If you need a loan from a bank or other financial institution, there are plenty of options ahead of you. Depending on your credit history and credit rating, your monthly earnings, employment status and the purpose of the loan, there are many loan types you can choose from. Loans can be grouped according to their purpose, whether they are secured or not, by the duration of repayment etc. In this article, we will deal with long-term loans, their features and basic requirements for such a loan to be granted.
Long Term Loans
Long-term loans are those loans that last over three years. Most commonly, they full repayment is due between three and ten years. But there are long-term loans that last as long as forty years.
The collateral of long-term loans is the assets of the business or individual who apply for the loan. These loans usually require repaying the debt in installments. Most commonly paid once a month or once in every three months. The payments are usually derived from regular cash flow of the business or individual. Sometimes it is even necessary to set aside a part of the profit in order to repay the debt.
When long-term loans are taken by an individual physical entity, they are most commonly used for large purposes, such as buying a house. However, these loans are usually used by small businesses, which have been well established for a while. And which have high credit rating and sound financial possibilities of repaying the debt.
A piece of property is pledged as a collateral, and it is very common the piece of property which required the loan to be purchased. Long-term loans, when used in business, are most commonly used for buying necessary equipment. To improve the existing business or start a new branch of it. Then, these loans are used in cases of large improvements of the business and for investing in machinery or for building new premises.
The terms and conditions the businesses need to meet in order to be granted a long-term loan can be quite rigorous, because the lender needs to ensure that the loan will be repaid.
What You Need For The Loan
Some of the most important and most common things bank check before they approve the loan are these:
• Credit rating: before the borrower is granted a loan, the lender, usually a bank, checks full credit capacity – the assets owned by the business, the monthly earnings, history of previous loans, and even the personal assets and earnings of the business’ owner.
• Collateral: since the collateral is the source of repayment, the bank usually expects the value of the collateral to be higher than the value of the loan.
• Capital: the bank checks not only if the business has the capital sufficient to repay the debt, but also whether it is possible to be turned into cash in case the debt needs to be repaid from the collateral.
• Character of the business: this includes checking how the business owner has managed their other loans, both those business related and personal – whether they were repaid on time, in full etc.
• Confidence with the business plan: the bank will check whether the business plan is realistic and how accurate are the expectations and whether they have been fulfilled.