Business loans are of numerous types. They come with varies interest rates and periods. Most businesses look for long term loans, that can be paid for some time. However, one must be extremely careful to select, keeping in mind the various factors at play. A business after all is a liability with a recurring expense. The underlying factor at play is how well is the business-suited to face a long term business or an MSME loan.
The question then one would have to ask oneself is long term business funding the right option for the business?
Advantages of a long term business loan
- Compared to a short term loan or any other mode of loan financing, a long term loan comes with a lower interest rate.
- The payment terms are fixed and they are usually monthly.
- The transaction or the registration fee is also comparatively lower than other types of loans.
Disadvantages of a long term business loan
- The application process for availing a long term business or a CGTMSE loan is long and winded. The bureaucracy attached to a long term loan is higher and stringent compared to the short term ones.
- Since the application process is longer, this would require more documentation.
- Needless to say, to qualify for a business loan, the credit score simply cannot be just good. It needs to be stellar.
- Factors that need to be looked in before availing for long term business finance:
Vintage
It is the hard fact of life that lenders look at the experience of the business. Simply put, a financial organisation will not be dealing with a new business loan or an unsecured loan but a long term business fund with a company having a legacy. Vintage is a necessity when it comes to long term commitments.
This will also necessitate the presence of a large number of documents, like the annual revenue flow, profit and loss statements et al. most vintage companies have a standing in the business world and their credit scores are stellar.
Sound business plan
One of the most important aspects of investment is how will it be spent. The confidence in spending an investment well is based on a sound business plan. There needs to be a short term business plan as well as a long term one. In the absence of a business plan, the long term financing will not affect and might turn into a wasteful expenditure.
Capability to fulfil the commitment
A long term business loan is a commitment to business houses. They are a recurring expenditure that has to be paid on time. A default will lead the debtor into a spiral of bad credit score and legal hassles. One must be fully aware of the repercussions of a long term business loan or an MSME loan. The evaluation of the revenue channels has to be correct and precise.
How does a long term business loan help?
Achieve financial goals
A long term business loan acts as a force multiplier. It helps the business to fulfil other financial commitments and keeps the wheels of the business rolling.
Achieving targets
Many times, targets cannot be achieved because of the paucity of funds. A long term business loan helps tide over these challenges and pushes the business forward.
Helps in expansion
Expansion of any business is a time-consuming affair. A long term business loan comes in handy on such occasions.
Lastly, a long term business loan has several ramifications. It can put a severe strain on the business. However, it also does have a multiplier effect. A long term business loan, when handled properly, is a boon for any business.
