Over What Term Should You Arrange A Business Loan?

If you are looking to raise finance for your business for the likes of a capital outlay then one of the ways of doing so could be by way of a business loan. The term that you may be able to borrow the funds from the lender may vary. For instance, a particular lender may be prepared to consider advancing the funds with a repayment period of 1 to 10 years.

What are some of the fators that affect the decision in choosing the term of a business loan?
We discuss a number of factors that may affect choosing the term of a business loan.

So, over what term should you arrange the borrowing for?

Well, it is worth noting that the longer that you borrow the funds for then the more interest you will end up having to pay back to the lender. Therefore, the shorter period that the loan is repayable over means that you will pay back less interest.

Obviously, it would be preferable that you end up paying as little back in interest as possible. However, it is also important that the monthly repayments are affordable. There is no point in agreeing to repay a business loan over say 3 years if the monthly repayments are not affordable. So, you may wish to establish how much the business can afford to pay back each month and see if that can be achieved within the term available from the lender.

It is also worth noting that the term may also be linked to the lifespan of the asset that you are purchasing. For instance, if you are buying a piece of machinery then you may wish to borrow over a term of say 10 years but if you are buying a van then you may not wish to borrow over a period of more than 5 years as it may be quite possible that you wish to change the vehicle at the end of that period.

The term will no doubt be discussed with the lender who will take into account a number of factors including those that we have mentioned above.

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