It’s not unthinkable that a business would need capital at some point during its lifetime. Whether you’re a small business or a larger one, sometimes you need a lot of external capital to move the needle for your company.
You might be wondering whether there are large business loans out there for small and medium-sized businesses and whether you might qualify for one.
In this guide, we’ll break down everything there is to know about large business loans, and where to find the best options for your business.
Some businesses only need small influxes of cash to grow their companies or at least keep them stable. These businesses have options in short-term loans, SBA microloans, shorter-term lines of credit, and so on.
But for some businesses, a small amount of capital just isn’t enough to make the major differences in their business that they’re looking for. Below are some of the reasons a business might rightfully need a large business loan.
One of the largest investments you can make in your business is expanding to a new location, or renovating a current one.
That’s why commercial real estate investments can be an impactful but expensive endeavor.
When you need to open four more locations, double the size of your current location, or update your retail space, you could easily find yourself in need of large business loans to get the project done.
Investing in commercial property is arguably investing in the biggest fixed asset a business could have.
However, it’s not the only asset your business might need to invest in to grow. You might also need to purchase major equipment and machinery for example.
From commercial trucks to a whole new delivery fleet, affording new and used equipment can be tough.
Oftentimes, business owners need to take out large business loans to afford the sky-high price tags that come along with these fixed asset purchases.
In a lucky turn of events, an order bigger than your business has ever seen before might come in.
Fulfilling a large order is an opportunity you don’t want to pass up. To take advantage of major opportunities like these, business owners often have to take on large business loans to handle the extra personnel, inventory, or manufacturing costs.
Maybe you’ve had your first trial at selling your product on the market and it went better than you could have imagined. Your next logical step might be to expand your product offering. This can be an impactful, but very costly, undertaking.
An entrepreneur might take out a large business loan to handle the costs of launching a new product, knowing that getting it on the market will eventually show returns.
If you’re hoping to make a big purchase soon or grow your business in a meaningful way, like by expanding to another location or adding a product line, then you’re probably in the market for a large business loan. Whether or not you’re qualified for one, though, might be a different story.
Well, here are some qualifications that indicate that your business would be a great candidate for a large business loan.
Most businesses that qualify for large business loans have been in business for years and have a well-established track record.
While most lenders offering large business financing are only willing to work with businesses that have been operating for at least two years, the more experience you can show, the better.
The longer you’ve been in business the less risky of a customer you seem to be, especially if you have a positive business history to show off to potential lenders as well. On the flip side of this, smaller and newer businesses pose a greater risk and are therefore less likely to get funding.
Given the high risk that a new business fails, lenders will be hesitant to extend a large business loan that would be repaid over a multi-year term. There’s a higher chance that they’d never get their money back.
In general, companies that qualify for large business loans have very strong financials—more specifically, they have strong revenues to show potential lenders.
If these lenders are offering you large business loans, they’ll need to be confident that you have the financial capacity to pay back such a large sum of money. For instance, a lender would never approve you for a loan larger than what your average annual revenue is. Based on your past history, you’d never bring in enough money to fully pay off the loan. For this reason, many lenders will only approve borrowers for a small percentage of their revenue.
In general, only financially healthy businesses will qualify for large business loans.
Another measure to see whether you’ll likely repay the financing is your personal and business credit history.
If you have a long history of paying your personal and business debts on time, then lenders can be confident that you’ll end up paying back the business loan on time and in full.
However, an indication of the opposite will likely preclude you from qualifying for large business loans.
Business owners who qualify for large business loans also typically have many valuable assets to their business’s name.
Having collateral to offer against the financing can make it easier to qualify for larger business loans. Having collateral to offer gives the lender some security that, even in the worst case that you can’t pay back your loan, they’ll still be able to get their money back. (In this scenario, they can seize your collateralized assets and recoup their losses.)
Think you might need and qualify for a large business loan? The next step would be to start looking at your options and seeing what might be available to you. Most of the loans will fall into the following general categories.
Traditional banks are the go-to option for large business loans.
Commercial banks offer term loans and lines of credit that can reach up to the millions of dollars for small business financing.
Plus, these bank loans typically come with long terms. This means that, even though you’re taking on a very large amount of financing, you’ll have lower, more comfortable monthly payments to pay the loan back.
And best of all, traditional bank loans come with the lowest interest rates on the market for small and medium-sized business owners.
While traditional banks are the best places to go for large business loans, there is one thing you need to know:
Bank loans are extremely hard to qualify for, especially after the 2008 recession. If you aren’t a very established business with impressive financials and a very strong credit score, it’s likely that a bank loan won’t be an option for you.
A better option for business owners looking for large business loans is to pursue loans backed by the Small Business Administration, also known as SBA loans.
They’re actually loans issued by traditional bank lenders but guaranteed by the SBA. This means that the SBA guarantees a percentage of the value of a bank loan issued specifically to small business owners.
By guaranteeing the large business loans offered by banks, the SBA makes it easier for small business owners to access this type of large, long-term, low-rate financing. In the end, the SBA is removing the risk of lending to the small businesses that banks typically try and avoid. If the small business owner defaults on the loan, the bank wil recoup the majority of their money from the SBA.
The SBA guarantees loans from a few different loan programs. The two largest loan programs offered by the SBA are the 7(a) loan program and the 504/CDC loan program.
Loans from the 7(a) program are the SBA’s most popular and general financing option.
These loans can be used for a wide variety of business purposes—from purchasing a new business to covering working capital needs.
The 7(a) loans are certainly large business loans: The amount of the loan can be up to $5 million, with terms lasting as long as 25 years for specific financing purposes. Rates for 7(a) loans vary depending on the SBA lender you’re working with, but will never exceed the SBA’s determined maximum. The SBA loan rates are tied to the market Prime Rate and will be very favorable.
While 7(a) loans are great for general business purposes, 504/CDC loans offer a specific type of financing solution:
These loans are meant for financing the cost of major fixed asset purchases—like commercial property purchases and renovations, or large equipment purchases. But 504/CDC loans are some of the most complicated and specific financing methods out there. If you’re looking for a loan for a major fixed asset need, and need large business loans, then a 504/CDC loan could be the right fit. Plus oftentimes, these loans don’t come with a set maximum amount.
If you’re looking for large business loans, bank loans or SBA loans are typically your best options out there.
However, these loans are very difficult to qualify for. Only the most eligible business owners get them. If you aren’t quite there yet, you still have options—like a medium-term loan from an online lender.
These lenders are non-bank, alternative financing companies that offer loans that are almost exactly like traditional term loans from banks, with a few notable differences:
These loans are typically smaller, going up to around $500,000, and they come with a slightly shorter term than bank loans or SBA loans do, ranging from one to five years.
The good news, though, is that they’re more accessible than bank loans or SBA loans, so if you need a large business loan but don’t qualify for the most premium options, these lenders could meet your needs.
The only catch: You’ll pay for the accessibility (and speed—these lenders work much faster than banks or the SBA) with slightly higher interest rates. Whereas bank loans and SBA loans have rates that stay below 10%, medium-term lenders charge rates ranging from 6.5% to 30%.
If you think a bank loan is in the realm of possibility for you, then look no further. You could try your local bank, or go for a larger national bank, but the bank you already have an established relationship with will probably be your best bet.
If your business isn’t quite ready for a bank loan, then you may have decided that you need to apply for an SBA loan or a medium-term loan instead.
Here are the lenders offering these large business loans for you to check out.
A respected term loan lender in the online lending space is Funding Circle.
Funding Circle offers medium-term loans that go as large as $500,000. Terms range from six months to five years, with interest rates set between 4.99% and 27.79%.
To qualify with Funding Circle, you’ll need at least a 660 credit score, $150,000 in annual revenue, and at least two years in business.
Another option to explore is Fundation, which offers large business loans in the form of term loans structured similarly to bank loans, but with bi-monthly repayments.
Fundation loans go as high as $500,000, with terms of one to four years. Interest rates will be low, ranging from 7.99% to 28.99%.
To qualify with Fundation, you’ll need at least $100,000 in annual revenue, a minimum credit score of 620, and at least two years in business.
When the time comes for your business to expand, to buy new equipment, or to fill a larger-than-usual order, you might find yourself in need of a large amount of money that you don’t have. That’s where a large business loan would come in to play.
Some of these large business loans can be difficult for some business owners to get, with bank loans and SBA loans being among the most difficult. However, those aren’t your only options when it comes to large business loans. Alternative lenders can also be the ideal solution to meet your business funding needs.