What are medium to long term business loans?

Les Roberts, Senior Content Manager at Bionic
By Les Roberts, Senior Content Manager

Medium term and long term business loans offer a way to borrow money so you can grow your business. As the names suggest, these are loans that are paid back over several years instead of over a few months. 

Normally, the longer the time period you take a loan out for, the lower the monthly payments tend to be. Because of that, medium and long term loans allow you to invest in your business without burdening it with too much extra monthly cost. On the flip side, opting for a longer repayment period usually means you’ll pay back more in total, so you need to consider what’s best for your current circumstances.

This type of financing can work well as a start up business loan or a new business loan if you want to expand your company quickly.

What can medium term business loans and long term loans be used for?

Technically, a medium term or long term small business loan can be used for virtually anything, as long as your lender agrees. In reality, however, there are certain costs that these loans are particularly well suited for, and others that may be better served by shorter term financing options.

Most small businesses will use medium or long term loans to fund what is called business development. Loosely, this translates as money that is used to start or expand a business. This might be a start-up business using a loan to buy its first office, or a more established company buying larger premises. It might be an investment in the development of a new product or equipment to increase production.

In short, if you have ambitions to make your business bigger and need to borrow to do so, a medium-term loan or long term loan could be just the ticket.

How long can you get a business loan for?

How long you can get a business loan for depends on how much you want to borrow, what your business credit rating is, and what business loan interest rates you are prepared to pay. On the whole, the shorter the duration or ‘term’ of your loan, the higher your monthly repayments will be.

You can get a short term loan for your business for as brief a period as three months. Most loans of two to five years are considered medium-term and anything longer is known as a long term loan. Lenders will tend to offer small businesses loans for anything up to 10 years. A word of caution here though - the effect of cumulative interest on a long term loan could mean you end up paying more over the life of the loan, even if the stated interest rate is lower. That’s why it’s good to explore your options - there may be a better type of financing option available for your business.

Are business loans secured or unsecured?

There are several types of long and medium-term business loans, with the main difference being whether they are secured or unsecured.

Unsecured business loans are available on a long term basis. These types of long term business loans do not require you to put up any of your possessions as a guarantee that you will repay the money but they tend to come at a price. Fewer lenders offer unsecured loans so you won’t be able to shop around and you could be left paying higher interest rates.

That said, if you take up a secured business loan, you are putting at risk the assets you use to guarantee the loan.

What are the advantages of a medium or long term business loan?

The main reason to get a medium or long term business loan is that you can borrow a significant sum of money to grow your business without burdening yourself with large monthly repayments. 

One advantage of borrowing money over a longer time period is that business loan interest rates tend to be lower. As a rule, the longer the length of a loan, the lower the rate. 

Furthermore, a medium or long term small business loan is a great way to establish a good relationship with a bank or other lender, which could come in handy as your business develops over time.

What are the disadvantages of a medium or long term business loan?

Although long term business loan interest rates are normally lower than they are for shorter-term financing options, you may still end up paying more in total over the life of a loan, as the cumulative cost of interest payments can add up.

If you take out a long or medium-term loan on a secured basis, the assets you use to secure it are at risk for the duration of the loan. You are also unlikely to be able to use them as security for further borrowing for as long as this first loan is active.

Another disadvantage is that - as with any longer-term borrowing - you are committed to making repayments over a long period of time. This could become a problem if you are not certain of maintaining healthy cash flow, particularly in the early days of your business journey.

What are the alternatives to medium and long term business loans?

Whether you are a new business or a well-established company, there are always options when it comes to financing.

If you aren’t sure that tying yourself into a long term funding deal is appropriate, you could try a business credit card or arrange an overdraft with your bank. Alternatively, there are plenty of shorter-term loans available to small businesses. These include invoice financing, bridge loans or short term small business loans.

How to give yourself the best chance of getting a business loan

Lenders will look at a whole range of factors when deciding whether to offer you a business loan. These factors include your business’s turnover, how long it has been operating, and how much you want to borrow. 

The best way to ensure you can get a loan - and to get it at a good price too - is to have a good credit history. That’s because the best business loan rates are offered to the businesses lenders believe are least likely to default on that loan.

You can still get a business loan if you have a less than perfect credit history, but the interest charged on the loan will be higher. Lenders often use ‘risk profiles’ to decide how much to lend and at what rate. These categorise borrowers into various bands, depending on how risky they consider a loan to them might be.

For example, a borrower with a clean personal and business credit record and whose business is well established might be charged much less interest and be able to borrow more than someone who has a history of missed payments and whose business has not been running as long.

What are the typical terms for a business loan?

The typical terms of a business loan are that you borrow an amount from the lender, which you must then repay over an agreed period, usually in a series of equal instalments. 

The loan provider will add interest to the loan, which is basically their fee for lending you the money (although some loans also come with additional fees). Interest fees are usually added to each repayment to spread the cost.

Once you've made all of the agreed repayments and the debt is repaid you no longer need to pay the lender. If you make all repayments on time, this could have a positive effect on your credit score, which may mean you can borrow more and/or get offered lower interest rates the next time you apply for a loan.

You may be charged higher interest rates and/or a penalty fee for missed or late repayments. In some instances, you might lose a promotional rate or benefit, such as a low introductory interest rate.

Missed or late repayments will have a negative impact on your credit score. If you consistently miss repayments, your lender might take recovery action against you.

The exact terms of your business loan will depend upon several things, including:

  • The type of loan you want
  • The amount you want to borrow
  • The length of time you need to repay the loan
  • Your business credit history and credit score

What is the longest term for a business loan?

Business loans come with repayment terms of anything from one month to about 30 years. The length of time you can borrow money for will depend upon the type of loan you want (commercial mortgages tend to have the longest repayment terms) and the amount you want to borrow, along with the information held on your credit file your current circumstances.

How to compare medium and long term business loan interest rates with Bionic

At Bionic, we can help guide you through the options when it comes to business loans. Our tech-enabled team will compare interest rates and other charges on medium and long term business loans from a range of lenders.

All we need from you to get started is some information about your business, starting with your name and postcode. Click the 'start a quote' button to get started.

We can also help you with a range of other business essentials, including business gas, business electricity, insurance, VoIP, phone and broadband.