Medium to long-term business loans
Setting up a business or expanding your current one can be expensive. Some people opt to fund it themselves but for many, this is impossible and chances are you’ll need financial support.
The reason many business owners prefer a medium to long-term business loan is so they can be certain that they will have funding in place to support their enterprise for several years. In turn, this will help them plan and budget.
Here, we take a closer look at some of the advantages and disadvantages of medium to long-term business loans…
Longer term loans
A medium to long-term business loan typically enables you to borrow money to help your business for one to five years.
The loan is repaid in monthly instalments, with interest added to the amount you owe. Some business loans have a fixed rate of interest, which means your payments won’t change over the term of the loan, while others have a variable rate, so the amount you owe could vary over the loan term.
Make sure you know which you are getting into as this could have a real impact on budgeting for your business.
Advantages of a medium to long-term loan
A medium to long-term business loan can help with all the costs associated with setting up a business, from cashflow to expenses and paying staff.
The longer the term of your loan, the lower your monthly payments will be, as you are spreading the cost over a longer period of time. This can be useful when you are trying to get your business off the ground, as it means you won’t have to make high monthly payments at a time when there will invariably be plenty of other set-up costs to consider.
Disadvantages of a medium to longer term loan
Taking out a business loan over a longer period may mean that your payments are lower than if you’d opted for a shorter term loan, but remember that ultimately this means you will pay more interest overall.
How much interest will you pay?
The amount of interest you must pay on a business loan will depend on your individual circumstances, including how much you want to borrow and over what period of time. If your business is just starting out, the lender will usually want to look at your personal credit rating to give them an idea of how responsibly you manage your money. The higher your credit score, the more likely you are to be offered a loan at a competitive rate of interest.
Alternatives to medium to long-term business loans
As well as loans, there are several other ways that business can secure funding. You may, for example want to use a business account overdraft which can provide you access to funds as and when you need them, making them useful for any unforeseen expenses. Business overdrafts are usually available for any period up to 12 months.
Alternatively, you may want to consider a business credit card. These can provide a useful way to manage staff spending and usually give up to 56 days interest-free credit.
Other options include cashflow finance, which enables companies to borrow against the value of their unpaid invoices, and borrowing against assets, for example your business’s property or equipment.