Over the course of your business' life, you will likely encounter some situations that require the help of outside financing, whether it's to purchase updated equipment, make repairs to your facility, or just bridge a gap in cash flow. Business loans are one of the most popular ways for companies to borrow the money they need to keep things rolling through tight financial conditions. In some circumstances, you might be able to pay a loan back within a few months. In others, you might need a longer term. How long can you finance a business loan? It all depends on your individual needs and the particular loan you obtain.
Short-term business loans are typically for situations when a business wants to pay the loan sum (plus interest) back in anywhere from three to 36 months. This could be simply to ensure the business can pay its bills while it waits to collect on a large client invoice, or any number of other reasons, like a limited opportunity to purchase inventory at a significantly discounted price. Either way, short-term loans are ideal for circumstances when the business is confident it will see a return on its investment or a resolution of its cash shortage fairly quickly.
Short-term loans typically have higher interest rates than long-term loans. They're also generally easier to obtain, with requirements slightly more relaxed than their long-term counterparts. Most short-term loans are for sums from $5,000 to $500,000.
Long-term loans are ideal for large business expenditures, like real estate or machinery. They are a little more difficult to attain for businesses that are just starting out, as they require a strong credit history, stable cash flow and revenue, and collateral.
Most long-term loans have terms up to 10 years, though, depending on your situation, it is possible to negotiate for longer terms, sometimes in excess of 20 years. The benefit to lengthening your term is that monthly payments are smaller, thus making a very large investment more affordable. This does mean that you will pay more interest over the lifetime of the loan, but the rates are usually lower than those of short-term loans. Long-term loans are commonly for amounts from $250,000 to $1 million+.
Beyond short-term and long-term loans, there are also intermediate term loans, which can mature between one and three years. Intermediate term loans are often used to fund the purchase of assets that are costly for businesses but don't have long lifecycle, such as computer systems and software.
Refinancing is always an option to consider if you are unhappy with your loan term. By refinancing your business loan, you can get terms that are either shorter or longer. Just keep in mind that refinancing will also likely mean a change to your interest rate, which can be a good thing or not.
So, how long can you finance a business loan? If your business has good credit and a responsible financial history, you can likely find a loan that meets whatever term length you need – whether it's three months or more than 30 years!