How Much Will a Bank Loan Me for a Business? 3 Great Options, Explained

Every small business owner knows that running and growing your business takes a lot of capital. So, when the time comes for a small business loan, and you look to a local brick-and-mortar bank for funding, your first question will be: How much will a bank loan me for a business?

Well, we can’t tell you exactly how much a bank will loan you—no one can, other than the bank itself. That’s because exact loan amounts differ from bank to bank, loan type to loan type, and borrower to borrower. Every loan agreement is unique in that way.   

But, there is a general range that you can expect your bank loan amount to fall within. And to secure the highest end of that range, your business loan application has to be stellar. But if your application makes the cut, you’ll be thrilled—these traditional lending institutions can offer you some of the best terms you’ll find on small business loans, with low interest rates, long repayment terms, and high capital amounts.

We’ll tell you generally how much a bank will loan you for your business financing, plus what to expect from that loan application. So, when the time is right to approach your local bank branch for a small business loan, you won’t be totally blindsided by the process—and you’ll have the best shot to get the loan amount you need.

How Much Will a Bank Loan Me for a Business?

The two most popular types of business bank loans you can get from your bank are term loans and business lines of credit. These loan classes carry different maximum loan amounts, and the interest rates on your bank loan aren’t set in stone, either. Generally, banks determine your business loan interest rates in the same way they determine how much money they’ll lend you: They’ll consider your personal creditworthiness, your business’s financial stability, and the terms and type of the loan.

And since banks value loyalty, they’re more likely to extend loans, at the best rates and highest amounts, to the small business owners who are already their customers. So you might want to consider opening a business bank account with your local bank before approaching them for a loan.    

  

With that in mind, you’re probably still wondering how much will a bank loan you for a business. Let’s get on to the numbers.

Term Loan: $5,000 to $500,000 from a local bank

A term loan is pretty straightforward: It’s a lump sum of cash that the lender (in this case, the bank) deposits directly into your bank account. You’ll repay that amount, plus interest, over a fixed period of time. Term loans are ideal for small business owners who need to finance big, one-time projects, like renovations and large inventory orders.

What’s not so cut-and-dry about term loans, though, is the amount of capital that the bank will lend you. That amount varies from bank to bank, and from borrower to borrower.

The biggest commercial banks can offer capital amounts into the millions for the most eligible borrowers: Think 700+ credit scores, many years of profitability, and airtight business plans.

If you’re in the vast majority of small businesses who can’t meet those tough requirements, you might have more luck seeking a term loan from your local bank branch. The only way to know for sure whether you’re eligible, and how much the bank will loan you, is to set up an appointment with your bank directly. Generally, though, local bank loans range between $5,000 and $500,000.

Other things you can expect from a local bank term loan:

• Interest rates may be fixed or variable, depending on the loan terms. Either way, those interest rates will be among the lowest you’ll find
• 5-7 years of monthly payments
• Term loans almost always require collateral

Business Line of Credit: $10,000 to $250,000

Business lines of credit are different from traditional term loans, because they’re not a lump sum you get in your account all at once. Rather, your bank gives you access to a specific amount of cash, which you can pull down from whenever you want and use to cover whatever expenses you need. You’ll only pay interest on the funds you use.

Business lines of credit are an excellent option for small businesses facing continual cash-flow issues (so, realistically, most businesses). And, since you’re getting fast access to flexible cash, business lines of credit give you peace of mind in case you need to tend to any unforeseen expenses—whether that’s an emergency like a burst pipe, or an opportunity like a windfall of new orders that needs to be filled, stat.  

Again, your bank determines the amount of cash you have access to according to your loan application. That application will give the bank an idea of how financially stable your business is, and how much additional debt you’re able to handle, both as an institution and as a business owner (which is where your personal credit score comes in). Amounts depend on the bank you work with, too. Typically, though, business line of credit loans from banks range from $10,000 to $250,000.

Other things you can expect from a bank business line of credit:

• Interest rates are variable, and only apply to the funds you use
• Annual renewals
• You might need to pay origination and/or annual fees, depending on the bank you work with
• Banks may offer either secured or unsecured business lines of credit

SBA Loan: Up to $5 million or $5.5 million

We said that your bank funds two types of loans—term loans, and business lines of credit—right? But, technically, there’s one more. SBA loans are a third type of small business loan you can apply for, and receive from, your bank. Let’s clarify.

If you do any research into small business loans, SBA loans will probably yield the most (and the most enthusiastically reviewed) results. That’s because the US Small Business Administration, an independent government agency, exists to help small businesses grow and thrive—and the main way they do that is through their generous funding program.

Contrary to popular belief, the SBA itself doesn’t furnish loans. Rather, the SBA partners with lenders (most of which are banks) across the country, and the agency guarantees the loan with federal money up to 85%. That guaranteed safety net incentivizes lenders to extend these loans to small business owners.

However, since the SBA is a government entity, and independent from the bank itself, they have their own system for determining a candidate’s eligibility to participate in their lending programs. They’ll determine the amount of their loans according to their own standards, too. (And, full disclosure, in general SBA loans are hard to qualify for.)

The SBA offers three loan programs, all of which offer loans in different amounts, at different terms, to serve different purposes. One of those programs, the SBA microloan, is issued through intermediary non-profit institutions, which means they’re not available through your local bank.  

Of the two SBA loans that are available through your bank, the SBA 7(a) loan is by far the most popular. This loan program finances small businesses to suit a variety of needs, like refinancing debt, providing working capital, and covering inventory expenses. On the other hand, the SBA 504/CDC loan provides financing for small business owners to acquire fixed assets, like real estate and equipment. And there’s a new 25-year term for the SBA 504/CDC loan, which makes it even more desirable.

Here are the general loan amounts you can expect from these two SBA programs:

• SBA 7(a): Up to $5 million
• SBA 504/CDC: Up to $5.5 million

Other things you can expect from an SBA loan:

• Interest rates can be fixed or variable. Rates depend on the loan program, the size of the loan, and terms of the loan. Currently, rates on the SBA 7(a) program start at around 7%  
• Repayment period depends on the loan program. Generally, SBA 7(a) loans can extend up to 10 years, with a monthly payment structure
• Additional fees, like origination fees and guarantee fees, may apply
• SBA loans almost always require collateral

  

→TL;DR (Too Long; Didn’t Read): Banks can offer borrowers term loans and business lines of credit. The bank will loan you different amounts, depending on the type of loan you’re seeking; the terms of the loan; and your business loan application. You can also apply for an SBA loan through your bank, but their eligibility requirements are determined according to the SBA’s standards, not the bank’s.

How Do Banks Determine Loan Amounts?

Banks issue the highest loan amounts to the borrowers they deem the most eligible— essentially, the borrowers who they think will be able to repay these large debts in full and on time. And because banks issue such high capital amounts, they need to be really sure that they’re working with the most responsible borrowers so they don’t lose all that money.

Well, thanks to collateral, banks aren’t left completely out to dry if a borrower doesn’t repay their loan. Collateral is any asset—like cars, equipment, real estate, accounts receivable, or cash—that the borrower puts up for the lender to seize in case the borrower defaults on their loan. In that case, the lender will collect and liquidate those assets to recoup as much of the missing debt as possible. Other types of collateral include blanket liens, which allows the lender to seize any kind of asset that the borrower owns, both tangible and intangible; and personal guarantees.

It’s not the case that collateral is needed for a small business loan all the time. Some business lines of credit are unsecured, and a few banks may offer unsecured term loans, too. But, because banks can extend such large amounts of capital, it’s almost certain that your term loan will be collateralized. Your SBA loan likely will be, too.

This all goes to show that banks are trying to mitigate risk at every turn—and that’s where the “trustworthiness” comes in.

So how, exactly, do banks determine if a borrower is reliable enough to handle the highest loan amounts? They’ll consider all aspects of a potential borrower’s business loan application to figure that out.

The Business Loan Application

Depending on the lending institution and the type of loan you’re going for, your business loan application might include:

• Business loan request letter
• Bank statements
• Personal and business tax returns
• Profit & loss statements
• Balance sheets
• Your personal income
• Personal credit score
• Annual revenue
• Time in business
• A business plan
• Industry type

The banks use this information to determine your debt-to-income ratio, personal creditworthiness, profitability, and more. All these stats give the lender a holistic profile of your business’s financial stability, and how well you’ll be able to handle additional debt. In turn, this will determine how much a bank will loan you for a business.

Be aware that most banks are hesitant to hand out loans to very young businesses, so if your company is fewer than two years old, you might want to seek a loan from an alternative lender. Your industry type is more important than you might think, too. Unfortunately, banks are reluctant to lend to businesses in high-risk industries, like bars and restaurants.    

That said, these are ballpark numbers you can use to help figure out if you have the minimum requirements to qualify for business financing from a bank loan:

Term Loan

• Credit score: 640+ (but, realistically, more like 700+)
• $90,000+ annual revenue
• Time in business: 2+ years

Business Line of Credit

• Credit score: 550+
• Annual Revenue: $100,000+
• Time in Business: 2+ years

SBA Loans

• Credit score: 650+ (but, again, 700+ is ideal)
• Annual revenue: $100,000+
• Time in business: 2+ years

(Again, the SBA is responsible for evaluating your application, not your bank.)

Just to clarify: These numbers are the typical minimums you’ll need to get your foot in the door at your bank. But to get the highest loan amounts possible, and the lowest interest rates, your bank wants to see stellar personal credit scores, several years’ worth of profitability, and that your business has a clean financial history.

→TL;DR: Banks determine loan amounts based on your business loan application, which demonstrates how much additional debt your business is able to manage. They’re unlikely to extend loans to young businesses, and they’re hesitant to loan to risky industries.

How Much Your Bank Will Loan You for Business Financing (and Other Financing Options)

It shouldn’t come as a surprise that banks are capable of lending a lot of money to small business owners. (They are banks, after all.) What do we mean by “a lot”? The following ranges are typical of bank loans, according to the class of loan they provide:

• Term loan: $5,000 to $500,000
• SBA loan: Up to $5 million for an SBA 7(a) loan, or up to $5.5 million for an SBA CDC/504 loan
• Business line of credit: $10,000 to $250,000

Ultimately, though, if you’re asking, How much will a bank loan me for business financing?, you’ll quickly find out that the small business loan underwriting process isn’t formulaic. Every bank will determine your eligibility for a loan, and how much the bank will loan you for business financing, on an individual basis. The terms of the loan—including the interest rates, repayment periods, and required collateral—also depend on the type of loan and the borrower’s application.

You’ll need a strong application for your bank to approve you for a loan. And only the strongest of those approved candidates will be eligible for the highest ends of these ranges.

So, if your bank doesn’t approve your loan application this time around, know that you’re in the majority. Actually, about 80% of small business owners who apply for bank loans get rejected.  Luckily for that huge majority, small business loan options don’t stop at the bank’s locked door:

• If your personal credit score is your kryptonite, apply for a business loan for bad credit, like invoice financing or an equipment loan.
• If your time in business isn’t long enough to qualify for a bank loan, look toward small business startup loans. It’s easier for newer businesses with limited financial histories to qualify for these types of loans.
• Short-term loans from alternative online lenders typically have less rigorous eligibility requirements thank bank loans do.  
• It’s always a good idea to use a business credit card. You’ll build up your credit history, earn rewards that can help you run your business, and pay for everyday expenses.

These small business financing methods will help you grow every aspect of your business—which is exactly what banks want to see on your application. Next time you approach your bank for a loan, you might walk away with the amount you were hoping for the first time around.

The post How Much Will a Bank Loan Me for a Business? 3 Great Options, Explained appeared first on Fundera Ledger.

from Fundera Ledger https://www.fundera.com/blog/how-much-will-bank-loan-for-business