As a small business owner, you’re well aware that every decision you make will affect your bottom line in one way or another. Because of this, it’s crucial that you’re making strategic business decisions with longevity and growth in mind.
We know that it can be frustrating when you’re navigating the world of business loans—trying to find out how you can sustainably grow your business without making the wrong move. As a trusted Twin Cities community bank, we have seen how thriving companies use critical long-term business loans to keep their businesses growing sustainably, and we wanted to share some of those insights with you. Let’s dive in!
What is a long-term business loan?
How about we start out with a little bit of foundation? After all, you started your business with a passion for what you do, not because you were concerned or interested in knowing what a long-term business loan is.
A long-term business loan is a type of loan repaid over an extended period of time—typically ranging anywhere from three to ten years. They’re most often used to provide a larger financial assistance for a significant investment in your company. Think of things like a new facility, purchasing heavy machinery, or acquiring another business. Because of the longevity of the loan, you’re able to pay off debt in smaller, more manageable amounts, allowing you to grow comfortably.
Let’s dive into the different types of loans and when they’re necessary.
If you operate in the manufacturing industry, you’re likely familiar with an equipment loan. This loan is designed to help you purchase heavy equipment or machinery for your operations. However, equipment loans aren’t just for buying brand new heavy machinery—you can also get approved for an equipment loan if you need money to make repairs to your existing equipment.
Sometimes, companies will make the mistake of comparing an equipment loan to equipment financing. It’s important to know that these are very different—and an equipment loan is actually a more sound monetary decision. With an equipment loan, you will own your piece of machinery, whereas with equipment financing you’re essentially leasing it and would have to return the equipment at the end of the agreed term.
It’s also important to know that the actual equipment you purchase with the loan will act as collateral against the loan, so you typically won’t have to put up any of your own assets to secure the funds.
Also known as commercial real estate loans, building financing allows you to acquire a brick-and-mortar location to continue or enhance your operations. These kinds of loans include but are not limited to offices, warehouses, retail, or even a property that you make additional income off of, such as an apartment building or hotel.
However, when you take advantage of building long-term financial loans, you’re not restricted to just an existing property. You can use building financing to pay for new construction, renovations to your current property, or even refinance a real-estate debt on your property.
Building financing typically has the most extended term out of the three popular long-term loans. This is because property can be a significant investment, and often these loans will go as high as $25 million. The banker will likely be looking into your organization to make sure that you have the projected growth to repay your loan within the agreed upon time frame.
Acquisition financing is the most complex of the three long-term loans we’re discussing. Instead of borrowing money to purchase growth tools for your business, like equipment or property, acquisition financing gives you the capital to acquire other companies.
This is a common practice for entrepreneurs and business owners everywhere. There will frequently be growth opportunities when someone who operates a company similar to yours is willing to sell. Not only will you be removing a competitor from the marketplace, but by purchasing a company and all of its assets, you’ll be opening your company up to considerable potential to grow.
However, purchasing another company requires a lot of cash—so that’s where acquisition financing comes into play. If you’re planning on going through acquisition financing to buy another company, be prepared to have some flexibility.
These loans will vary depending on the type of business you’re acquiring and how they are being funded. It’s also important to note that the financial institution will closely look at the financials and growth projection of the company you’re purchasing to ensure that it’s viable and on the path to long-term growth.
Ready to grow?
Now that you know a little more about the three most common long-term loans for strategic growth, it’s time to start building. When you choose a banking partner like Crown Bank that genuinely cares about your growth potential, you’ll find that these are great solutions for achieving that growth.
Ready to talk further? Connect with Crown Bank to learn more about long-term loans and how you could benefit from them.