What is one benefit of obtaining a long-term business loan?
To help you get the right value from long-term business loans, we asked business professionals and leaders this question for their insights. From building long-term credit to locking in favorable terms, there are several upsides to obtaining a long-term business loan.
Here are 12 advantages of long-term business loans:
- Build Long-Term Credit
- Leverage Lower Interest Rates
- Take Advantage of Variable Capital Options
- Grow the Business
- Keep More Equity
- Lock in Favorable Loan Terms
- Reduce the Impact on Cash Flow
- Gain Access to Increased Funding
- Lease to Finance
- Increase Product Offerings
- Achieve More Stability
- Have a Lender in Your Corner
Build Long-Term Credit
One benefit of a long-term business loan is that it allows you to build a long-term credit relationship with a single investor.
Private investors can bring your business a needed influx of cash, but this usually involves turning over some portion of control of your company to others. This can get in the way of your vision for your firm.
With a long-term business loan, you can raise money for your business needs while maintaining total ownership of your company.
Allan Switalski, LendThrive
Leverage Lower Interest Rates
There are several advantages to a long-term business loan. The interest is usually lower since people pay off the loan over time. The payment is much less since it’s long-term. Also, businesses can use the loan to build good credit. If businesses make these payments over time, their credit score will increase.
Janice Wald, Mostly Blogging
Take Advantage of Variable Capital Options
A major advantage of a long-term business loan is that it provides greater flexibility and resources to allocate to various needs. Businesses that rely on one source for their capital are often hamstrung by that lack of variability. They have a more difficult time investing in growth, product expansion, or any other of the many needs of a business.
This is especially true if that source comes from sales, as now not only do you not have other capital source options, but you also have a constantly changing amount of funds available based on the variability of sales. Long-term loans eliminate that unpredictability, freeing up an entrepreneur to pursue other ways to enhance and strengthen their business.
Yuvi Alpert, Noémie
Grow the Business
Obtaining a long-term business loan can be very helpful in growing your business. Oftentimes, businesses find themselves short on cash to invest back into the business.
Acquiring a long-term business loan frees up some cash to be able to grow the business now instead of waiting until later. This can help your business take advantage of any opportunities it sees in the market and not be restricted by the amount of money it needs to invest.
Chris Gadek, AdQuick
Keep More Equity
For a company that’s looking to grow fast, venture capital or other outside investment is often the first choice for raising money, but opting for a long-term business loan has some advantages.
Most notably, a loan helps you preserve your ownership share. That means you’ll see more upside if your business does well, and you’ll be free to make decisions without involving investors.
Elliott Brown, OnPay Software
Lock in Favorable Loan Terms
One of the main benefits of obtaining a long-term business loan is the favorable terms available to you. For example, most banks offer an adjustable-rate mortgage (ARM) on their prime loans.
ARMs have a variable interest rate that is tied to a certain index (usually the prime rate). However, the bank will “lock” your interest rate for a specified period of time. This means that for the first part of the life of your loan (the “grace period”), your interest rate will be at the lowest possible level.
Chris Panteli, LifeUpswing
Reduce the Impact on Cash Flow
Long-term loans provide businesses with capital to invest in assets without having to save the full amount. These loans can be combined with cash on hand and distributed over numerous different investments. Doing so reduces the impact on the cash flow needed to operate the business.
Haim Medine, Mark Henry Jewelry
Gain Access to Increased Funding
Obtaining a long-term business loan is great when you are seeking a higher funding amount. When you need a larger loan to pay for business expenses, getting a long-term loan will be best. Having this higher funding amount will allow you to grow your business which means you can pay it back and still have a successful business.
Justin Chan, June Shine
Lease to Finance
One benefit of a long-term business loan is it can be used to finance a car through leasing. It’s ideal for borrowers who desire to update their assets at lower monthly payments.
For example, people who lease cars can continuously switch to newer cars for less money. Dealerships cap the miles leasers can drive so that the cars can be used again if the leaser decides not to buy the car once the lending term is up.
Long-term business loans benefit borrowers by offering lower interest rates and benefit businesses by giving them more control over the assets.
Desiree Medellin, Peels
Increase Product Offerings
Long-term business loans give you the capital to increase your product offerings. For example, a small beauty brand may have just a few offerings, such as eyeshadow and lipstick.
However, with a long-term business loan, they can offer a wider range of cosmetics such as blush, foundation, and eyeliner. Having more products can increase sales.
Evan Zhao, Revela Health
Achieve More Stability
A benefit to a long-term business loan is having a stable relationship with a primary investor. With a committed and steady long-term investor comes a foundation of support, including both financial and instructional guidance, and can lead to additional investment from the same source at a later stage.
Because the financing is long-term, it is also less likely that you will have to dilute ownership by bringing in additional outside investors at a later time. Nor will it require you to court outside resources who do not fully comprehend your business.
A long-term business loan provides a stable level of capital from a source that understands and believes in your business and is more likely to have the confidence to commit additional capital if needed.
Adelle Archer, Eterneva
Have a Lender in Your Corner
One of the greatest benefits of a long-term business loan is having a lender that’s invested in your success. By having a loan with a long payback period, the lender has to be invested in your company’s success by the very nature of the relationship.
Unlike short-term, fly-by-night lenders or asset-based lenders, who don’t care about your actual business, a long-term loan requires your lender to be in your corner. They have to underwrite the loan with your success in mind, providing credit terms that are not overbearing and allow you to succeed.
In short, with a long-term loan, your success is their success, as you’re in it together for the loan haul.
John Ross, Test Prep Insight