The trick was figuring out exactly how he should do it.
The Snap Pak CEO explored a variety of business loan options in search of a line of credit to add staff members, stay up to date with technology, and expand his operations.
He eventually opted for a long-term business loan and has seen tremendous success.
“We used our line of credit to get ahead of the game and brought some amazing new talent to the team,” Knutson says, “which gave us a clear advantage to secure our spot as one of the leaders in packaging technology.”
The power of a long-term business loan to transform your business is difficult to deny.
And with loan approval rates rising, there’s never been a better time to use a loan to aid your business.
If you’re ready to set out on a long-term business loan quest like the one Edward Knutson undertook, the following primer can help you in your journey.
What is a Long-Term Business Loan?
What typically distinguishes a long-term business loan is how it is used.
Generally speaking, if you want business funding that leads to expansion over a longer period of time then you may be in the market for a long-term business loan—which, by virtue of longer duration, also typically offer more affordable rates than short-term loans with more flexibility from your loan provider.
When should I look for a long-term business loan?
Every business is different. Which means there’s no set threshold or KPI to check before deciding it’s time to shop for a loan.
Business owners often seek out a long-term business loan to cover larger expenses outside the scope of everyday needs or which will not immediately drive revenue towards their bottom line.
If you have a vision for your business that requires some kind of upgrade or shift, for example, a long-term business loan may be a good fit.
Common Uses of Long-Term Business Loans
Loans can support business growth in many ways. As Forbes notes, business loans open up possibilities to which you might otherwise not have access.
When our dedicated business advisors help our customers apply for a business loan, we always discuss their needs and goals.
Here are some reasons business owners, in our experience, use long-term business loans:
- To open a new location (or locations)
- To build out a current location
- For mergers and acquisitions
- In purchasing significant real estate
- For extensive construction or remodeling costs
- For equipment purchases
- To expand their teams with new hires
- To refinance existing debt
- To expand into new verticals or adjacent markets
How to Qualify for a Long-Term Business Loan
What do you need to qualify for a long-term business loan?
Requirements will vary from institution to institution, of course, but there are some basic prerequisites:
- Business and personal credit score: This is how lenders know you’re reliable in managing your financial obligations. A score above 650 is typically viewed more favorably.
- Years in business: Lenders will prefer to work with established businesses. If your doors have been open at least a couple years that suggests more stability than a business that only has a few months under its belt.
- Business roadmap: Be able to plausibly demonstrate your growth or forecast while pinpointing exactly how the long-term business loan is necessary for your business to take those next steps.
- Annual revenue: Your lender needs to understand how your business performs. A monthly revenue of $15,000 is optimal.
Need to better understand the necessary qualifications for a long-term business loan?
A reputable lender will be more than willing to answer any question you may have.
Types of Long-Term Business Loans
Bank loans: Banks big and small generally offer loans with term lengths of five to seven years and interest rates varying based on your qualifications.
- Who qualifies: Established businesses with demonstrated, consistent annual revenue and a high personal credit score. Some banks may also require collateral to guarantee repayment.
- Downside: Longer processing times, longer wait time to see the money deposited to your account, more paperwork. You may also need to provide more extensive documentation and more traditional loan qualifications in order to proceed.
SBA loans: U.S. Small Business Administration-approved banks and lenders offer long-term business loans up to $5 million with a repayment period of anywhere from ten to twenty-five years. Because these lenders work hand-in-hand with the government, these loans usually have some of the lowest interest rates and longest repayment durations available.
- Who qualifies: Businesses operational for at least two years with strong annual revenue. You'll also need a personal credit score of 600 or higher.
- Downside: Strong financial profile required. Excessive red tape.
Alternative lender: If you want faster funding, fewer hoops to jump through, and a personal advisor to help you along the way, a business loan from an alternative lender can be a great option.
- Who qualifies: With some of the most flexible requirements available, alternative lenders can often service clients who might otherwise struggle to find funding.
- Downside: Can have shorter repayment terms. Make sure your alternative lender has a dedicated business advisor to help you assess the most appropriate options for your business.
- Best for: Equipment, employment, operations, cash flow, expansion.
Idea Financial, for example, offers customers up to $250,000 in business loans and lines of credit with repayment times varying but very flexible, generous terms.
Through helping many small businesses secure the resources necessary to get to the next level, we have come to understand that there is no single reason why businesses seek out a long-term business loan. This is why Idea Financial always connects prospective customers with a dedicated business advisors who will work with you every step of the way to transform your business.
Need a bit of a funding assist to get the working capital necessary to evolve your business? A small business loan or business line of credit can help make your vision for tomorrow a reality today. Idea Financial offers up to $250,000 in working capital with a quick, hassle-free application, same day approval, and terms of up to 36 months.
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