Is A Long-Term Business Loan Right For Your Company?

Long-term business loans provide large amounts to make necessary investments. Is a long-term business loan is right for your company? Read to know!

20 Dec,2022 12:00 IST 1346 Views
Is A Long-Term Business Loan Right For Your Company?

Funding greases the wheels of a business. While some businesses bootstrap themselves, others opt for angel investors or VCs, while some rely on lending institutions. However, knowing whether a long-term business loan is right for your company can take time and effort.

What Is A Long-Term Business Loan?

When you apply for a long-term loan, the business lender will give you a lump sum of cash. Typically, you can use this loan amount for business needs such as

• Property, plant, or equipment
• Stock
• Payroll
• Cash flow
• Debt refinancing
• Expansion project
• Marketing expenses

After receiving a small business loan offer, you repay it with a fixed payment with interest and other fees. Long-term business loans are repaid monthly over several years. However, the term of the loan depends on many factors determined by the lender.

What Are The Advantages Of A Long-Term Business Loan?

Long-term business loan programs can provide large amounts of cash to purchase expensive equipment, expand staff, and make other necessary investments. Long-term loans have many advantages compared to Business Administration loans, like

• Lower interest rates
• Fixed payment terms
• Monthly Payments
• Lower fees (compared to other funding options)

What Are The Disadvantages Of A Long-Term Business Loan?

However, long-term loans for SMEs also have some disadvantages such as

• The approval process can take a long time, particularly if you apply for a long-term bank loan.
• For more extended periods, additional documentation may be required.
• You may need a strong credit history to qualify for a long-term business loan. If you have a poor credit history, you should instead focus on improving your business and personal credit scores.
• A large lump sum eats up all the credit available to a business. As a result, less working capital may be available in the future.

Should You Apply For A Long-Term Business Loan?

Appropriate business financing options will depend on your current situation and funding needs. The following section will help you decide if a long-term business loan is right for you.
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1. Long-Term Lenders Prefer Established Companies:

Long-term business loans often involve large sums of money. Therefore, lenders prefer to work with established companies that generate substantial income for at least a few years. Often these lenders have operating hours requirements that exclude businesses that are not open for a specified period.

2. Lenders Need To Be Confident In Their Investments:

Long-term business loan lenders usually prefer companies with good credit. A credit rating indicates the likelihood of repaying a loan in full and on time. Given the risk of extending loan terms, business lenders pay close attention to your creditworthiness and business history.

3. Long-Term Business Credit:

It is an essential obligation for companies. A long-term business loan signifies a contract that significantly impacts the company's finances.

It is also important to remember that incurring business debt is an obligation. Long-term debt remains on the books for a significant period, which can increase risk. If a recession hits or market conditions change, you may land circumstances that force you to make inflexible loan payments. Therefore, it's worth reconsidering the necessity or purpose before taking out a long-term loan.

If you are unsure about repaying a long-term loan, take a short-term loan first. For example, let's say you can repay a business loan responsibly but need more financing. In this case, the business lender may be willing to offer more loans with extended terms in the future.

Avail Of A Business Loan From IIFL Finance

IIFL Finance provides safe, quick, and hassle-free loans at affordable rates. The processes are swift, with minimal paperwork, instant transfers, competitive interest rates, and flexible repayment schedules.

Avail of the benefits and apply for a business loan with IIFL Finance today!

Frequently Asked Questions

Q.1: What are the eligibility criteria for a long-term business loan?

Ans: While the eligibility criteria highly depend on the lender for long-term loan applications, they include the following.

• The borrower must be self-employed, owner-occupied, private limited stock companies, or partner companies engaged in manufacturing, trading, or servicing.
• The minimum company turnover must be INR 400,000 (changes according to the lender).
• Have at least three years of work experience, with a total of 5 years of work experience.
• Have a profitable business in the past two years.
• The company's minimum annual income (ITR) must be Rs. 15,000 rupees per year.
• Applicant must be 21 years or older at the time of loan application and 65 years of age or younger at the time of loan term.

Q.2: Is a credit score required for a business loan?
Ans: A credit score of 750 and above is a safe score to qualify for a business loan.

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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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