What are 5 year term business loans?
5 year term business loans are installment loans set up on a 5 year repayment plan. They are typically unsecured which means they do not require any of your assets as collateral.
Consumers who take out a 5 year term business loan can receive their funds as a single lump sum and then repay the loan balance in equal monthly installments over 5 years.
These loans can be used to finance a variety of business expenses including startup costs, real estate transactions, equipment purchases, staffing needs, and business expansions.
Can you get a business loan for a 5 year term?
Business loans are available in many different loan terms ranging from 1 to 25 years. However, the most common repayment periods for business financing are between 3-10 years as offered by most major banks. A 5 year repayment period is a very common loan term for business loans and should be relatively easy to obtain from many different types of lenders.
How do 5 year term business loans work?
In most cases, a 5 year term loan will be funded as one lump sum. The amount will be specified and so will the repayment schedule. Each monthly payment will consist of an equal amount of principal, and an interest payment that may be calculated based on a variable rate or a fixed rate.
These loans open up access to business ownership to consumers who may not otherwise have been able to afford to start their own business. They also help keep existing businesses afloat and provide a means of expansion for thriving businesses.
Pros and cons of 5 year term business loans
There are a few pros and cons of taking out a 5 year business loan. You’ll have to weigh the advantages and disadvantages of a 5 year loan term for your own unique business needs. There may be pros and cons that are specific to your personal situation, but here are some general pros and cons.
PROS
- Access funds to grow your business
- Fixed monthly payments that are easy to manage
- Ability to repay the loan early
- Improve cash flow
CONS
- Taking on debt
- Interest charges and other fees
What is the interest rate on a 5 year business loan?
The interest rate you can expect to receive on your 5 year business loan will depend on a variety of factors including the type of loan, the lender, and your credit score.
SBA-backed loans tend to have lower interest rates than other types of loans because the lender is guaranteed not to lose all their money on the loan by the Small Business Administration.
Where to find 5 year term business loans
There are a few different places where 5 year term business loans can be obtained:
In general, online lenders have a quicker application process and more lenient underwriting process than most banks do. This is because they have fewer operating expenses and a desire to remain competitive. Some of the best deals on small business loans can be found through online lenders. Online lenders are also more likely to offer extended loan terms ranging from 1-25 years.
As an alternative to taking out a loan, business owners can utilize a revolving line of credit in order to obtain access to an ongoing source of funds. This option is best for lenders that need constant access to cash.
Traditionally, most business loans were obtained from big name banks. These banks are most likely to offer short term loans such as 5 year business loans. However, traditional banks can have strict requirements and lengthy approval processes.
The Small Business Administration (SBA) offers a variety of loan programs to small business owners including the 7(a) Loan Program, CDC/504 Loan Program, and Microloan Program. SBA loans are offered through partner lenders and can be as little as $10,000 or reach into the hundreds of thousands of dollars.
Long term vs. short term business loans
Typically, short-term business loans are defined as having a repayment period of 1-5 years. On the other hand, long-term business loans may have repayment periods of up to 25 years.
Both types of financing have their pros and cons and you will need to consider which option best aligns with your own unique business needs.
One of the major advantages of a short-term business loan is that you will be out of debt much sooner. This also means that you will end up paying less money in interest over time. However, short-term business loans are more likely to have a variable interest rate and having a shorter repayment period results in a much higher monthly payment than a long-term business loan.
Long-term business financing allows business owners to spread out their costs over a much longer period of time, resulting in a smaller monthly payment and often securing a low fixed interest rate. However, you will wind up paying out more in interest over time with each monthly payment.
Short-term financing is a more popular option with new business owners who are just getting started. Long-term financing gives existing businesses more time to achieve their long-term business goals and realize a return on their investment.
What credit score do I need to qualify for a 5 year business loan?
To qualify for a 5 year business loan, you will typically need to have a credit score in the mid to high 600s. The exact credit score needed to qualify will depend on your lender’s unique loan requirements. You can get prequalified from a few different lenders to get a better idea of whether or not you will qualify for the loan. If you have a less-than-ideal credit score, you may still be able to qualify for a loan from an online lender or consider using a cosigner to qualify.
Tips for choosing a business loan option right for you
To choose the business loan that is right for you, you will need to consider a variety of factors such as how fast you want to repay the loan and how much monthly payment you can afford.
Consider your own personal financial situation and the finances of your business. Do you want to get out of debt sooner or do you need to prioritize a smaller monthly payment for now?
In addition, you will want to look at the different loan terms and interest rates available from different types of lenders. If you have less than ideal credit, you should look for SBA-backed loans or consider using an online lender to apply for your loan. One of the best ways to choose the best business loan is to compare offers. While this may sound complicated and time consuming, it does not have to be. At PrimeRates you can compare real loan offers within minutes. Rather than browsing through rates you might qualify for, find out what you actually do qualify for. Checking offers at PrimeRates does not affect your credit score.Â
Are 5 year term business loans a good idea?
5 year term business loans are a good idea for many small businesses. With a repayment period right in the middle of the short-term loan range, the advantages of a 5 year loan are many. You can repay the loan balance fairly quickly without getting completely overwhelmed by a large monthly payment that you can’t afford. You can also pay out much less in interest over time than if you took out a loan with a longer term like 25 years.
At the end of the day, however, the business loan that is a good idea is the one that is best for you and your financial situation.
How to get a 5 year business loan
In order to get a 5 year business loan, you will need to submit an online or in-person loan application with a lender that offers this type of loan. Most lenders will want to see additional documentation about your business such as your business registration information, a business plan, and solid financial statements. The lender can also run your credit score and check to ensure you do not pose a significant credit risk. Once you have applied, your loan application will need to go through the underwriting process which can take anywhere from a few business days to a few months depending on what type of lender you apply through. Online lenders are more likely to give you fast access to your funds within 1-2 business days, while traditional banks may require much more paperwork and red tape before approving you for funds.
So where do you start?Â
At PrimeRates you can compare rates and online. By filling out a simple application you can receive business loan offers that are made just for you. With no impact to your credit score, checking offers at PrimeRates lets you compare offers risk-free with no commitment. By taking advantage of a platform such as PrimeRates you can ensure that your information is safe and offers you receive are legitimate. The best part is you can sort through your options all from the comfort of your home or office.
Do you qualify for a 5 year term business loan? Find out today with no impact on your credit score!