A small business loan might be a fantastic choice if you need money to start a new firm or grow an existing one. But what size loan are you eligible for? You can normally borrow anything from $1,000 to over $5 million, depending on the lender and the type of financing.
However, the exact amount a lender will provide your small business will depend on your company’s financials, length of operation, and credit history. Continue reading to find out how much financing you might be able to acquire from various business loans and how to secure the best rates and terms.
How Much Do Most Business Loans Offer?
Depending on the sort of loan you need, different business loans have different rates. A breakdown of some of the most popular small business loan kinds may be found here.
| Loan Type | Loan Range |
| SBA loans | Up to $5 million |
| Bank loans | $5,000-$5 million |
| Short-term loans | $5,000-$500,000 |
| Business lines of credit | $10,000-$1 million |
| Microloan | $500-$10,000 |
| Equipment financing | Up to $500,000 |
| Invoice factoring | 85% of unpaid invoices |
However, the differences between loans go beyond only the sum. For each type of loan, you’ll also pay a different interest rate. to obtain an idea of the potential costs associated with various quantities and types of loans.
In order to use a loan comparison tool, you often need to enter an estimated loan amount as well as some basic business information, such as the number of years the company has been in operation, its annual revenue, and its credit rating.
Amounts Offered by Types of Lenders
Traditional lenders typically offer the greatest borrowing limits, but you’ll need to pass a few requirements in order to be approved. Fortunately, there are several of small business loan options available. Here are some of the most popular small company lending alternatives and how much you might be able to borrow with each.
Bank Loans
Banks frequently give the greatest loan amounts, and if you meet the requirements for cash flow and credit history, you may be able to borrow more than $1 million.
You might even be able to borrow $5 million, but you’ll probably need to have excellent credit to do so. While smaller banks normally do, some large commercial banks don’t even have a maximum loan limit.
SBA Loans
Through loan guarantees for loans made by banks and other private lenders, the U.S. Small Business Administration (SBA) supports small enterprises. SBA-backed loans provide significant sums (up to $5 million), as well as low interest rates compared to standard business loan interest rates, due to the lender’s reduced risk.
Online Loans
An online loan can be the ideal choice for you if your credit is weak or bad. The amount of these loans can range from $5,000 to $500,000. The qualification process is typically simpler than for loans from conventional lenders. However, the interest rate will probably be greater than for an SBA loan or a conventional bank loan.
Short-Term Loans
A short-term business loan often has a term of one year or less, is structured as a lump sum loan with repayments paid on a daily or weekly basis, and can be as high as $500,000. Online lenders are most likely to offer this form of loan, and interest rates on it are typically higher than on other loans.
Lines of Credit
A lender provides you with access to a set amount of money (between $10,000 and $1 million) through a business line of credit, which you can withdraw whenever you want and use to pay for any expenses you want. Only the money you utilise will be subject to interest payments. For small firms that frequently experience cash flow challenges, lines of credit might be a fantastic solution. They may also be useful to keep in your back pocket for unexpected situations.
Equipment Financing
The maximum amount you can borrow for equipment financing varies depending on the bank (or online lender) and the type of machinery you’re buying, but in general, you can borrow between 80% and 100% of the equipment’s or vehicle’s value, frequently up to $500,000. The equipment itself typically serves as the loan’s security, and the loan’s repayment duration frequently corresponds to the item’s anticipated lifespan.
Microloans
Microloans, which typically range from $500 to $10,000, might be an excellent choice for start-up businesses or borrowers with bad credit. Microloans, as opposed to short-term loans, are frequently provided by nonprofit companies and have comparatively low interest rates. But microlenders frequently have requirements that must be completed in order for a firm to be approved for a loan.
Invoice Factoring
A short-term finance strategy known as invoice factoring enables businesses to sell past-due customer bills to independent invoice factoring firms. 85 percent of your delinquent invoices are sometimes payable in full up front. Once your clients have paid, the factoring company will send you the remaining amount less any fees.
Although these costs can be high, understanding invoice factoring and how to use it could help your company get through tough financial times.
What Affects How Much You Can Borrow?
Small company loans typically have a lot more restrictions than personal loans do. Here are some important elements that may have an impact on your borrowing capacity.
Credit Scores: Personal and Business
Since these borrowers pose a lesser risk to the lender, lenders normally only extend the largest loan amounts to business owners with good to exceptional credit.
Usually, a lender will want to check your personal and company credit scores.
Collateral
Equipment, real estate, or stock are examples of assets that can be used as collateral to secure a loan. If you are unable to make loan payments, the collateral may be taken and sold to recoup the remaining balance. Although it is possible to obtain a loan without providing any security, your offer may be smaller, your interest rate may be higher, or both.
Debt-to-Income Ratio
Your monthly budget’s impact on your debt-paying capacity can be a result of your debt-to-income ratio. If the percentage is too high, a lender can reject your application or make you an offer for a smaller loan.
Revenue
Generally speaking, you will be able to borrow more money if your company generates more revenue each month and year. If you are applying without collateral, you might need to bring in as much as ten times the amount you wish to borrow.
Time in Business
Lenders are more inclined to have faith in your firm the longer you’ve been in operation. Since many small businesses fail every year, your chances of getting approved for a bigger loan amount will probably be better if you’ve been in operation for at least two years.
Down Payment
Making a down payment on a business loan demonstrates your commitment to both the loan and its repayment. A bank or other lender will typically be more inclined to lend money to your business if you are able to put down a higher amount of money.
Your Industry
Lenders frequently consider the industry that your business is in. A lender can reject you or make you an offer for less money if you work in an industry that is regarded as dangerous, has erratic income flow, or is not viewed as socially acceptable.
How Much of a Loan Do You Need?
You should think about just how much of a loan you need when applying for a small business loan rather than just how much of a loan they can get. Why? Because you will often pay more in interest and fees and have higher monthly payments if you borrow more money.
Consider carefully what you would do if you had access to more money. Then, figure out how much you would need to achieve your goal. This might be a smart idea before you start applying for a small business loan. After that, you might wish to increase that sum somewhat to allow for unforeseen costs.
You could even want to create a thorough plan (and budget) outlining how your company will use the money and what effect you anticipate it will have on the expansion of your company. When you apply for the loan, some lenders may require this information.
How to Get a Larger Loan to Fund Your Business
Here are some simple ways you may be able to qualify for more funds.
- Make a down payment: Generally, the larger your down payment on the loan, the less risk you pose to a lender, and the more they will allow you to borrow.
- Put up collatera: You lower the risk to the lender by providing collateral for your loan, which makes them more likely to extend you a larger loan.
- Look into an SBA loan: If your business can meet the strict qualifications, SBA loans tend to come in larger amounts than other types of small business financing.
- Reduce your debt: You may likely reduce your debt-to-income ratio by paying off debts, which will raise the amount you are able to borrow.
- Work on building a better credit profile: In general, the stronger your credit, the more money you will be able to borrow.
- Wait a year or so: You might choose to devote your efforts toward creating a strong foundation for your company and growing your revenue rather than applying for a loan if your business hasn’t been active for at least two years. This will allow you to borrow more money in the future.
