As the name suggests, medium to long term loans are loans whose repayments are spread over a longer period of time. This type of loan is popular for various types of businesses, including start ups that require funds to get the business fully functioning and profitable as soon possible, without the pressures of high interest rates that shorter termed loans generally incur.
What are Medium to Long Term Loans
Medium to long term loans is something of an umbrella term as there is no one explanation that fits all, but it is generally thought that a business loan of over a year fits into this category. At the longer end of the category is a mortgage, whose payments can be spread out over the course of decades. Long term business loans tend to last no longer than seven years, however.
Although some businesses will require shorter loan terms than those provided with medium and long loans, they do provide considerable advantages for some. These can include:
- Lower Repayments
- Long Term Planning
- Setting Up a Business
Because the repayments are spread out over a longer period of time, monthly repayments can be set at a much lower level than those of a shorter termed loans. Although this benefit must be balanced with higher overall interest rates, this can be of huge advantage for some.
Long Term Planning
Rather than the continuous borrowing that can occur from short term planning and loans, this type of loan is advantageous for long term planning and strategies. As long as a company can stay within their budget while implementing relevant strategies and investment, it can be a more cost efficient method of financing.
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Setting Up a Business
When starting a business, lack of funds can greatly reduce the ability for a company to reach its full potential. It is highly likely, therefore, that a business will be required to invest in equipment, wages and other running costs alongside advertisement and other investments. Because repayments are spread out over a much longer period, this can enable new ventures to become profitable without being crippled by the terms of the loan.
Although a more manageable type of loan than many of the other alternatives, medium to long term loans do not come without some disadvantages. Some businesses might therefore find it unsuitable. These issues can include:
Higher Interest Rates
The longer a loan exists, the more in interest the borrower will pay so unless higher level of repayments become unsustainable, it does make sense to pay the debt as soon as possible. Medium to long term loans are usually a matter of necessity as they offer short term solutions over a long period of time to allow breathing space for businesses that require it. This may not be cost efficient, however, for those who have other options available.
Particularly after the financial crash in 2008, lenders have been less willing to release funds to small businesses, specifically new companies with little or no experience. This can mean that those who could most use this type of assistance are least likely to be accepted for the loan.
Some lenders may insert clauses in the loan that are enormously constrictive. These can relate to anything from the type of investment your business makes, to even managerial decisions. It is, therefore, imperative that you read the small print properly and understand any clauses that might be part of the agreement.
What Kind of Businesses Might Benefit?
As previously mentioned, new businesses may have the most to gain from a medium to long term loan as the repayments are generally lower and less likely to stifle progress. These are not the only types of businesses that can benefit, however.
The long term investment inherent in this method of financing may also be key to growth of well established companies. Although many investment plans are better suited to the lower interest rates and higher repayment levels of the short term loan, a well-planned long term strategy can benefit from a well structured long term loan.
Should you wish not to be tied down to the long term commitment that this type of loan offers, or if you are not deemed suitable for it, there are other alternatives that might be more appropriate.
A business account overdraft can provide funds over the shorter term and as it is essentially a revolving credit loan, one without repayment terms, it can be re-borrowed as and when is necessary. What’s more, once the maximum limit has been agreed, the money is available without the need for reapplying for funds. Although this is usually a relatively short term measure, typically available for up to 12 months at a time, this can be negotiated.
Another type of revolving credit loan, also referred to as an evergreen loan, is the use of credit cards. Often available with interest free credit at the start of the contract, this can free up much needed funds in both the short and long term. Interest rates can be high, however, so it is wise to fully understand the terms and conditions before use.
Other short term methods include invoice factoring and revenue advanced loans, both of which essentially sell future profits to subsidise short term cash flow. Unfortunately these are not relevant to new ventures.
There are many reputable loan providers available, but each one does offer a different package. Which one is best for you will depend on a number of factors, including accessibility and interest rates. Here are a selection of what we believe to be the most highly regarded:
- Royal Bank Of Scotland
- Nat West
With over 15 years of experience in the sector, they offer loans up to the value of £1,000,000 for between 3 months and 10 years. This also makes them suitable for well established and larger businesses as well.
Flexible repayment terms and an efficient method of releasing funds, within 24 hours of acceptance, Ortus are well worth researching. Early repayment is available without penalty.
With 300 years of history behind them, The Royal Bank Of Scotland have a wealth of experience to draw upon. For their small business loans, the lack of fees associated with many other providers is their main selling point and although they do not offer quite the range of options as some afford, the maximum loan limit is £25,000, they do provide flexible repayment options. You will incur a penalty for early repayment so it pays to read the terms and agreement thoroughly.
NatWest are another high street bank that offer a depth of experience that few can match. NatWest small business loans also come without the types of fees others have as inherent in their loan facilities, such as arrangement and security fees and they also offer flexible repayment options on up to £25,000 over 10 years. Much like the RBS model, you will be penalised for early repayment.