To get your business where it needs to be, or even sometimes to help you start your business, you will need a business loan. Not everyone is lucky enough to have the funds to back up their new venture right from the start.
However, loans are things that need to be paid back over time. This can be a daunting prospect to tie yourself to a loan for the next 30 years or so.
You’ll need to ensure that you opt for a business loan that you can comfortably afford to repay over time.
This will naturally lead you to question what is the average length of a business loan? And how long will it take for you to pay off your loan?
What is the average length of a business loan?
The average length of your business loan will depend on several factors. The lender will set the amount of time you have to pay the loan back when you first take out the loan.
The length of time you have to pay back the loan will also vary depending on which sized loan you opt for.
With medium-term business loans, you will typically repay in monthly installments over the course of between 1 and 5 years.
Long-term business loans could take anything from between 5 years up to a whopping 30 years to pay off. The length of time you will be paying off your business loan for will also depend on how much you borrow.
Short-term loans tend to be paid off within a year, but you will often have to pay more money a month.
This may seem like a daunting task before you even begin. However, the longer you have to pay off your loan, often the better rates of interest your bank or lender is able to offer. Especially if you opt for a higher amount to borrow.
You should carefully consider all of your options before you apply for a business loan. How much can you comfortably afford to pay back each month?
What will you do if any unforeseen circumstances happen which could affect your payments?
It may be tempting to try and opt for a shorter-term loan. However, you will have to pay back higher installments, and often higher interest rates too.
Long-term loans tend to be more manageable in the long run as the amount you have to repay each month will be smaller.
A new start-up business could arguably have more to gain from a long-term business loan as it can cut down on expenses, and give you the necessary funds you need to get your business thriving.
However, long-term loans do also have their drawbacks. You will of course end up paying more interest the longer your loan goes on for.
A long-term loan could also restrict the monthly cash flow that your business has, especially if you’re paying this back over several years. It can sometimes be more difficult to get approved for a long-term business loan, too.
Often long-term loans are tied up with high-value assets such as property as collateral, so if you’re unable to keep up with repayments, you may lose these.
How long do I have to pay back a small business loan?
This will entirely depend on the length of your agreed small business loan when you take it out with the lender.
Small businesses often don’t require large amounts of money to get them started. The length you have to pay back your small business loan will depend on how much you borrow, and the terms set out by your lender.
To get a small business loan for your business, it will be worth looking at businesses that specialize in loans for small businesses.
Then you likely won’t have to pay the astronomical interest rates that you would have had to pay if you tried to get a loan via your bank.
Businesses like the US Small Business Administration (SBA) should be able to help you find the right sized loan for your business, as well as check whether you’re eligible.
Typically, a small business loan from the SBA can vary from anything between 5 to 25 years, depending on the amount you borrow, and the agreement that you sign with them.
While it may be tempting to opt for the shorter amount, you should consider whether you can comfortably afford the repayments each month.
Don’t be tempted to pay more than your business can reasonably afford, as it will suffer in the long run.
Sometimes it’s worth looking at a long-term loan as this will give you more flexibility in terms of monthly repayments.
The SBA loans in particular tend to be geared more towards long-term loans. Remember that the longer you have to pay off your small business loan, the lower the interest rate will be.
What is the average loan amount for a small business?
The average loan amount for a small business will entirely depend on the loan that you apply for.
The SBA offers a range of business loans and programs to help you get your business off on the right foot, or to give it support when it needs it most.
You will need to ensure that you meet their requirements before they’re able to grant you a loan.
Most of the SBA’s 7(a) loan amounts for small businesses have an absolute maximum amount of around $5 million. However, you are unlikely to need all of that amount depending on how much money your business needs.
This particular lender offers a range of Express loans that have a maximum loan amount of $350,000. SBA Export Express loans have a maximum loan amount of around $500,000.
There are also several factors you will need to consider first. You should ensure that you will be able to repay this small business loan comfortably.
You will also need to ensure that your business meets the requirements of the loan you’re after, otherwise you could be wasting your valuable time when there are better suited loans elsewhere.
In order to be eligible for an SBA loan, for example, you will need to prove that your business is able to operate at a profit, is engaged in business within US territories, you have reasonable owner equity to invest, and that you have used alternative financial resources such as personal assets before seeking loan assistance.
You should consider carefully whether your business is eligible before you apply.
Frustratingly, some business loans can be hard to acquire if you’re looking for financial backing to help you start a new business.
We would recommend taking a look at the types of loans that businesses like the SBA are able to offer before you get started.
What alternatives are there to a business loan?
It’s understandable if you’re reluctant to sign up for a larger business loan.
Especially if the lender requires you to put up your own personal assets as collateral in the event that you might not be able to make the monthly payments!
You may want to consider looking into a business account overdraft. This can help your business if you want to borrow money over a short period of time. Another factor to consider is getting a business credit card.
As long as the credit limit stretches far enough, this could be the perfect way to borrow the smaller amount you need without having to be punished by higher interest rates.
So there you have it! Now you know that the average length of a business loan will depend on the term you have as well as how much you’ve borrowed.
Short-term loans tend to be repaid within a year, however, this is often at higher interest rates and with higher payments.
Medium-term loans can take anything between 1 and 5 years to repay depending on the amount you’ve borrowed.
Long-term loans can take anything between 5 and 30 years to repay, again, depending on the amount you’ve borrowed.
However, long-term loans are often more manageable for businesses as these can be repaid with lower installments and sometimes with lower interest rates.
You will of course end up paying more interest overall, but sometimes it’s a price worth paying if it means you can run a successful business.
You should carefully consider which loan type will be the best for your business before you apply for it.