At some point or another, you may want to obtain a business loan for your small business. Business loans are one of the more common methods for entrepreneurs to get financing, and typically give access to more money than you might get from asking friends or family members.
But how much money can you get from a business loan? Can you just walk into a bank and ask for a million bucks? If that sounds crazy, does $500,000 sound more reasonable?
If you’re not familiar with the world of debt financing, it may not be clear what factors will dictate your business loan amount. As you might imagine, it depends on a number of things, including your needs, your financials, your industry, and more.
Here’s an overview of how much money your business can typically get from a business loan.
What goes into determining loan amount?
It’s rare for two loan offers from two lenders to come out to exactly the same number. Different lenders (traditional banks, online lenders, alternative lenders) evaluate a variety of factors, have different algorithms, and may place more emphasis on different aspects of your business history.
If you’re interested in obtaining the best loan possible and at the best possible rate, then start working now on improving these factors:
Your personal credit score
Your business credit score
Your business’s monthly cash flow
Your time in business (the best way to improve this one, of course, is to continue existing)
In addition to that, when applying for a loan, you may be asked to present some or all of the following documentation and information:
Personal and business tax returns
Profit and loss statements
Your personal income
Collateral or a personal guarantee
Unsurprisingly, the stronger your business (and personal) financials are, the more likely lenders are to deem you eligible for large loan amounts. Just passing the minimum requirements for some of the factors (such as a 650 personal credit score for bank loans) won’t get you as much money as elite scores.
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How much can you generally get from a business loan?
The exact amount of money that a business lender will give you depends on your annual gross sales, as well as your creditworthiness and any existing debt you already have.
A business that does $100,000 per year in annual sales won’t have the same needs as one that does $10 million in the same time span, and lenders won’t want to lend a large amount of money to someone with a poor credit history—they prefer responsible borrowers.
Generally, however, the rule of thumb is lenders won’t extend more than 10-30% of a business’s annual revenue in a loan. If you want more money, you’ll have to make more money first.
How much can you get from each lending option?
Not all lenders and loan products are the same. Long-term business loans and business lines of credit will typically net you more than short-term loans, equipment or invoice financing, or business credit cards. Here’s a quick rundown of what each lending option can offer your business:
Bank term loans or SBA loans: $5,000 to $5 million
Banks have the strictest minimum requirements for a small business loan and often won’t want to go through the trouble of underwriting a loan for as little as a few thousand dollars. SBA loans, however, are bank loans partially guaranteed through the Small Business Administration—and these loans can range in size from $5,000 microloans to million-dollar, long-term real estate loans.
Business line of credit: $10,000 to $1 million
Business LOCs are similar to credit cards, in that you can draw on your line and repay each draw separately, replenishing your total credit pool as you do. Some LOCs give you access to as much as $1 million.
Short-term loans: $5,000 to $500,000
If you have an immediate funding need or less-than-stellar business financials, you’re probably looking at acquiring a loan from an online lender on a short-term basis. These loans often max out at $500,000.
Business credit cards: Up to $100,000
You can use a business credit card as you would any other financing option—taking out a certain amount to pay your expenses and repaying that debt on a schedule that works for you, provided you can afford the interest payments. Most business credit cards have a limit of $100,000.
Equipment or invoice financing: Varies depending on amount needed
If you need a specific piece of equipment, or have been waiting on a customer to pay off an invoice, you can look into equipment or invoice financing, respectively. With these products, the lender gives you the exact amount you need (or close to it) to cover the cost of the equipment or recoup your owed profits. These financing options are self-secured—the equipment or invoice acts as the collateral.
Typically, you’ll see equipment financing limits of around $250,000 or so, but invoice financing/factoring limits can be for millions of dollars, provided your contract is with a major corporation or brand that is bound to pay off the debt.
How much do you need?
At the end of the day, you should never take out more money than you need with a business loan. Take the time to identify what your capital needs are and then see which option might help you acquire those funds at the most affordable rate.
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