How much can you borrow with a business loan?

Business loans can be used for a variety of expenses, including everyday operations, inventory or for major purchases like equipment or real estate. In 2022, most businesses seeking funding did so to meet operational costs and expand the business, according to the 2022 Small Business Credit Survey. But whatever you need funds for, a small business loan can help  — if you can get the full amount of funding you need.

Small business loan amounts vary in size. While it’s possible to borrow anywhere from $500 to over $5 million, how much you actually qualify for depends on the lender and your unique situation. Here’s a look at how much of a business loan you can get by loan type and the factors that influence how much you’re likely to receive.

Small business loan amounts by loan type

Some lenders tend to offer higher loan amounts than others. Traditional banks usually offer higher amounts, though these are typically reserved for small business owners with good or excellent credit. Online lenders are more flexible, but the loan amounts are typically smaller.

Here’s a look at the average business loan amounts by lender.

Bank loans

Typical bank term loans can range from $5,000 to $1 million. While the ceiling may be high for these loan amounts, qualifying can also be a tall order, as how much you can borrow depends on your business’s circumstances and ability to repay. Businesses with a solid financial track record, long time in business and consistently strong annual revenue may be best suited for this type of loan.

SBA loans

SBA loans are term loans backed by the Small Business Administration. SBA loans could be as high as $5 million, but the amount you’re approved for will be based on your ability to repay.

If your business cannot repay the loan, the SBA will pay your lender the portion of your loan it guaranteed. For this reason, these loans come with favorable rates but involve a rigorous and competitive application process.

Online loans

Considered a type of alternative business lending, online loans are financed by companies that operate online, outside of traditional banking. These loans are typically more accessible than traditional loans, so they’re a good fit for startups and other businesses that would have trouble securing financing from traditional banks. That includes businesses with bad credit.

Another benefit to online business loans is that they are often quicker to access. It’s even possible to receive funds within a matter of hours instead of days. But, a major disadvantage is that these funds are usually smaller than what traditional banks tend to offer.

Short-term loans

While they function similarly to traditional business loans, short-term loans have shorter repayment periods than other loan types — usually 12 months or less. While these loans can be convenient, prospective lenders will want to keep an eye on interest rates, which can be steep.

Medium-term loans

Medium-term loans generally provide financing of up to $500,000 and have a repayment period of two to five years. These loans may be a good fit for businesses looking to expand in the near future. While the approval process may be simpler than for longer-term business loans, the interest rates may be higher.

Business line of credit

A business line of credit functions similarly to a credit card: Borrowers are approved up to a certain amount and can use — and repay — credit as needed. This option is a good consideration if you don’t know quite how much you’ll need to borrow at a time and if you need flexible access to capital. Limits are generally lower than for other types of business loans.

Equipment financing

Equipment loans are specific to certain types of equipment needed for business, such as commercial appliances or semi-truck financing.

Equipment financing often requires you to use the equipment as collateral for the loan. So, if you default on the loan, the lender can take possession of the equipment.

Invoice financing and invoice factoring

If you need fast funding to help cover short-term expenses, invoice financing or invoice factoring may be worth considering.

Invoice financing is a loan or line of credit that lets you borrow against your unpaid invoices. When your client pays the invoice, you pay back the loan along with any interest and fees.

With invoice factoring, an invoice factoring company buys your invoices, advancing you 70 percent to 90 percent of the invoiced amount. When the client pays, you receive the rest of the funds from the invoice factoring company minus fees and interest.

Both of these types of funding rely heavily on the creditworthiness of your clients and their repayment history. That makes them a good form of flexible financing for startups and business owners with bad credit.

Merchant cash advance 

With a merchant cash advance, business owners can access a lump sum of cash upfront in exchange for a portion of future credit card or debit card sales. This alternative funding solution can be particularly beneficial for businesses that don’t qualify for traditional funding and need immediate capital.

Microloans

Microloans, often funded by the SBA and alternative or peer lenders, are small loans of up to $50,000. They fill a gap in the market by backing businesses that may not qualify for other types of loans. While the amount funded is typically small, these types of loans can be a critical toehold for expanding businesses.

Determining how much you can borrow

How much you are eligible to borrow will depend heavily on the lender as well as your business and its circumstances. Most lenders will consider similar factors when determining your eligibility to borrow and how much you can qualify for. These criteria typically include the following:

• Revenue information. Lenders will only provide a loan based on a percentage of your yearly revenue. This can range from 10 percent to 30 percent of your annual revenue.
• How long you’ve been in business. Many lenders look for a minimum time in business of six months to two years. The longer you have been in business, the more you may qualify to borrow. This may also impact the interest rate you are eligible for.
• Your personal and business credit scores. The stronger your credit scores, the higher your loan limits and the lower your rates are likely to be. Lenders may look at both your personal and business credit scores to make a decision.
• Business plan and industry. Lenders will evaluate how well thought out your business plan is and how stable your field is. Higher-risk industries tend to be more restricted or involve higher interest rates than stable, more traditional sectors.
• Collateral (secured loans) or personal guarantee. You may be able to score more funding or a more appealing interest rate if you offer to secure your loan with assets or a personal guarantee. A personal guarantee is a legal agreement that you will be responsible for debts as an individual if your business is rendered unable to make repayments.

How to maximize your business loan

Certain steps can help you to qualify for a larger loan. Before applying, consider:

• Offering collateral. Secured loans are backed by collateral that can be seized if you cannot repay the loan. Common forms of collateral include equipment, real estate or investment accounts.
• Improving your credit score. Improving your credit before applying for a loan can help you qualify for a larger amount and a lower interest rate.
• Paying down debts. Paying down debt can improve both your credit score and your credit utilization ratio, which may help you qualify for better loan terms.
• Offering a down payment. Providing a lender with a down payment can prove your creditworthiness and lower the principal amount borrowed.

Bottom line

Different types of business loans have varying eligibility requirements. Depending on your unique situation, your business and its history, and the specific loan you are applying for, you may qualify to borrow more or less money. Shopping around to find the best business loan for you can ensure you find the most favorable terms, which can help you save money over the life of the loan.

Frequently asked questions

• How hard is it to get a small business loan?

  Some types of business loans, like term loans and SBA-backed loans, are competitive and involve a rigorous application process. If you have good or excellent credit, these loans can be easy to secure. Online loans are more accessible, even to startups and people looking for bad credit business loans. While these can be easier to secure, they also tend to have higher rates and fees.

• How long can you finance a business loan?

  Business loans have terms as short as a few months and as long as 10 to 25 years.

• How much revenue do you need to get a business loan?

  Revenue requirements vary depending on loan type and lender. Traditional bank loans may require an annual business revenue of $250,000, while alternative lenders may only need anywhere from $30,000 to $100,000 in revenue, depending on the type of loan.