A 5-year term business loan is a type of financing that is offered as a lump sum to be repaid in fixed monthly payments over the course of 5 years. These loans fall into the medium-term loan category, which usually is between a 2 and 5-year repayment period. Short-term loans are considered less than two years, while long-term business loans have a repayment period longer than five years.
The amount you’re able to borrow for a 5-year business loan will really vary based on your qualifications and what the lender can offer. It can also depend on if the loan is secured with collateral or not. Other factors such as the industry your business operates in, credit score, sales, and more can impact the amount you can borrow. Typically, lenders will have a minimum and maximum loan amount they can offer to qualified borrowers. Emphasis on the word qualified, as you’ll need to qualify. Visit mySMBscore to gain a better understanding of what your business might qualify for and what lenders can offer your business a loan.
Since interest rates vary based on the day, loan product, business qualifications, and other factors, it can be hard to determine a general range for a 5-years business term. You could see rates as low as 6% or up to 45% - but they could be outside of this range too. The interest rate and APR can significantly impact total loan costs so we know it’s important for you to understand what rates are.
One way to check your qualifications and determine what your business might qualify for is to leverage the mySMBscore platform. You can see your business credit score and understand it through the eyes of a lender. With a new found perspective paired with personalized insights on how to improve your score you can inch your way closer to that business loan to take your business to the next level.
While every lender can set forth their own requirements, at the minimum you should be able to meet the following:
Of course, these are just a few examples of some standard requirements. Requirements are usually created to help lenders manage risk. As you analyze your business credit score, consider the risk you pose to a lender. Keep in mind, risk can increase due to the industry your business is in, how long you’ve been in business, and so forth. Remember, lenders are business owners too - consider the risk vs reward of loaning your own business money based on the facts. Find out if you meet the requirements to qualify for a 5-year term business loan by getting prequalified at mySMBscore today.
Most 5-year term business loans are repaid every month over the course of five years. There are several different calculator tools available that can help you calculate your monthly payments by entering in your loan amount and interest rate to see how much you’d pay monthly.
It depends! Many traditional 5-year term business loans are for businesses that have already established themselves with revenue and several years in business. However, there are loans through the SBA that are more geared toward new startups or those looking to start a new business.
The time it takes can really vary by the lender and type of loan you’re applying for. While SBA loans can take several weeks or months to get approved, a term loan from other online lenders could take just a matter of minutes or a few days to get approved. Funding times can vary so be patient and always submit accurate information.
The fees and penalties associated with a business loan can vary. You’ll want to check with the lender of your choice to confirm whether or not the business loan has prepayment penalties or not. Oftentimes, 5-year term loans do not have prepayment penalties.
Generally, for SBA 7(a) loans, you could face a prepayment penalty depending on how early you pay off your loan that starts at 5% and decreases from there.
Some 5-year business loans may require collateral to qualify for the loan. This can be anything from real estate, inventory, or equipment that’s valuable and helps secure the loan. This means that if you can’t make payments or default on your loan, the lender will be able to seize your assets.
You can either guarantee the loan through business collateral or sign a personal guarantee that says you will pay from your own personal assets if you can’t make payments from your business assets.
SBA 7(a) loans will typically require a 20% down payment, but each lender and loan product will have different requirements to secure the loan.
While it’s not impossible, it can be very difficult to qualify for a 5-year business loan with bad credit. Lenders want to provide loans to borrowers they feel are financially responsible and will likely be able to pay back the loan.
If you do have bad credit but need a business loan, consider some alternative financing options like inventory financing, working capital loans or others that have less stringent requirements.
At mySMBscore, we’ll give you the insight you need to view your business score through the eyes of a lender, allowing you to see clear and actionable ways to improve your score.
The good news is that most businesses are eligible for a 5-year term business loan. There are a handful of specific industries that most banks won’t be able to lend to. Here are a handful of categories that are exempt from SBA loans:
If you’ve had a chance to review your offers and are ready to apply for your business loan, you’ll need to gather up several documents to submit your application. Your lender will likely ask for documents including:
Taking the time to organize all your documents before applying can make the process go faster and ensures there won’t be any delays with funding.
Defaulting on a business loan can have severe consequences not just for your business but also for your personal finances. If you used collateral like real estate or inventory to secure the loan, you would likely lose ownership of that. Your business and personal credit score can also drastically drop, which could impact further lending opportunities.
Ultimately, the lender is owed the money you borrow. Make sure you engage in responsible lending to ensure you’re able to repay your loan each month on time.
The better your business score, the better the loan offer you're likely to receive. During the application process, lenders can consider personal and business credit scores so make sure both are in good health.
Having a good SMBscore (small and medium business credit score) demonstrates to lenders that your business is dependable and financially sound and could result in you obtaining more favorable terms when taking out financing. Use mySMBscore today to maximize the opportunity to secure a competitive business loan.
It’s important that you closely take the time to consider how a business loan can benefit you and your business. Whether you’re looking to expand your offerings or acquire a new business, having an infusion of capital in the form of a 5-year term loan can make a big difference.
However, as with any debt, there are consequences if you can’t repay it. So make sure you take the decision seriously!