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Whether you’re looking to start or expand a business, a business loan could provide the funds you need to achieve your goals. But how much can you get on a business loan?
The average commercial and industrial loan made by commercial banks is $663,000, according to the most recent data from the Federal Reserve. However, business loans can range anywhere from $1,000 to $5 million or more, depending on the lender, type of business loan and your finances.
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How Much Will a Lender Loan My Small Business?
The amount you can borrow for your small business will vary based on a number of factors, including the type of financing you pursue.
Online Term Loans
Online lenders offer term loans that you can pay off over a series of months or years. Expect most online term loans to range anywhere from $1,000 to $500,000, though some providers can lend $6 million or more. If you’re looking to borrow an amount that exceeds $500,000, you may have to secure it with collateral, such as equipment or real estate.
Online Business Lines of Credit
If you’re looking for a flexible borrowing solution from an online lender, you might prefer a business line of credit. You can draw on funds as needed and pay them back on a revolving basis.
Borrowing limits often range from $2,000 to $250,000, though some lenders offer as low as $1,000 and others go up to $500,000. You’ll only pay interest on the amount you borrow, typically at an annual percentage rate (APR) anywhere from 10% to 99%.
Bank Term Loans
Banks can offer some of the largest term loans to business owners, especially if you work with a large national bank. You might be able to borrow $1 million or more, though you’ll need strong business finances to qualify for a large amount. While big banks can offer large business loans, small community banks might have lower loan amounts.
Bank Business Lines of Credit
As with online lenders, banks can also offer business lines of credit that you can borrow from as needed. You can often borrow anywhere from $1,000 to $500,000, but limits will vary depending on the lender and your financial credentials.
SBA Loans
U.S. Small Business Administration (SBA) loans are federally guaranteed business loans backed by the Small Business Administration. There are various loan types, including the SBA 7(a), 504 and microloan. You can also open a business line of credit through the SBA CAPLine program.
Here are the maximum amounts for some common SBA loans for qualifying borrowers:
- 7(a) loan: Up to $5 million
- 504 loan: Up to $5 million
- Microloan: Up to $50,000 (the average microloan is $13,000)
- CAPLine: Up to $5 million
Business Credit Cards
A business credit card is another financing option, especially since it may have more flexible qualification requirements than a term loan or line of credit. You might find a business credit card that offers a 0% introductory APR or rewards points on your purchases. Some cards have no preset spending limits, meaning your credit limit will be based on your spending habits, as well as your ability to pay off your balances.
How Do Lenders Determine Loan Amounts?
There are a number of factors that lenders consider when determining how much you can get on a business loan. Lenders want to reduce risk as much as possible, so they review your finances and business plan to make sure you’ll be able to pay your loan back in full and on time.
Here are some of the most important criteria that loan providers assess when evaluating your application and determining how much you can borrow:
- Personal and business credit. Your credit profile and credit score indicate how well you’ve managed loans and credit cards in the past. You’ll need good to excellent credit to qualify for the highest business loan amounts.
- Business revenue. Lenders also want to make sure your business is bringing in enough revenue to afford loan payments. Some want to see annual revenue of $100,000 to $250,000 to qualify for a small business loan. If you want a higher loan amount, you’ll need even higher revenue numbers.
- Time in business. The amount of time you’ve been in business can also impact how much you can borrow. Some lenders want to see that you’ve been in business for a minimum of two years. If your business is younger, you may still qualify for a loan, but the amount could be lower.
- Debt service coverage ratio (DSCR). DSCR compares your business’s yearly net operating income with your yearly debt payments. Banks typically want to see a DSCR higher than 1, meaning that your revenue exceeds your debt bills by at least 100%. A higher DSCR could make you a stronger candidate for larger business loan amounts.
- Debt-to-income (DTI) ratio. Lenders may also consider your DTI ratio, which compares your income and debt payments on a monthly basis. To qualify for a business credit card, for instance, you typically want your DTI to fall below 43%.
- Collateral. While some business loans are unsecured, others require you to back them up with an asset. Equipment financing, for instance, typically uses your equipment as collateral to secure the loan. With a secured loan, you’re at risk of losing your asset if you fall behind on payments. However, since securing a loan with collateral helps mitigate risk for the lender, it might help you access a larger business loan.
- Down payment. Making a down payment on your business loan can also help reduce the risk for the lender. While not necessarily required, opting to make a down payment could help you qualify for a bigger loan.
- Your business plan and industry. Finally, lenders want to see that you have a well-thought-out business plan in a stable field. Business owners with a shaky business plan in a risky industry might not qualify for particularly large business loans.
How to Get a Larger Business Loan Amount?
If you want to qualify for a larger business loan amount, you’ll need to present a strong application. That means applying with a strong credit score, a proven track record of profitability, a high DSCR and a low DTI ratio, among other things.
If you don’t have an immediate need for a loan, spend some time improving your personal and business credit score. Steps such as making on-time payments on debts, reducing your credit utilization ratio and removing any errors from your credit report can help.
Apart from making yourself a strong candidate for a loan, you can also shop around with different types of lenders and loans. Online lenders, for example, may have less rigorous borrowing requirements than large national banks.
Finally, adding collateral to your business loan could help you qualify for larger business loan amounts. Because securing the loan mitigates risk for the lender, you might be able to borrow more money as a result.
Bottom Line
Be careful about borrowing more than you can afford, as missing payments can mean losing your collateral, damaging your credit and other consequences. Before you sign on the dotted line, use our business loan calculator to estimate your payments with different loan amounts, repayment terms and interest rates.
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