How to get a long-term business loan

Key takeaways

• Long-term business loans help fund bigger business costs, like expansion or new equipment, that you want to repay over several years

• Lenders may look at your turnover and credit history before they approve a business loan application

• Longer loan terms can reduce the repayments each month, but you may pay more interest overall as a result - so compare the total cost before you apply

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What is a long-term business loan?

A long-term business loan is at type of finance that a business repays over several years. This could be anywhere from five years to 25 years or more, depending on the type of loan.

Businesses often use this type of borrowing for costly purchases or investments that may take time to deliver a return - examples include buying sizeable machinery and equipment, expanding premises or funding growth.

Key features to know:

• Longer repayment periods: Spreading the cost of paying back the loan over several years can reduce the size of each individual repayment

• Larger borrowing amounts: Long-term loans can help cover those bigger funding needs that would be harder to repay over a shorter period of time

• More interest over time: Lower repayments don’t mean a cheaper loan – by spreading the cost over a longer period you may pay interest for longer, increasing the overall amount you owe across the term of the loan

• Secured or unsecured: Some lenders may ask you to provide an asset as security, particularly for larger loans, while some may not

How do long-term business loans work?

Long-term business loans spread the cost of borrowing over several years, helping make big investments in your business easier to manage. Here’s how they usually work:

1. Agree the loan amount and term

A lender offers you a set amount of money to repay over an agreed period of time, usually spanning several years.

2. Lender sets the cost of borrowing

The loan agreement explains the interest rate and whether the rate the lender offers is fixed or can change during the term. The agreement also sets out any fees attached to the loan.

3. Receive the funds

Once approved by the lender and after you accept the terms of the loan agreement, the lender releases the money. This could be as a lump sum paid into your business bank account or, in the case of a commercial property purchase, into the account of the someone else.

4. Make your repayments

Repay the amount borrowed, plus interest and fees, through regular instalments until you clear the balance. This is usually done on a monthly basis with long-term loans.

What can I use a long-term business loan for?

Long-term business loans tend to work best when used to cover larger costs or investments, perhaps where you expect to benefit over several years rather than in the immediate short-term. 

Common uses include:

• Buying or expanding business premises

• Purchasing machinery, equipment or other substantial assets

• A type of vehicle finance or to add vehicles to an existing fleet

• Investing in long-term growth or sizeable expansion plans

• If you’re looking into how to get a loan to buy a business, long-term finance may be one option to consider

• Refinancing existing business debt

Advantages and disadvantages of getting a long-term business loan

Long-term business loans may be able to help bring those bigger ambitions to life, but committing to repayments for several years has its drawbacks too. The main advantages and disadvantages include:

Pros

• Longer terms can mean lower monthly repayments

• You may be able to borrow larger amounts

• Fund major investments and growth plans

• Fixed repayments help make budgeting easier

Cons

• You usually pay more interest overall

• You’re in debt for longer

• Some loans may require an asset as security or a personal guarantee

• Early repayment charges usually apply

Am I eligible for a long-term business loan?

Whether you’re eligible for a business loan comes down to specific criteria set by individual lenders. That said, you usually need to meet some basic requirements, regardless of the lender. 

These may include:

• Being aged 18 or over

• Being a UK resident

• Running a UK-based business

• Having a UK business bank account

• Having permission to apply for finance on behalf of the business

• Meeting any minimum trading history requirements set by the lender

Types of long-term business loans available

There are a few different types of long-term business loans. Let’s breakdown five of the most common out there.

• Secured business loans: You provide an asset as security against the loan. An asset can mean anything from property and machinery to unpaid invoices – it just must have a value. This may then allow you to borrow more or access a lower interest rate as the lender could take the asset if you’re unable to repay

• Unsecured business loans: Borrow without securing the loan against a business asset. Lenders may base their decision on your finances and credit history (both business and personal depending on the circumstances), and they may also ask for a personal guarantee

• Commercial mortgages:These help you buy or refinance property for your business, with repayments typically spread over many years. They’re not too dissimilar to a home mortgage, but the property or premises must be for a business

• Asset finance: You can use this to spread the cost of vehicles, machinery or equipment rather than paying the full amount upfront

• Government-backed finance: Schemes such as the Growth Guarantee Scheme help eligible businesses in the UK access longer-term funding through accredited lenders. Start Up Loans also offer government-backed funding of up to £25,000 for eligible newer businesses, with repayment terms of up to five years, but this is more of a short-term lending option

The right type of long-term loan for your business depends on what you need the money for and whether you can afford the repayments.

What to look for when comparing your options

Long-term business loans vary significantly in both cost and flexibility, so it’s certainly worth looking beyond just any headline interest rate when comparing options. Here are a few other important considerations:

Interest rate

This is what most lenders lead with as the headline, so compare the different rates on offer and check whether they’re fixed or variable.

• A fixed rate keeps your repayments more predictable and won’t change for the duration of the loan

• A variable rate could rise or fall during the loan term depending on all sorts of factors including global events and the Bank of England base rate

Total cost of borrowing

Make sure you know how much you will need to repay in total, and be sure your sums include interest and fees. A longer term can reduce your monthly repayments, but the trade-off is an increase in the amount of interest you pay overall.

Our loan repayment calculator can help you compare different loan amounts and rates.

Repayment term

Think about how long you want to borrow for. A longer term can make repayments more manageable (and look more appealing as a monthly amount), but it also keeps your business in debt for longer and increases the interest due overall.

Security and personal guarantees

Check whether the lender requires an asset as security or needs you to provide a personal guarantee. You should also make sure you understand what happens if your business cannot repay the loan. This can vary quite a bit, especially between a sole trader and limited company structure. 

Fees and charges

Check to see if there are any arrangement fees, administration charges or any other costs that could increase the overall price of borrowing. These can add up!

Early repayment options

Your circumstances could change over a long loan term, so check whether you can repay early or make overpayments, and whether the lender charges for doing so.

Compare long-term business loans with money.co.uk

A long-term loan could help your business expand in all sorts of ways, but it's important to first discover your options. The money.co.uk business loan journey helps businesses learn more about what's available.

We help match businesses with relevant finance options from a range of lenders, so you can explore products that align with your circumstances, rather than pursuing products that don't.

You can check if you're likely eligible for free with a soft search - and it won't appear on your credit file or affect your credit score. If you decide to complete a full application, the lender may carry out a credit check.

What do I need to apply for a long-term business loan?

Lenders usually ask for information about you, your business and its finances before they decide whether to offer you a long-term loan. To help the lender with their assessment, you may need to provide:

• Proof of identity

• Your business name and company information

• Details of how much you want to borrow

• What you plan to use the money for

• Recent bank statements (business and personal) 

• Business accounts and tax returns

• Your turnover and trading history

• Cash flow forecasts and financial projections

• Details of any existing loans or other debts linked to you or your business

• A business plan, particularly if you want the loan to fund expansion or a major new investment

• Details about any assets you plan to use as security

• Permission for the lender to carry out business or personal credit checks

Having these documents ready can make the application easier and give the lender a clearer picture of whether your business can manage the repayments over the full term.

How to apply for a long-term business loan in 5 steps

1. Decide what you want to fund

Work out how much you need and what the investment should achieve for your business.

2. Check which loans you qualify for

Review lenders’ eligibility criteria and consider whether you prefer a secured or unsecured loan. This helps narrow down your options before you apply.

3. Compare the full cost

Compare interest rates, fees and repayment terms to work out the total amount repayable. Check that the monthly repayments fit comfortably within your budget, and ask the lender if anything’s unclear.

4. Prepare your application

Gather all of the financial information and documents the lender asks for, then complete the application. Be sure to give accurate and up-to-date figures to avoid any unnecessary delays.

5. Review the agreement and accept

Read the final offer carefully and ensure you’re comfortable with the repayment schedule, fees and any security/personal guarantee requirements. If the terms suit your business, you can accept and sign the agreement. After everything’s confirmed, the lender should release the funds.

Alternatives to long-term business loans

A long-term loan is not the only way to fund business costs or support a growth plan. You could also consider:

• Business line of credit: Access an agreed credit limit and draw from it when needed, repaying as you go

• Business credit cards: If you need help spreading smaller costs, particularly if you can repay the balance quickly, a business credit card could be a helpful alternative

• Equity finance: Raise money from investors in return for a share of your business – there are no loan repayments you need to make, but you dilute ownership of your business so it’s not right for everyone

• Business grants: Some businesses may qualify for grants that do not need to be repaid at all, although this can be very competitive with detailed application processes. You can save time by making sure your business is eligible in the first place