How Long Are Business Loans?

When you require funding for your business, make sure you weigh all the available options and review the terms of each loan you’re considering. Some loans may require repayment in a few months, while others allow a borrower to pay back the loan over several years. 

Many business owners prefer long-term loans, as it grants them a considerable amount of time to make repayments and set favorable terms. Such loans are suitable for expansion operations if you don’t want repayments to exhaust your cash flow. Short term loans, on the other hand, help to bridge cash flow gaps.

If you’re a small business owner, you may not fully understand the terms of small business loans. For more information on the standard repayment period of a business loan, read on.

Factors that determine repayment periods

The type of lending institution, the lender's guidelines and terms, the loan program, the fund's intended use, and your company's overall profile all determine your repayment period’s length.

Suppose you opt for an independent broker that uses a flexible e-loan platform like LoanPro. In that case, you’ll often enjoy more flexible repayment terms, while traditional lenders, such as banks, will set longer repayment terms.

Types of business loans

There are many financing options available to businesses with various estimated repayment periods. The best choice for your business depends on your qualifications, rates, terms, and needs. Here are the standard options.

Term loans

Term loans are a common type of business loan available in short, medium, or long options. Depending on the agreed-upon terms, a company receives a lump sum upfront, paid within a specified period with interest.

Generally speaking, online lenders offer faster funding than banks with limits reaching up to one million dollars. For short-term loans, the repayment period ranges between 3 and 18 months. With medium-term loans, you can expect one-to-five-year repayment periods, while the long-term can go up to seven years.

Long-term loans are typically available through credit unions and banks, while alternative lenders give short-term loans. Short-term loans are ideal for borrowers with a strong business and good credit who wish to access funding within the shortest time possible.

SBA loans

Borrowers can access Small Business Administration (SBA) loans from banks and alternative lenders participating in the program. These loans offer the most extended repayment terms, depending on the specific program and how you plan to use it. The repayment period for SBA 7 (a) is 5 to 25 years, SBA CDC/504 is between 10 and 25 years, while an SBA Microloan Program loan must be paid before six years elapse.

SBA loans offer some of the market's lowest rates. As an additional incentive, borrowers can request up to five million dollars. This type of loan is suitable for businesses looking to refinance or expand existing debts or those that don’t require urgent funding.

Equipment loans

As the name suggests, this loan helps businesses gather funds for purchasing equipment. The term of such a loan matches the equipment's expected life span, with the equipment serving as the collateral. The rates depend on the business' strength and the equipment's value.

If you have robust business finances and credit, you can access competitive rates. These competitive rates allow you to own equipment immediately and create equity.

Merchant cash advances

With a merchant cash advance payback, it has no business loan term. You can repay these loans using a daily portion of your company's card revenue. Due to the fluctuations in the daily payment, it can be difficult to determine the repayment period’s parameters. However, merchant cash advances feature the industry's shortest repayment periods, ranging between 4 and 18 months.

Invoice financing

Invoice financing is a short-term solution that allows businesses to receive funding with the outstanding invoices serving as security. The term loan is contingent on the amount of time it takes for the invoiced customer to pay the invoice. However, on average, this type of business loan usually has a 3 to 6 month repayment period. For those considering this short-term solution, invoice financing is especially beneficial to businesses looking to get fast cash from unpaid invoices.

Microloan

These microloans that don’t exceed $50,000 include short repayment times that help businesses meet costs associated with starting or growing their operations like increasing working capital, purchasing equipment, or collecting supplies. These loans are usually available to new companies, startups, or companies located in disadvantaged communities.

Mission-based lenders and non-profit organizations distribute microloans. Besides funding, you can also capitalize on the training and consulting services available.

Wrap-up

It’s common for businesses to seek financing to boost their ventures. However, not every type of loan you come across is ideal for your business model. Taking time to understand business loans and assess your needs thoroughly will help ensure you make wise decisions and maximize your loan’s benefits.