Long-term loan

In order to quickly develop a business and reach a new level of income, additional funds are needed, which cannot always be obtained from the company's current income.

Moreover, in many cases it is impractical, and it is much more rational to finance new investment projects from external sources.

As has been repeatedly highlighted in reports from the World Bank and other respected financial institutions, the lack of long-term business financing is holding back global economic growth, inhibiting important investment projects.

Long-term loans are considered one of the safest instruments for financing large projects.

Borrowed funds often help companies achieve impressive success and overcome difficult periods in their activities.

SWIG is an international company that offers a wide range of financial services for companies in the following sectors:

• Infrastructure.
• Energy, including renewable energy sources.
• Extraction and processing of minerals.
• Environmental protection.
• Heavy industry.
• Agriculture.
• Oil and gas sector.
• The property.
• Tourism.

With extensive international experience, advanced financial technology and an extensive network of business contacts around the world, we are always ready to find a solution tailored to your needs.

Are you planning to implement a strategic investment project?
Do you need to upgrade equipment, train employees or expand production?

Long-term loans for large projects from SWIG are a flexible solution that will allow you to quickly implement a plan without risking your current business.

Work with us and we will help you realize your plans with the help of customized loans. The financial team of SWIG deeply understands the specifics of the global banking market and finds the best offers and conditions for each client.

Our team consists of experienced consultants who have worked in the banking and financial sectors for many years, so we know everything about corporate loans from A to Z. We can work effectively in the dynamically changing reality of banking offers, so our clients have nothing to worry about.

We finance large projects in Europe, USA, Latin America, North Africa, the Middle East, East and South Asia. If you are interested in obtaining a large loan from 50 million euros for a period of up to 20 years, contact SWIG representatives and provide the details of your project.

Types of long-term business financing

Long-term loans for large projects, along with other financial instruments, represent a flexible set of options that can be effectively used by companies of all types to implement their growth strategy.

In general, long-term business financing is financing for more than five years.

Such contracts usually contain a number of strict requirements or restrictions that must be met by the company requesting funding.

Table: Basic requirements for obtaining long-term financing.

Requirements	Short description
Proper accounting and financial reporting	The borrower must maintain accounting records in accordance with generally accepted accounting principles and must periodically submit audited financial statements to the lender.
Restriction on the sale of receivables	The borrowing company may be prohibited from selling receivables to raise additional funds, as this could create a liquidity problem in the long-term.
Restriction on leasing and financial leasing	The lender may not allow this mechanism to be used for additional financing because it affects the overall level of debt.
Maintaining a certain level of working capital	Another limitation is that the borrower constantly maintains a certain minimum level of working capital. A fall below this level would mean that the company's financial health is deteriorating.
Prohibition of sale, purchase and encumbrance of fixed assets	Financial institutions can issue long-term loans secured by certain assets of the borrower. Likewise, the acquisition of large assets is prohibited in order for the company to maintain liquidity.
Restrictions on the payment of dividends to shareholders	Sometimes the borrower is forced to limit the payment of dividends to a certain percentage of the profit, which is established in the long-term financing agreement.

Several instruments are used for long-term business financing.

It can be loans, leasing, or the issue of shares and bonds.

Long-term loans

These are loans with a maturity of more than five years, the funds from which can be used by the company to purchase equipment or implement large investment projects.

Long-term loans for business are provided by signing an official contract, which specifies the amount of funds raised, loan maturity, repayment dates, interest rate and other requirements.



As for the method of payment, long-term loans are repaid through quarterly, semi-annual or annual payments, in which the borrower pays part of the principal and interest. There is the possibility of repaying the loan with fixed or variable payments.

Long-term lending agreements require guarantees, which may relate to real estate, equipment, land, accounts receivable, and other forms of collateral.

Although commercial banks and financial companies allocate part of their financial resources for long-term loans, many governments are actively involved in financing large investment projects, especially strategic projects in infrastructure, environmental protection, energy, etc.

Development banks and regional banks play an important role in long-term lending, as they offer the largest amount of long-term financial resources for companies.

Issue of shares or bonds

Issuance of shares and bonds - more complex methods of long-term financing, through which the issuing company agrees to pay a certain circle of creditors (holders of shares or bonds) certain funds within the terms established by the rules of circulation of the corresponding securities.

According to the terms of the long-term lending agreement, the applicant or the borrowing company applies to a single lender. Instead, when stocks and bonds are issued, the amount of debt is distributed among many small creditors.

The fixed or nominal yield of bonds is determined by the nominal rate of the corresponding security. The real yield to maturity is determined by recalculating the interest rate taking into account the current quotation of the securities.

The issue of shares is fundamentally different in that the holders of these securities receive the right to own a certain share of the company. In particular, shareholders can vote at shareholder meetings and receive dividends when the company declares profit.

Financial leasing

Loans from equipment suppliers are provided on a more formal basis and in some cases are provided in the form of long-term loans in accordance with the period required to pay for the specified equipment.

A relatively new form of business financing is leasing, which allows companies to use buildings, cars, vehicles and office equipment, among other things, without the need to raise funds from third parties (banks, companies and organizations).

The essence of leasing is that the company can use the required assets by regularly paying the leasing company a certain amount, which usually includes depreciation, interest and other expenses.

This method is used for both new and existing companies.

Since leasing does not require credit, it improves the financial health of the company.

Sometimes it is considered almost the only way to implement large projects in unfavorable market conditions.

Long-term loan for a large project and business: features

Medium and long-term loans are usually intended to finance investment projects aimed at a time horizon of several years.

When using this source of funding, it is important to carefully analyze the project in order to ensure that the debt is repaid on time and to meet the future needs of the business. Otherwise, the loan can become a heavy burden, holding back the development of the company for many years.

The cost of financing is the first aspect to consider before lending.

From contracting costs to monthly payments, you must calculate everything that affects the cost of borrowed funds.

Preparing for long-term lending requires a careful analysis of the purpose of the loan and the expected profit of the project for which the borrowed funds are taken. It is also important to plan and monitor each payment over the years, because you have to bear the costs from day one.

What you shouldn't do is apply for a long-term loan to deal with your liquidity shortage. It's like plugging one hole with another. In order to cover the lack of liquidity, the market offers more suitable financial solutions.

What are long-term loans?

In general, a loan is a financial transaction in which one party lends a sum of money to the other.

The borrower is obliged to return the money received plus interest in accordance with the previously agreed repayment plan.

The loan serves as a source of external financing, which must be repaid with additional value (interest, commissions, etc.). Long-term loans are shown in the balance sheet as part of the company's financial liabilities.



A long repayment period means that the payment of the loan body and interest is made over several years in the form of recurring payments. The specific scheme is calculated taking into account the amount of debt, interest rate and loan maturity.

Long-term loans are usually repaid according to the "French system". In this case, the payments are the same throughout the entire period, but the first payments mainly contain interest, and in the future, the main part is paid.

This fact can be very important in terms of tax accounting.

In this regard, the part that corresponds to the main part of the loan differs significantly from the payment of interest and commissions.

Benefits

Traditionally, financial experts distinguish between short-term and long-term business loans, which have completely different purposes.

As a rule, short-term loans are aimed at financing the current activities of the company, while long-term loans are intended mainly for the implementation of large projects.

Short-term loans, due to their characteristics, are most suitable for securing the working capital of a company or other current expenses, be it the purchase of goods or the payment of rent for premises. These loans are usually provided at "floating" interest rates, sometimes regulated by swaps.

Long-term loans with a maturity of more than five years are most suitable for companies that are actively developing and implementing large projects. For example, it can be the construction of a power plant to provide an enterprise with an independent source of energy or the modernization of a production facility with the purchase of expensive equipment with a long payback period.

The following are the key benefits of long-term loans for business.

Table: Benefits of long-term lending.

Benefits	Short description
Long-term for loan repayment	Some companies, for certain reasons, require the rapid attraction of significant funds, but debt service should be tied to the future cash flows of the project. Such a loan can be repaid over a long period, up to 20-25 years.
Obtaining significant funding	Small, short-term loans are not suitable for large capital-intensive projects such as the construction of the power plant or large infrastructure projects.
Flexible payment terms and low interest rates	Long-term financing contracts are usually very flexible, allowing for adjustments in terms and the combination of debt service with the actual cash flows of the project.

Long-term loans with a fixed interest rate help companies manage their financial risks most effectively, including the risk of changes in interest rates.

For this reason, borrowing companies can better understand the cost of financing.

These funds are convenient to use for the implementation of strategic business plans, as opposed to short-term loans aimed at supporting operational activities.

Sources of long-term loans for business are large institutional investors, international development banks and other financial institutions with significant resources.

Disadvantages

Each organization must weigh its goals and make appropriate decisions.

In this case, we are talking about analyzing the advantages and disadvantages of long-term loans and their role in doing business and implementing a specific investment project.

With such a financing formula, it is very difficult to find loans that would be provided without collateral. In the long-term, the risk of insolvency increases, so the requirements of financial institutions are becoming strict.



Obviously, if there is adequate collateral, obtaining a long-term loan allows financing large multi-million dollar business projects with a convenient payment schedule, linking debt service to the project's cash flows. Such financing schemes usually allow renegotiation of conditions at some unfavorable moment, given the market situation.

However, this formula is not without its drawbacks. For companies with poor financial health, a long-term loan can be a very risky decision.

Table: Disadvantages of long-term lending.

Disadvantages	Short description
Collateral and debt repayment guarantees	Financial institutions will require collateral and guarantees from the applicant, given the long period of debt repayment.
High debt service costs	Longer term means more payments. The initial benefit diminishes as the final return is very high compared to the borrowed capital.
Complex debt management	Long-term relationships usually require more complex contracts, compliance with a number of formal requirements and additional costs.
High risk of rejection of the application by the lender	Despite the obvious benefits for the borrower, a long repayment period means a high risk for the lender. After careful analysis of the company and its project, lenders often refuse to provide financing.

An additional disadvantage is the complexity of calculating the cost of borrowed funds, since interest and commissions are charged for each euro throughout the entire period.

It is important that the borrowing company maintains an adequate debt-to-equity ratio throughout the entire debt service period.

The high level of debt complicates the position of the business.

The main reasons for refusal to issue long-term loans are:

• Risk of future financial instability.
• High level of debt that disrupts business operations.
• Doubts about the company's solvency by investors, suppliers or authorities.

The total debt to equity ratio should be kept in the range of 0.4 to 0.6.

This financial indicator tells how much euro of external financing is accounted for every euro of the company's own funds.

The above shows that the success of long-term lending directly depends on the competent organization of financing and the correct choice of instruments.

Are you interested in financing large projects?

Contact us to learn more about the LBFL financial proposal.

We are ready to find the best solutions for your company at any stage of the project.