What Are Long-Term Loans?

Your business might benefit from a long-term loan.

If your business needs an infusion of cash, you'll probably head to your local bank for a term loan. These loans generally come in two types: short-term and long-term loans. If you're looking for a long-term loan, you need to know the basics.

The "long" is accurate

Long-term loans last many calendar years.

As their name suggests, long-term loans boast long lifespans. These loans almost always run for more than three years. Some businesses take out long-term loans that run for as many as 20 years, according to Entrepreneur Magazine. These loans are for businesses only, not individuals.

Collateral

A business' assets act as collateral for a long-term loan.

Banks seek collateral for a long-term loan. Usually, this comes in the form of a business' assets.

New debts are limited

Long-term loans often come with limits on additional debt.

When they are taking out a long-term loan, businesses are often forbidden, by language in the contract, to take on more than a specific level of new debt. This protects the bank issuing the long-term loan; businesses are less likely to default on their loans if they limit the amount of new debt they take on.

A payment schedule

Payment schedules vary.

When taking on a long-term loan, businesses agree to a specific payment schedule that is often tied to their profits or cash flows. Some long-term loans require quarterly payments, while others call for monthly payments or some other arrangement.

Shorter may work, too

A short-term loan may be appropriate.

You may decide that a long-term loan isn't appropriate for your business. In that case, you can always investigate the feasibility of a short-term loan. These business loans usually expire in three years or less. The benefits of a short-term loan is that businesses will pay less interest over the loans' lifespan. However, with long-term loans, businesses will have lower monthly payments because the loans are stretched over a longer period of time.

References

• Small Business Notes
• Entrepreneur Magazine
• Small Business Association