If you need long-term funding to manage day-to-day expenses, maintain stable operations, or capitalize on growth opportunities, a long-term working capital loan may be just what you need to take your business to the next level.
This financial instrument is an important source of liquidity for many companies, which is why its use continues to grow around the world.
According to Verified Market Reports, the working capital loan market size will be US$1.38 trillion in 2023 and is expected to reach US$2.65 trillion by 2030, with a compound annual growth rate of 10.24% during the forecast period of 2024-2030.
However, if you wish to qualify for a long-term working capital loan, you must meet specific eligibility requirements to demonstrate that you have good credit. In this article, we’ll take a look at some of the most important criteria lenders require you to meet.
What is a long-term working capital loan?
A working capital loan is a financing tool that can be used to meet day-to-day operational needs such as payroll, rent and utility payments, purchasing inventory, or addressing cash flow gaps caused by seasonal fluctuations or late payments.
While working capital loans are typically short term (1 year), or you can choose to provide long-term working capital loans from financial institutions such as Specialty Finance Group, National Business Capital, etc.
It refers to a loan with a longer repayment period than a short-term loan, usually in 1 year and 5 years. For larger, reputable businesses, lenders may offer repayment terms even longer than five years.
What are the features of long-term working capital loans?
Like any type of business loan, long-term working capital loans have their own unique features and characteristics, including:
- Purpose – It is designed to meet day-to-day operational needs such as paying rent or wages. However, it can also be used for growth plans, such as investing in technology or entering new markets.
- loan amount – The amount of funding for a long-term working capital loan depends on several factors, such as the size of your business and your creditworthiness. Through National Business Capital, you can fund up to $10 million.
- repayment period – As we mentioned before, short-term working capital loans are usually repaid within 1 year, while long-term working capital loans can be repaid between 1 to 5 years, or longer depending on the business.
- interest rate – Long-term working capital loans typically have higher interest rates than short-term loans, but lower than lines of credit or riskier short-term financing options.
- safe and unsafe – Long-term working capital loans can be secured or unsecured. A secured loan requires you to post collateral, which is a valuable asset that the lender can seize if you fail to repay the loan.
- loan structure – Working capital loans can be in the form of a lump sum, which means you will receive the entire amount up front. It can also be used as a revolving line of credit, from which you can draw funds as needed.
- repayment schedule – The repayment plan for a long-term working capital loan is typically monthly installments that include principal and interest. Some lenders may allow interest-only payments during the initial period.
What are the eligibility requirements for long-term working capital loans?
If you want to qualify for a long-term working capital loan, it’s important to fully understand the eligibility requirements you must meet. While the exact criteria depend on the lender, let’s take a look at some key criteria:
Business credit score of at least 600
When applying for a working capital loan, you must provide a business credit score of at least 600 points.
If you apply with an online or other lender, you can still get a working capital loan if your credit score is less than perfect. Banks and other traditional financial institutions have very strict requirements.
Minimum annual income of $100,000 or more
Another key requirement to qualify for a long-term working capital loan is a minimum annual income, typically between $100,000 and $500,000. However, the lender may require a higher income if you apply for a higher loan amount or if you do not meet other eligibility criteria.
This requirement ensures that you can repay the loan—the higher your income, the greater the likelihood of getting a larger loan amount.
Be in business for at least one year
If you wish to qualify for a long-term working capital loan, another key requirement you must meet is that you have been in business for at least one year.
However, some lenders may require at least 2 years of business operation to ensure you have stability and a good track record of managing cash flow. If you’re applying as a new business or startup, you may find it difficult to qualify, so you may have to compensate with substantial collateral or a good credit history.
Profitability and cash flow
To get approved for a long-term working capital loan, you must also demonstrate profitability and stable cash flow. During the application process, the lender will review your financial health and make sure you have enough income to repay the loan.
Your chances of getting approved are generally higher if your cash flow is positive and your financial statements show growing profits. Also, be sure to offer a low DTI ratio (less than 40%) to show lenders that you can manage your debt responsibly.
Collateral (used to secure the loan)
If you are applying for a secured, long-term working capital loan, you must also provide collateral such as equipment, real estate, or inventory to back the loan. If you fail to repay the loan, the financial institution has the right to seize the loan to cover losses.
If you have a low credit score or a short business history, you will most likely be required to provide collateral. The exact requirements may vary, but generally must match the loan amount.
financial documents
Additionally, you must provide financial documentation of your business to get approved for a long-term working capital loan. This includes but is not limited to:
- Profit and loss statement
- balance sheet
- cash flow statement
- Tax returns (past 2-3 years)
- bank statement
These documents will help your lender evaluate your overall financial situation and your ability to handle your loan payments over the long term.
Other eligibility criteria
In addition to the above eligibility criteria for long-term working capital loans, lenders may also have other requirements, such as a detailed business plan that convinces the lender of future success and your ability to repay the loan.
For small businesses or startups, some lenders may require a personal guarantee from the business owner.
What are the benefits of a long-term working capital loan?
There are a variety of benefits to long-term working capital loans—here are some of the most common ones:
- Extend the repayment period, resulting in lower monthly repayments
- More liquidity to cope with income fluctuations
- Provide funding to help you grow your business
- Available for various operational needs
- Lower interest rates are often offered, especially if secured
- They can help you establish your business’s credit profile
- Provide financial buffer to cope with unexpected challenges
Last but not least, unlike equity financing, long-term working capital loans do not require you to give up any ownership or equity in your company.
Qualify for an NBC long-term working capital loan
If you want to qualify for a long-term working capital loan, look no further than National Business Capital. With more than $2 billion raised since 2007, multiple awards and a team of experienced business financial advisors, we have everything you need to find the best financing option for your project.
Are you ready to get started? Apply here.