How to find the right long-term business loan
Long-term business loans provide access to larger sums of money, repayable over several years. They're useful for big investments like expanding your business, buying property, or managing cash flow without high monthly costs.
Key takeaways
Long-term business loans spread the cost of borrowing over several years to reduce pressure on cash flow
They can be used to fund expansion, property or large purchases for your business
Eligibility can depend on your credit history, trading record and business stability, while some might also require security
What are long-term business loans?
A long-term business loan is a way to borrow money for several years, usually around 5 to 30, giving you access to capital for growth, investment, or day-to-day operations.
Repayments are made monthly, often at a fixed rate, helping you manage your cash flow.
Businesses use long-term loans for high costs like new premises, vehicles, or staff expansion. They’re a common choice for companies that want predictable repayments and more time to repay than you’d normally get with short-term loans.
Who are long-term business loans best for?
Long-term business loans are best suited for the following types of businesses and circumstances:
Business owners looking to expand
A long-term business loan can help cover costs including moving to a new premises, hiring staff or upgrading kit.
Start-ups needing initial funding
Long-term business loans help you begin your trading journey by covering early stage costs while keeping repayments affordable.
Businesses that need lower monthly repayments
If you need money to fund your commercial operations and aren’t able to afford costly repayments from the outset, long-term business loans can be a good option because you can spread the repayments over a longer period.
What types of long-term business loans are there?
You can get different types of business loans in the UK, such as:
Traditional long-term loan
A fixed lump sum, repayable over 1-10 years or more, often secured against assets like equipment or property. They can have fixed or variable interest.
SME loans from banks
Offered by high street banks to small and medium businesses, these loans might offer more competitive interest rates. But some require a personal guarantee or collateral, depending on your business’s credit rating.
Government-backed loans
The UK’s Growth Guarantee Scheme supports small and medium-sized businesses with loans of up to £2 million through accredited lenders.
Backed by the British Business Bank, it covers term loans, overdrafts, asset finance and invoice finance, with repayment terms of up to six years.
While the government guarantees 70% of the loan to the lender, you're still fully responsible for repaying the full amount.
Commercial mortgages
Commercial mortgages are used to buy or refinance business premises, and they’re usually secured against the property itself. Repayment terms can extend up to 25 years.
Asset finance
Asset financing lets you acquire vehicles or equipment and spread the cost over time. The asset acts as collateral, and repayments are tied to its lifespan.
What are the eligibility criteria for a long-term business loan?
Most lenders will require the following in order to qualify for a long-term business loan:
You’ll need to be a UK-registered business
You’ll need a trading history of at least one to two years
You’ll need good business and personal credit scores
You’ll be asked to show financial stability through statements and cash flows
You might be asked for a clear plan on how you’ll use the funds, as well as a wider business plan and forecasts
You might be asked to provide collateral
Some lenders may only offer loans to certain industries that are perceived as low-risk or stable
What are the pros and cons of a long-term business loan?
Pros | Cons |
|---|---|
You can usually borrow more with a long-term loan | You may need to offer collateral as security for the loan |
They also offer lower monthly repayments which generally stay fixed and predictable | The total amount of interest you pay is likely to be higher due to the term length |
They’re ideal for big investments into your business | These loans are harder to access if you have bad credit or your business is a startup |
They offer lower interest rates compared to short-term loans | It’s a long term commitment with recurring repayments |
How should I manage a long-term business loan?
The key to managing a long-term business loan is making sure you stay on top of repayments - here’s how you can best do so:
Create a detailed business plan to predict income and expenses
Set up a direct debit to avoid missed payments and extra charges
Stay familiar with the loan terms, including whether it’s a fixed or variable interest rate, whether there are penalties for early repayments, and what happens if you can’t repay
If you’re struggling with repayments, speak to your lender early as they might be able to restructure the loan to help ease financial pressure.
What can I use a long-term business loan for?
Long-term loan funds can be used for most major business costs, including:
Buying equipment or vehicles
Expanding premises or operations
Staff training or recruitment
Property purchase or development
Boosting working capital
Just make sure the expense is business-related, as personal use isn't allowed.
Are there any alternatives to long-term business loans?
Here are some possible alternatives to long-term business loans you might want to consider:
Invoice financing
Invoice financing involves a bank buying up your unpaid invoices or lending you money against the value of the accounts receivable, useful for short-term cash flow.
Business credit card
Business credit cards are handy for everyday purchases and some even offer cashback or rewards. While you can normally borrow more than with a personal credit card, interest rates are often higher.
Crowdfunding
Crowdfunding lets you raise money through public or investor campaigns, but you’ll need a strong brand or an innovative idea to convince people to contribute.
Business account overdraft
Useful if you need to borrow money in an emergency or over a short period, but interest rates tend to be quite high.
How to compare long-term business loans with MoneySuperMarket
Our aim is to help you compare long-term business loans in an easy and straightforward way. Here's how to go about it…
Tell us what you're looking for. We’ll ask a few simple questions about how much you want to borrow, your business, and what the money will be used for.
Compare deals. We’ll show you a list of potential deals from over 70 leading UK lenders including the interest rate and how much your monthly repayments might be. Searching with us won’t leave a mark on your credit report either.
Apply in minutes. Once happy with your choice, you can click through to apply quickly and easily online. The whole process will only take a few minutes. Once approved, you can then sit back and wait for your funds to arrive.
Frequently asked questions
What is the longest term I can get a loan for?
Long-term business loans generally range anywhere from 5 years to 30 or more, but it will depend on your situation, your lender, and the loan deal you apply for.
The good thing about longer-term deals is that the cost of your monthly repayments will be brought down, making it more affordable to pay back your debt each month. However, bear in mind that you’ll end up paying more interest overall.
Can I get a long-term business loan if I have poor credit?
Lenders want to be sure that you’ll be able to repay what you owe them, so if you have bad credit, you may find it more challenging to get a long-term business loan.
This doesn’t mean that you won’t be able to find a long-term option for you and your firm. As long as you demonstrate that you’ll be able to afford the repayments, you should be able to borrow what you need. But it’s likely that the interest rate will be higher and your loan more expensive overall.
Do I need a guarantor for a long-term business loan?
No, not necessarily. You should be able to get a long-term business loan without the need of a personal guarantor.
That said, if you have a poor credit rating, a guarantor with good credit history may increase the chance of success of your application. Generally, a guarantor is a family member, close friend, or partner who will take over the loan if you’re not able to pay back the debt yourself.
Keep in mind, though, that guarantor loans may come with higher interest rates. Not only that, but they can be a risky financial commitment for both you and your guarantor.
What government backed loans are available?
The government’s Start Up Loan scheme is a funding source for emerging businesses facing challenges in accessing financial support.
The scheme extends loans to businesses with less than three years of trading history, offering a fixed interest rate of 6% per annum over terms ranging from one to five years.
These are unsecured personal loans and individuals can apply for amounts up to £25,000, with an overall limit of £100,000 per business.
Beneficiaries also receive business mentoring for the initial year, along with assistance in crafting a business plan and cash flow forecast.
For businesses affected by the Covid pandemic, there's an additional opportunity through the government's Recovery Loan Scheme.
Extended until June 2024, this scheme provides financial access for term loans exceeding £25,000 or £1,000 and above for invoice and asset loans.
What security is required?
The security required for a long-term loan in the UK depends on the type of loan. Secured loans typically require collateral, such as property, equipment, or inventory, to secure the loan.
Unsecured loans do not require specific collateral but may involve a personal guarantee. The type of security is determined by the lender's risk assessment and the terms of the loan agreement.
What fees should I watch out for?
When considering a long-term loan, look out for potential fees such as origination fees, application fees, late payment fees and early repayment charges. Additionally, review the interest rate structure to ensure clarity on fixed or variable rates.
Thoroughly review the terms and conditions to identify any hidden charges, ensuring a comprehensive understanding of the total cost of borrowing over the loan's duration.
Author
Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
Reviewer
Mehdi Punjwani
Insurance specialist
Mehdi is a financial writer and editor with over six years of experience in personal finance. He has written for organisations and publications including Equifax, The AA, and USAToday, covering a...
