Long-Term Business Loans

Long-Term Business Loans

Find out everything you need to know about long-term business loans and enquire now to get the best deal

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Gary Hemming

Author: Gary Hemming CeMAP CeFA CeRGI CSP

20+ years experience in business loans

A long-term loan can be extremely helpful for a business, especially when funding is required for growth and development; for example, investing in new equipment, hiring more staff or expanding your premises.

In this guide to long term business loans we investigate the pros and cons of taking out a loan over an extended period, and the different types of funding available.

If you’re looking to take out a long-term business loan, get in touch with us today and secure a market leading deal.

What is a long-term loan?

Longer term financing is designed for growing business to enable them to invest and make significant commitments. Typically a long-term loan will range from three years to ten years, and in certain cases can be up to 25 years in duration.

Long term loans are secured against assets such as property or equipment. As such, they can be a form of secured business loan, equipment financing or asset finance.

This type of loan is often used for substantial purchases and the loan amount is generally much larger than those offered by short term loans that in most instances are used to maintain cash flow. Short term loans tend to be a form of unsecured business loan, small business loan or revolving credit for businesses.

Whilst business loans in the UK are very common there are many types of loans available, and so it’s important to understand what finance will suit your needs best.

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How can a long-term loan benefit my business?

Business loans can be used for many reasons and a long-term arrangement is particularly helpful for companies experiencing growth. Substantial funding is often required to move premises, buy equipment, hire staff or even to secure a loan to acquire another business.

One of the key benefits of long term loans is that they are secured loans and generally have fixed interest rates.

This provides consistency in terms of fixed repayments helping you to manage your financial commitments.

Taking out a loan and paying it back over time can improve your credit rating, which over time is likely to result in a greater range of options with preferential terms.

Long-term business loans vs short-term business loans

Selecting the right loan for your needs considering the stage your business is at is of vital importance. In some situations, short term cash flow to manage debts, such as corporation tax or payments for goods, may be needed.

If your business is expanding over the longer term and you are seeking substantial funding then it is worth considering a long-term loan.

Unsecured business loans

Unsecured loans are a type of credit that isn’t based on assets such as property or stock. Lenders will assess the creditworthiness of a business and the likelihood that they will be able to pay back the loan.

Unsecured loans are often shorter term arrangements.

This type of loan is considered to be of a higher risk as the lender does not have certainty the payments could be met, or that they will receive their money if the business defaults on the arrangement.

Secured business loans

Secured business loans are based on assets or ‘collateral’ so the lender will have confidence that monies can be recouped if the business defaults on payments.

Often assets such as property or merchandise are used as collateral to secure loans. Interest rates on secured loans are often lower as there is a greater likelihood that the lender will get their money back.

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What are the different types of long-term finance available to SMEs?

Given the vast range of loans available to businesses in the UK, it is worth speaking to a broker to understand what will suit your circumstances best.

ABC Finance has twenty four years of experience working with specialists who understand business needs and funding. Here we explain some of the main types of long-term finance:

Invoice financing:

Invoice finance or ‘factoring’: This is an arrangement where all, or some, unpaid invoices are sold to a third party financier. The financier pays immediately for the invoices and then the debt transfers to them. Invoice financing can help a business maintain cash flow if payments are outstanding for a long time and money is required urgently. It comes in two main forms, invoice factoring and invoice discounting.

Asset and inventory financing, also known as warehouse financing: Asset finance provides short term funding based on the value of a company’s inventory or assets, helping businesses manage cash flow tied up in stock. This option is often used by companies who want to acquire or refinance business assets.

Merchant cash advance (MCA):  A merchant cash advance is a form of credit however, it is only applicable to businesses that accept debit and credit card payments. Finance is provided in exchange for a percentage of credit and debit card sales revenue. It should be noted that there may also be fees to pay when entering into an MCA agreement.

This form of loan can be helpful for small businesses that do not have significant assets that can be used as security for a loan.

Credit lines:  This is a flexible arrangement, similar to a credit card where a business can borrow varying amounts according to their needs.

Advantages and disadvantages

Here are  some of the key pros and cons of longer term lending for companies.

Advantages

The main advantage of a longer term loan is that often a larger amount of credit can be raised. A lender will have more certainty they will be paid when a loan is secured against assets.

Payments can be set over a long term potentially resulting in a manageable payment schedule with lower monthly payments than a short term loan. It should be noted that paying back a loan over a longer term will result in more interest being accrued on the original amount.

Disadvantages

The disadvantages of long term business loans are that you will often be tied into a fixed arrangement and, if interest rates drop or your circumstances change you will not have the flexibility to change the arrangement.

In some cases you may be able to repay a loan earlier, however, this often comes with an early repayment fee. Your broker will look carefully at your requirements before taking a longer term loan, especially if flexibility is important to you.

With a secured long term loan interest rates are likely to be higher as both parties are tied into a lengthy agreement where external factors could change.

As with all loans, there will be penalties for a default and this may impact your creditworthiness.

What should I consider before making an application?

There are several steps to take before you apply for a loan.

Firstly, your business will need to be registered in the United Kingdom and you will need to provide paperwork such as bank statements and tax returns to demonstrate income.

Before applying for a loan you will also need to be clear on what the loan is for. For example, you may wish to expand your business and need capital to do so.

Once you have decided how much you need and what the funding is for then you will need to compare financial products and lenders.

It is advisable to use a specialist broker to ensure you understand the types of financial products available and what will be most suitable for your needs.

A range of documents are needed to apply for a long term business loan, although requirements may differ between lenders in most instances you will need to provide the following:

  • Your company bank statements
  • Financial accounts for your business
  • Personal and business information

How much money do I need to borrow?

Long term business loans are typically for businesses where a larger amount of capital is required, often to fund sizeable expansion plans.

Before you apply for a loan it is recommended that you review your business’ plans and decide what funding you’ll need to hit your goals – will you need it for expansion, or are there debts you would like to consolidate?

The more information you can provide your broker with, the more likely they will be able to provide you with a range of suitable options.

Should I use a business loan broker?

Yes, always use a specialist where possible. ABC Finance has access to a large panel of providers and has the expert experience to get you the very best deal for your circumstances.

We take the time to understand you and your business. Speak to one of our specialists for free advice and a fast quote.

Which type of loan is best for my company?

The type of loan that’s best for your company will depend on your company details, sector and your individual requirements.

For example, if you take a lot of payments by invoice on delayed payment terms then debt factoring or confidential invoice discounting may be a good fit.

Those who need funds quickly may be best served with a fast business loan.

While those who take a lot of payments by card, may be best suited with a business cash advance – also known as a merchant cash advance. It’s not always easy to navigate the business finance market, so if you’re unsure, always seek advice from an expert.

Frequently Asked Questions

How much can I borrow?

The amount you can borrow will depend on the type of loan you take and whether it is secured or unsecured.

A longer term loan is likely to be secured, and if property is used as security then typically a lender could offer you 75% of the property’s value. We can offer loans from £10,000 with no defined maximum loan size.

Will I qualify for finance if I have bad credit?

Potentially yes. Longer term loans can be secured against assets and an application will be based on a range of factors. ABC will work with your business to understand your needs and how best we can support you to achieve the best deal irrespective of your credit history.

We even offer a range of specialist bad credit business loans.

How long can I borrow the money over?

Long term business loans vary from a year to up to twenty five years, however, there will be more interest to pay on credit that is spread over a longer repayment period.

The balance between monthly repayments and the total cost of credit is a key one and we will always be happy to help and advise where needed.

What can the funds be used for?

Funds can be used for business growth, expansion, employing new staff, or even for debt consolidation.

The reason for taking a loan will be important to lenders and will have an impact on the range of options you have.

Using a specialist business loans broker is key as their knowledge of lenders will help match you with the right financier for your circumstances.

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