Small business owners often seek a business loan at some point to finance the growth and development of their company. But how much can you realistically expect to borrow? The answer depends on various factors, including the type of loan you seek, your business’s strength, and your credit history. 

In this piece, we’ll go over the different types of business loans and how much you can typically borrow with each one.

There are several vital pieces to securing a business loan, including:

• Business revenue to show your creditworthiness as an applicant
• Existing debts that might compete for funds over the loan you are seeking
• A personal guarantee is sometimes necessary if a lender wants a pledge in case you default on the loan
• The collateral to support even lower-end revenue. Assets backing loans are precious when seeking funding.
• Credit rating signals to banks and credit unions that you are responsible for your use and repayment of credit

A down payment is also a strong showing of your commitment to the credit extended to your business. So let’s look into how much you can get a business loan for in the different available options.

A Business Loan from the Small Business Administration (SBA)

 

The Small Business Administration (SBA) offers several loan programs designed to help small businesses access financing. Of the top-rated SBA loan programs, the 7(a) loan is quite sought after and can be used for various purposes, including purchasing equipment, real estate, and working capital. The cap on borrowing limit for an SBA 7(a) loan is $5 million, but the take-home amount you will borrow will depend on your business’s needs and financial situation.

There are numerous reasons owners look for a business loan from the SBA. Not the least of which is the very favorable repayment terms. The SBA 7(a) loan offers repayment terms of up to 25 years, making it easier for businesses to manage their debt.

In addition, lower interest rates and no collateral requirements can be helpful to growing businesses. This business loan option is one many entrepreneurs seek when they face limits to capital from other lenders.

Medium-Term Loans for Larger Purchases are a Common Business Loan Option

 

A medium-term loan is a business loan provided by a financial institution and repaid over a set period. While the average short-term business loan can cap at around $20,000, medium-term loans can reach north of 6 figures.

Medium-term loans are typically used for larger purchases, such as real estate or equipment. Your business history, creditworthiness, and profitability will impact the amount you can borrow. Most medium-term loans have a maximum amount of around $500,000, but some lenders may be willing to lend more to companies with a strong credit history and financial standing.

 

Business Loan Options through Equipment Financing

 

If you are looking into a business loan to finance equipment, you can get an equipment financing loan. These loans can carry rates from 2%-20% on average and help with equipment expenses. Equipment financing is specifically designed to help businesses purchase equipment. The equipment you intend to purchase and your creditworthiness will sway the amount you can borrow.

Business owners appreciate that equipment financing can help them secure equipment to improve their services. Maintaining routine operations means every business needs tools and equipment to get the job done. Paying for that equipment over time can help with cash flow and preserve working capital.

Businesses also take advantage of tax benefits in some cases. A lease, for example, can carry tax opportunities that other financing options do not. In addition, upgrading or expansion of a business can benefit from equipment financing as well.

Let’s look ahead to a few other opportunities for business loans that might fit your organization.

Leverage Outstanding Invoices as a Business Loan Option, with Invoice Financing

 

Invoice financing is a type of loan that is based on the value of your outstanding invoices. Carrying costs at 10%-60% means invoice financing is unsuitable for all business owners. With this type of loan, you can borrow against the value of your invoices to get the cash you need to cover your business expenses. The amount you can borrow with invoice financing will depend on your invoices’ value and creditworthiness.

Business owners who may be working through a collections challenge but have outstanding revenue can find this option viable. Invoice financing as a business loan means a quick and easy way for a business to access the cash it needs to meet its short-term financial obligations. These obligations can include paying employees or suppliers.

The flexibility of invoice financing allows a business to access the funds it needs on an as-needed basis. In addition, no collateral means a company has no requirement to put up an asset to secure the loan.

All-in-all, the fast turnaround time, flexibility, and ease of access to capital make invoice financing a business loan solution for a growing number of teams.

Lines of Credit as a Business Loan Solution

 

With 43% of small businesses applying for a loan in 2020, all options are on the table. This condition opens the door for a line of credit as a business loan. A line of credit allows a borrower to secure an amount up to their limit and then pay it back as needed. This option can be helpful for businesses that need access to flexible financing to cover short-term cash flow needs. 

The amount you can borrow with a line of credit will depend on your creditworthiness and the potential of your business to stay cash-positive. Business owners may use lines of credit to access working capital on an ongoing basis and with flexible terms. 

Improving cash flow is a draw of many business loan solutions, and a line of credit is no exception. When a business needs funds, the line of credit keeps the cash flow strong. A line of credit may also be available with no collateral. This availability means a business owner can use assets as security for the loan.

Ease of use and lower interest rates add to the appeal of these business loan solutions.

 

Microloans are on the Business Loan Menu

If you have a tiny business and are seeking a small amount of financing, you can get a microloan. The average microloan is in the neighborhood of $885 but can be as much as $50,000 in some cases.

These small loans aim to help small businesses get the funding they need. The amount you can borrow with a microloan will depend on your business’s needs and your creditworthiness. It’s worth noting that the amount you can borrow with a business loan will also depend on the lender you’re working with. Some institutions specializing in microloans may have a more stringent application process before extending you a business loan.

In the case of microloans, access to capital will vary based on your business’s specific needs and financial situation. Therefore, shopping around and comparing multiple-lender offers is an excellent idea to find the best loan option for your business.

In addition to the amount you can borrow, you’ll also need to consider the terms of the loan. These considerations include the interest rate, repayment schedule, and any fees associated with the loan. Be sure to carefully review these terms before accepting a loan to ensure it’s a good fit for your business.

 

Conclusion

 

Businesses consistently look to capital to start their operation or move ahead in the marketplace. Therefore, collateral requirements are vital since you may already have a shallow pull of assets to borrow against. Some options require minimum collateral and others that need none at all.

The terms of a business loan should create a position where you can win at business. Repayment arrangements, the ability to deploy the cash at your own discretion, and a chance to drive real growth are all crucial.

Access to business loans means some underserved or underbanked populations can finally bring to market their business ideas. In addition, women, minorities, and low-income individuals, who may have difficulty accessing traditional financing can sometimes find a vehicle in these solutions. 

Various business loan options are available today to start or propel businesses into their growth phase. These options include traditional bank loans, invoice financing, lines of credit, and microloans. Each of these loan types has its own set of advantages and disadvantages, and it is vital for business owners to carefully consider their options and choose the loan type that best meets their needs.

Connect with the experts at Small Business Bank to find out what solutions fit your business needs and goals. By thoroughly researching and comparing their options, business owners can find the best loan to help their businesses succeed.