Introduction
A long-term business loan is a loan type that is provided to MSMEs, usually between 3 to 25 years. Businesses utilize such loans for funding projects, equipment purchasing, opening operations, and infrastructure to build among other things. The repayments take place in months; they have relatively lower interest rates compared to short-term loans. They are thus attractive to businesses that seek financial stability while pursuing growth.
This article will help business firms to make planned decisions when they apply for business loan. The article will answer what long-term business loans are, their characteristics, elements that affect approval, and the documents needed.
Features of Long-Term Business Loans
- Loan Tenure: Repayment periods of long-term business loans are longer, sometimes to several years or even a few decades. This really helps to manage cash flows in the business as the repayment of EMIs will be paid for a longer period.
- Lower Rates: Because the loan is repaid over a longer period of time, the lender usually offers lower interest rates compared to short-term loans.
- High Loan Amount: Long-term loans are meant for large amounts of capital needs. Businesses can borrow larger quantities for equipment, property, or a major project.
- Collateral: Most long-term business loans are secured loans. Hence, the borrower has to offer collateral such as a piece of property, equipment, or other assets. This mitigates lender risk and allows for lower interest rates on the long-term loan.
- Monthly Repayments: Repayment for most loans like this are a fixed amount made every month. This predictability makes financial planning easy for businesses.
- Purpose-Specific Loans: Long-term loans are often given to specific business needs such as purchasing equipment, property, or expanding the business. There are high chances that lender might request an holistic project proposal in your business to ensure that the business loan is spent exactly for that.
- Eligibility and Credit Score: In order to get a long-term unsecured business loan, one requires a good credit history, stable income, and a good business plan. Before granting the loan, lenders evaluate all these.
- Reasons and Paperwork for Long Term Business Loan: Getting a long term business loan requires one to be aware of factors determining the approval of a loan and prepare all the required paperwork.
Factors Affecting Long-Term Business Loan Approval
- Business Creditworthiness: More than 750 credit score will help to secure an approval. The lender requires individuals with a good repayment history and low outstanding debt.
- Business Age and Revenue: Long-term loans will mostly be secured by established companies with stable revenues. Start-up companies may not be eligible, unless they bring in strong collateral or a co-signer.
- Collateral: The quality and amount of the collateral shall be considered for secured loans. A higher-value collateral means lesser risk on the part of the lender, and better loan terms are expected.
- Purpose of the Loan: The lenders would want to know about the purposes and usage of the funds. A very clear and detailed business plan that indicates substantial benefits of the loan increases chances of approval.
- Economic Conditions: Market trends, inflation, rates, and the lender’s confidence in the business sector also affect the approval and interest rates of a loan.
Documents Required for Long-Term Business Loans
- Business Registration Documents: The business ownership can be authenticated with documents like a certificate of incorporation or GST registration.
- Identity Proof
- An Aadhaar, PAN card, or voter ID is required as an identity proof for both the proprietors of the business and the business entity.
- Financial Statements: The lender will require financial statements in the form of profit and loss accounts, balance sheets, and income-tax returns for the last 2-3 years.
- Bank Statements: Latest bank statements for the period of at least 6 months to 12 months would carry all cash inflow and outflow, and sometimes, even give an impression of the general health of business.
- Collateral Documents: For secured loans, the ownership and valuation documents of the collateral should be submitted.
- Loan Application Form: The loan application form containing information on business, loan amount, and purpose should be submitted with all the appropriate details without any errors.
- Project Plan or Business Proposal: A good plan explaining how the loan will benefit the business and how the repayment can be handled strengthens the application.
Conclusion
A long-term business loan is a fantastic financial tool whereby a business can invest in big-ticket items such as large projects, equipment purchases, or expansion opportunities. Because of relatively low interest rates, flexible repayment periods, and reducing the strain on cash flow, businesses thrive on them without disrupting cash flow. However, it requires planning and a good credit profile along with proper documentation to achieve one.
NBFCs provide business loans to MSMEs according to flexible options, being less stringent in regard to their eligibility criteria. They understand the nature of the needs of MSMEs and provide solutions accordingly. It is a best option for small businesses to opt for the right NBFC to scale up their operations or take care of immediate needs.