlook. For loans with prepayment penalties, owners can end up paying as much as a 5% fee when they repay the remaining balance early.
Look for lenders that allow early payoff with full interest savings if you think you might pay off the loan early. Then, when you hit a growth spurt or need to quickly reduce your liabilities, you have the flexibility to repay your loan without expensive penalties.
5. Collateral Requirements
Collateral lowers the risk for lenders. Thus, securing your long-term loan with your assets unlocks benefits like lower interest rates, longer repayment schedules, and higher funding amounts.
But a secured loan also means lenders could seize your inventory, real estate, or equipment if you default on the agreement. Losing collateral essential to your operations could seriously or permanently set back your business. In some cases, it is better to choose an unsecured loan with a higher interest rate that protects your assets.
Carefully consider what you are risking before agreeing to secured financing, and pick the loan option you can live with if everything goes wrong.
Top Lenders That Support Long-Term Goals
Lenders all treat term financing differently. Some prioritize fast approvals, while others focus on tailored repayment plans. Here’s how some of the leading options compare when it comes to business financing:
OnDeck
With daily and weekly fixed repayments for up to 24 months, OnDeck provides reliable short-term loans.4 Their simple application and fast funding allow small businesses to secure the capital they need to operate and grow.
BlueVine
Known for simple lines of credit, BlueVine partners with third-party lenders to provide fast access to short-term loans. Small business owners can secure up to $500K spread over predictable repayments of up to 24 months.2
Cardiff
Cardiff specializes in loans for small business owners. With a five-minute application turnaround and same-day funding, they offer transparent and flexible financing with an average of 39-month term repayments.1 Small business owners with limited credit history and no collateral can work with Cardiff to find an option from their wide range of financing products.
LendingClub
Businesses looking to refinance their debt can consider LendingClub. Their partners through the Accion Opportunity Fund finance consolidation loans between $5K and $250K for up to five years.3 They provide transparent loans for businesses needing this specific financing service.
National Funding
National Funding is known for custom short-term loans. Within their six to 18-month schedules, they tailor terms to your industry and specific business plan with fixed daily, weekly, or monthly payments.5 National Funding prides itself on saying yes to small businesses that other lenders have turned down.
Prioritize Your Business
A long-term loan is a commitment for years. And while you should look for a low interest rate from a transparent lender, the top priority should always be your business. The term length, repayment schedule, collateral requirements, interest structure, and prepayment terms that fit your financial rhythm are the best long-term options.
Don’t rush the comparison process and don’t compromise on your needs. When you prioritize your business, you’ll find the loan and lender that support your financial needs and give you room to grow.
1https://cardiff.co/
2https://www.bluevine.com/business-loans/term-loan
3https://www.lendingclub.com/business-loan/aof-loans
4https://www.ondeck.com/business-term-loan
5https://www.nationalfunding.com/small-business-loans/short-term-business-loans/