What Amount Is Considered a Small Business Loan?

By Backd Business Funding, 31 October, 2022

What Amount Is Considered a Small Business Loan?

Small business loan amounts can range from as little as $500 to upwards of $5 million. Usually, though, the majority of small businesses seek loan amounts under $100,000, with only a small percentage applying for amounts over $1 million.

The amount of a small business loan truly depends on the business’s unique needs. Some may only need a couple thousand dollars to cover a cash gap during a season of low sales revenue. Others may require a larger amount to boost their working capital for big projects, like a business-wide technology upgrade or new growth initiative.

As you research small business loans, a better question to ask might be, “How big of a loan should I get for my business?” Determining the amount you need is a crucial first step for savvy small business owners looking for funding.

What Is a Good Amount to Ask for a Business Loan?

A good loan amount will fulfill your business needs, fit into your budget, and meet lender requirements. Some financial experts recommend applying for a loan amount that is 10-20% higher than what you think you need to cover unexpected expenses or slow revenue. As you run some calculations to nail down an exact number, ask yourself these questions:

  1. How much can my business afford? Many business owners want to know “How much of a small business loan can I get?,” when really they should be considering what they can afford. This is the best question to start with, as the last thing you want is a loan amount you can’t repay. Using a small business loan calculator (of which there are plenty to choose from with a quick internet search) can help you determine your monthly payments. These calculations are based on your desired loan amount, interest rate, loan term, and other factors. This amount should fit into your monthly budget, leaving room for other debt repayments and sufficient revenue to pay expenses and grow.

  2. What does my credit look like? For a small business loan, lenders will look at your personal credit score as well as your business credit profile. If your personal score is below 680 or your business score is below 80, you’ll likely have a more difficult time finding lending. A low credit score doesn’t mean you’re ineligible for a loan, as there are other ways you can prove your business is a promising investment. However, you may have to make compromises with traditional lenders on your loan amount, interest rate, collateral, and other factors. This is when many turn to alternative lenders, like Backd, as they typically have less stringent requirements when it comes to credit score eligibility.

  3. Why does my business need funding? Be as specific as possible when answering this. If you need new equipment, make a list of exactly what you need as well as anticipated maintenance, insurance, and utility costs. Planning to run a new marketing campaign? Detail every possible expense, from billboards to postage for mailers. 

What Do I Need for a Small Business Loan?

After you’ve done your research and calculations to determine the ideal amount you need for a small business loan, start gathering various information and documentation for your loan application, including:

  1. Basic Business Identifiers - This includes your business name, any doing business as (DBA) names, your EIN or tax ID number, licensing information, and names and backgrounds of all business owners. 

  2. The “Why” - All those considerations for the questions from the previous section will come in handy here. Most small business loan applications will ask why you need funding. This helps lenders determine the risk associated with lending your business money.

  3. Income Tax Returns - Business tax returns will prove your annual revenue, which most lenders will require. Be ready to submit at least three years of business tax returns. It’s also good practice to have your personal tax returns ready as well, as some lenders will require both.

  4. Financial Statements - This shows lenders how “healthy” your business’s finances are and the likelihood of you paying them back in a timely manner. Required financial statements may include income statements, balance sheets, cash flow statements, etc.

  5. Bank Statements - Many lenders will also require three to six months of business bank account statements. This shows them that you have a separate business account and that your cash flow is sufficient to cover repayments.

Requirements will vary from lender to lender, but gathering the above documents before applying will make the whole process much easier.

How to Get a Small Business Loan

After you’ve decided what you need the loan for, how much you need, what payments you can afford, and other financial considerations, you need to find a lender. Banks and credit unions are common lending routes, as well as those backed by the Small Business Administration (SBA). However, all of these avenues typically have strict funding requirements, long approval times (sometimes up to two to three months), and low approval rates.

This is why many small businesses look to alternative lenders for financing. In contrast, alternative lenders have the highest approval rates for small business loans, more flexibility on lending requirements, and notably faster turnaround time. 

Backd, for example, offers same-day approval on business loan applications, with funds available for use within 24 hours after final approval. We strive to support small businesses with our transparent practices and customized payment plans, including daily, weekly, or semi-monthly payment options.

Ready to get the funding you need to take your small business to the next level? It just takes a few minutes!

Apply with Backd today