You must have heard about the word ‘term’ which refers to the amount of time you have to repay your loan. The loan repayment period depends on the type of loan, amount, and the lender’s policies.
For instance, if you’re a start-up with no previous track record, the loan repayment conditions for you will significantly differ from a debt repayment term of an established business with over $10K monthly revenue and 500+ FICO.
Similarly, you have to follow different loan repayment terms and conditions if you, say, borrow money from the same day funding source or a bank.
As a general rule, the common business loan terms can be as fast as a few hours (unsecured loan options) or stretch on as long as a few years.
If you’re also looking to borrow some money to expand your business or support your existing cash flow, you must have a clear understanding of how long are business loans, and what things you should consider before applying for any particular loan type.
Types of Loans
There are two types of business loans – short-term loans and long-term loans. Long-term loans, as their name suggests, are granted for the long-term.
These loans are best suited to businesses that don’t want to deplete their cash flow while making debt repayments.
Short-term loans, on the other hand, are ideal for businesses that need to bridge a gap in cash flows.
In this post, we’ll have a quick overview of typical business loan repayment terms.
How Long are Business Loans? Typical Business Loan Terms Explained
When your small business needs additional financing, it’s important to consider all your options. As mentioned above, each loan type comes with its own loan repayment terms and conditions. Some sources grant loans for as long as 20+ years, while others need you to repay the amount within a few weeks.
The answer to this question, ‘How long are business loans’ vary according to your business capacity and existing needs.
We’ve put together a list of some of the most common types of small business loans, along with their estimated loan repayment terms.
SBA loans are by far the most popular loan type. These loans not only come with competitive interest rates but their repayment terms are also flexible.
Government-aided SBA loans are more affordable and accessible. The actual business loan term associated with an SBA loan depends on a type of loan.
The three most common SBA loans currently available includes:
SBA 7(a) Loan Program
SBA 7(a) offers competitive interest rates to those borrowers who need financing to start their own business or need help with debt refinancing. The typical loan repayment period ranges between 5 and 25 years.
SBA 504 Loan Program
SBA 504 small business loans come with a repayment period of 10 to 25 years. As there’s a third-party involved, the repayment terms vary from lender to lender.
SBA microloans are valued at $50K or less. Borrowers generally have to repay these loans within 6-years.
Same-Day Business Loans
Same day business loans are yet another popular way of financing those small businesses that are already established and earning a certain amount of revenue per month.
These loans come with flexible terms and conditions and can act as a savior for those who need instant financing to expand their business.
Conventional Bank Loans
Traditional bank loans will offer the longest repayment terms. However, it is not very easy for small businesses to qualify for this loan type as they generally come with rigid terms and conditions and also involve collateral.
- Short-Term Loan – should be repaid within 3-18 months time period
- Medium-Term Loan – should be repaid within 1-5 years time period
- Long-term Loan – should be repaid within 7-10 years time period
Since equipment itself acts as collateral in the case of equipment financing, these loans involve long repayment times. The typical loan repayment time for such a type of financing is 2 to 5 years.
Business Lines of Credit
Business lines of credit can be short term or medium term. The loan repayment period of these business loans depends on the type of lender and associated terms and conditions.
Invoice financing, also known as invoice factoring, is another short-term funding option that considers your business’s outstanding invoices as collateral.
Merchant Cash Advances
Interestingly, there are no business loan repayment terms attached to the merchant cash advances. These loans are repaid through your daily business revenue.
Since the daily percentage revenue limit varies from business to business, it’s not possible to determine how long these business loans will be.
We hope this post has answered some of your questions about how long business loans could be. Make sure you carefully go through each option first before you settle for one.