Business Financing FAQ: How Much Business Loan Can I Get?
Are you asking yourself the question, “How much business loan can I get?” If so, you probably already have a sum of money you want (or need) in mind. You’re now at the stage of figuring out whether there’s a lender out there for you.
In this article, we’ll explain the four types of financial institutions you can apply to for funding and what factors they use to determine how much they’ll lend to you. We’ll also share the amount you might be able to borrow when applying for seven popular types of business finance.
Where Can I Borrow Money From?
There are four main sources of business financing for U.S. companies. They are:
Traditional banks: These are standard “Main Street” banks that offer business checking accounts. They also usually offer a range of lending products to their clients.
Credit unions: Many credit unions also offer checking accounts to businesses. They too often have suites of financial products for companies, many charging lower interest rates than the banks.
Small Business Administration: SBA loans are targeted toward companies that experience problems accessing financing from banks and credit unions.
Alternative lenders: Alternative lenders, including many online lenders, often have less onerous application processes than traditional banks and credit unions.
The business loan amount you can receive from each of these institutions will vary based on your business’s specific situation and how well you meet the qualifications as well as the loan or funding options they offer. We’ll discuss both of these in more detail below.
How Do Lenders Determine How Much Business Loan I Can Get?
All financial institutions have their own qualifying criteria when they assess a loan application from a business. They not only use these criteria to decide whether you get a loan but how much you’ll be able to borrow.
Here’s what they typically consider:
Reason for funding: You’ll need to let your lender know why you need the money. It could be for business expansion, purchasing equipment, smoothing out cash flow issues, and more.
Business plan: Some lenders will want a detailed business plan. They’re looking to see how you’ll use the money and how you’ll generate the extra business revenue you need to cover your monthly payments.
Your current finances: Lenders will want to review the financial health of your business, including your annual revenues, expenses, any loan payments you’re currently making, and cash flow.
Relationship with a lender: If you already have a bank or credit card account with a financial institution, it may be worth applying with them because you already have a track record with them. They may be willing to lend you more money as a responsible customer than a business that has no account with them currently.
Length of time in business: The longer you’ve been in business, the better. This gives lenders great confidence that you’ll be able to pay back the loan amount in full because you’ve shown that you know how to manage money.
Line of business: Many lenders are happy to work with all types of businesses. Others prefer to work with companies in specific sectors, like agricultural or rural businesses. Some lenders automatically turn down applications from borrowers in some lines of business. For example, the SBA doesn’t work with companies in the gambling industry or nonprofits.
Credit score: Lenders assess your personal and business credit history when you apply for a small business loan. For example, the SBA likes to see a business credit score of above 140 on the FICO Small Business Scoring Service and a minimum personal credit score of between 620 and 700. The strength of your scores will affect the business loan amounts available to you and the total interest charges.
Downpayment: Similar to how you put a deposit or lump sum on a home when you purchase it, many lenders want you to contribute toward the total amount you wish to borrow. For example, if you want to borrow $300,000 to expand your business, your lender may require you to put 10% of your own cash upfront, or $30,000.
Collateral: Collateral are assets that you offer to the lender to reduce their risk. For larger loans, lenders will almost always insist you provide personal assets like your home or business assets like machinery, equipment, or unpaid invoices as collateral. If you default on your loan, your lender may seize your assets and sell them in an attempt to cover any remaining loan balance. The greater the value of the collateral you have, the more you may be able to borrow.
Personal guarantee: Lenders ask for personal guarantees to give them the legal right to pursue you personally for payment if your business fails and there is still an outstanding balance on your loan. Please note that you may be chased for payment by your lender if the sale of your collateral does not cover the remaining balance.
How Much Can I Borrow via Different Funding Options?
There are many types of financing you can apply for on behalf of your business. Here are seven of the most popular products and an idea of how much you might be able to borrow with each.
1. Bank Term Loans
Bank term loans allow you to borrow an agreed amount of money over a given length of time. You make monthly repayments against the loan until the balance is cleared. Interest rates on bank loans are generally lower than most other types of finance, especially if you take out a secured business loan.
How much can you borrow: You can borrow from a few thousand dollars to over $5 million with a business bank loan depending on the size of your business and what you need the money for. They can be among the hardest types of loans to secure because banks generally insist on an excellent credit history. You may have more success approaching the SBA or an alternative lender.
2. SBA Loans
The U.S. Small Business Administration, in partnership with banks and credit unions, offers four main types of business loans to companies. Loan costs are often higher with an SBA loan than a traditional bank loan.
How much you can borrow:
SBA 7(a) loan: You can borrow up to $5 million with an SBA 7(a) loan with repayment terms of up to 25 years at an interest rate of the SBA base rate plus 3% to 6.5%.
SBA 504 loan: Like with an SBA 7(a) loan, you can borrow up to $5 million with an SBA 504 loan. Unlike with an SBA 7(a) loan, you can use an SBA 504 loan for working capital.
Microloan: Designed for startup businesses and very young companies, you can borrow up to $50,000 with an SBA microloan. But the average microloan amount is $13,000. Unlike 7(a) and 504 loans, these are short-term loans, which offer a maximum of up to six years to repay the balance in full.
CAPLine loans: Designed to help various types of companies manage cash flow better, loans and lines of credit of up to $5 million are available under the four different CAPLine programs.
3. Business Credit Cards
Like a personal credit card, business credit cards operate with a “limit” and a “balance.”
Your “limit” is the maximum amount of spending you’re allowed on your card. Your “balance” is the amount you’ve actually spent. This is a form of revolving credit, meaning as you pay back your balance, you can use or “borrow” the money again.
You only pay interest on the balance if you don't pay it off in full by the due date. Your credit card provider may charge you an annual fee regardless of how much or little you use your card.
Annual percentage rates (APR) tend to be higher on business credit cards than on business loans. Unlike business loans where you have an agreed term to repay the loan, your limit may be reduced or withdrawn at any time by your provider.
How much you can borrow: This depends on your line of business and your creditworthiness, but the average business credit card limit is $56,100. If you manage your account well and make payments on time, the amount you can borrow may increase depending on your lender.
4. Working Capital Advances
Working capital advances help businesses manage more short-term operational needs, like purchasing inventory, meeting payroll, or coping with an unexpected expense.
Depending on your lender, you can be funded within 24-48 hours, and there’s often no need to provide collateral to secure your advance. Although most lenders have a maximum time frame over which you have to pay them back, they offer flexible repayment structures suited to your individual business cash flow.
How much you can borrow: You can borrow up to $2 million from many working capital advance providers. The actual amount will depend on the financial health of your business and its annual revenues.
5. Business Lines of Credit
Think of a line of credit as a mix between a credit card and a traditional loan. You have access to funds you can draw from when you need it, up to a certain limit.
Instead of spending funds on a card, you draw funds directly into your bank account. You only pay interest on the funds you’ve borrowed and not the entire credit line. Business lines of credit are popular because they offer flexibility to businesses that need access to funds but don’t want to take out a full loan.
How much you can borrow: You may be able to borrow up to $750,000 with a business line of credit. It may be possible to borrow more with a secured business line of credit, but that would require collateral, so your assets will be at risk you’re unable to repay.
6. Business Equipment Financing
Business equipment financing is a form of funding used by businesses to purchase equipment, vehicles, and machinery. For example, if a printed clothing company is operating at capacity, they might purchase an extra T-shirt printing machine so they can sell more.
Equipment financing is secured on the asset itself, which in many cases means that it’s easier to qualify for these loans. You can also sell equipment you own to an equipment financing company to raise money. You continue to use the equipment but pay rent to the finance company each month for continued access.
How much you can borrow: You can borrow up to 100% of the value of the equipment you want to purchase. However, that can go as low as 80% depending on the type of equipment you want to buy.
7. Invoice Financing
Whenever you send out an invoice, that goes into your “accounts receivables.” Your accounts receivables are money owed to your business. This is an asset that some lenders will advance you funding against.
This is called invoice financing. When you issue an invoice, send it over to your lender. Within 24 hours, they’ll transfer a portion of the value of the invoice to your bank account with the remainder minus their fee when the customer pays.
How much you can borrow: The first payment against an invoice is up to 90% of its value. The fee for invoice factoring varies, but it’s similar to credit and debit card payment fees.
Getting the Right Loan Offer for Your Business Needs
If you’re a small business owner in need of funds, one question you likely have is, “How much business loan can I get?” As you can see from the above examples, that depends on what your business does, how long you’ve been in business, and the type of financing you apply for.
How long it will take to get funding may be another thing you’re wondering or worrying about. Some loan application processes are time-consuming and complicated. Plus, you may not get the loan as quickly as you need it.
With Backd, your application can be processed in as little as 24 hours. We have two options available to you (with no collateral required): a business line of credit offering between $10,000 and $750,000 or a working capital advance that offers between $10,000 and $2 million.
Apply in just three minutes today.
