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Many small businesses take out loans to cover day-to-day operating expenses, hire staff, or make a big purchase. And, there are many loans available in the several thousand to $100,000 range, which can cover that kind of growth. But what can you do if you’re dreaming even bigger? Maybe you want to acquire another business, buy real estate, or get high-dollar equipment for your company. That’s what large business loans are for. Many banks and other lenders actually offer million-dollar business loans (and even much higher amounts) to help small and medium-sized businesses skyrocket their growth. Wondering if your business might qualify? Here’s what you need to know about large business loans, where to find the best options for your business, and how to apply.
What Is a Large Business Loan?
A large business loan is generally defined as a commercial loan of $500,000 or more.Typically, small business loans, loans backed by the Small Business Administration (SBA) and business lines of credit max out at about $5 million. Financing for purchasing or expanding commercial real estate, however, can offer up to $10 million.Repayment terms for large business loans can extend many years and these types of loans are available from traditional banks, as well as online lenders.
How Do Large Business Loans Work & What Are Their Uses?
You can use a large business loan for many purposes, including:
Purchasing commercial real estate to expand your space or open new locations
Fulfilling large orders
Expanding your product line
Buying large assets or equipment
As you might expect, large business loans can be harder to come by than smaller ones. For a business to get a large loan, it typically needs to have a good track record, have been in business for several years (or have experienced explosive growth in a short time), have a good credit score, and have collateral. Unlike smaller loans, which often have simple online applications with an instant response on whether you’re approved or not, a large business loan may have a more in-depth application process. And, approval can take several weeks or months.You may be asked for details on what you plan to use the loan for. In the case of purchasing equipment, you may be asked to specify the model and age of what you’re buying, as well as what you’ll use it for.You may also need to provide financial statements or tax returns to show that you’re fiscally responsible enough to pay back such a large loan. Some lenders, particularly traditional banks, may require you to visit a physical branch to complete the application.
Pros and Cons of Large Business Loans
Should you take out a large business loan? Here's a look at the pros and cons.
Pros
Cons
The capital can help you grow your business faster.
The larger the loan, the more interest you’ll pay overall.
If you qualify for low rates, the financing may be affordable.
The application process may take months.
Pros
If you have big plans for your business, you might not have a way to fund those plans on your own. Maybe you want to acquire another business that’s asking $1 million as the purchase price. You know it’s a great value, but you don’t have the capital. A large business loan can make that happen.The better your credit and financial history, the lower the rate you’ll pay. Also, the longer the loan term, the lower your payments will be, and most large business loans have long repayment periods.If your business doesn’t see consistent revenue from one month to the next, having a large amount of cash can ensure you have steady access to working capital when you need it.
Cons
Like any financing, you’ll pay interest on a large business loan. And the larger the loan, the more interest you’ll pay in total.If you’re in a hurry to get financing, a large business loan may not be right for you because it typically takes time for your application to be processed.While having a large lump sum of cash can be appealing, you have to be able to pay it back. A large loan payment each month could strain your budget.
Where Can You Find Large Business Loans?
As you start your research on how to get a large business loan, you can look to banks, credit unions, and online lenders. The Small Business Administration (SBA) has several loan programs with high caps to consider as well.It can be a good idea to start your quest with the bank you already have a business relationship with. However, you don’t necessarily want to stop there. It can be a good idea to look around and compare different business loan options. You could potentially find a better rate and terms elsewhere.
Qualifying for Large Business Loans
The requirements for a large business loan may, understandably, be more stringent than for, say, a $5,000 loan, because there is much more risk to a lender.Qualification requirements for large business loans vary depending on the lender, but you may need to who:A proven track record To approve a large loan, lenders often want to make sure that a business has been operating for at least a couple of years. Generally, the more experience you can show, the better.Large revenue Companies that qualify for large business loans tend to have very strong revenue to show potential lenders.Strong credit scores Good scores show lenders that you have a history of paying your personal and business debts on time and give a lender confidence that you’ll end up paying back a large business loan fully and on time.Sufficient Collateral Having collateral can make it easier to qualify for a large business loan because it lets the lender know that, even if you should default on your loan, they could still get their money back by seizing the assets you put up as collateral.
Types of Large Business Loans
There are many different kinds of loans to explore when you’re looking to borrow high dollar amounts. Here are a few to consider.
SBA Loans
These are loans issued by traditional bank lenders but guaranteed by the SBA. With SBA-backed loans, such as the 7(a) and 504 loan programs, you can borrow up to $5 million.SBA loans typically offer the best rates, along with term lengths of 10 to 25 years. These loans can be used for a wide variety of business purposes — from purchasing a new business to covering working capital needs.
Pros
Cons
The capital can help you grow your business faster.
The larger the loan, the more interest you’ll pay overall.
If you qualify for low rates, the financing may be affordable.
The application process may take months.
Commercial Real Estate Loans
Commercial real estate loans help businesses purchase commercial property, such as an office building, hotel, or retail space. They are available from private lenders, banks and the SBA. Just like getting a mortgage to buy a home, commercial real estate loans typically come with long repayment terms and are secured by the property being purchased.
Pros
Cons
Can be used to purchase real estate, constructing or renovating facilities, landscaping, adding parking lots and more
Limited to commercial real estate-related expenses
Secured Business Loans
Secured business loans are loans that are backed by collateral. This means that, should you be unable to pay off your loan, the lender has the right to seize that asset to cover your debt. Examples of collateral include real estate, equipment and inventory. You may or may not also need to make a down payment on the loan.
Pros
Cons
Tend to have lower interest rates than unsecured loans
If you default on the loan, you could lose valuable assets
Accounts Receivable Financing
Another option for getting the cash you need is accounts receivable financing. This type of financing allows you to borrow against the value of your unpaid invoices. Accounts receivable financing gives businesses a way to get early payment on outstanding invoices and purchase orders. This way if payments are delayed, the business still has the funding it needs to continue operations. Then when payments come through, customers pay the lender directly.Since the loan is secured by your invoices — money your business has already made — the risk tends to be lower for both you and the lender. You can often find AR financing products from online lenders.
Pros
Cons
Typically does not require additional collateral beyond your unpaid invoices
You need good credit and qualified invoices to get this type of financing
If you plan to purchase a franchise, or already operate one that could use an infusion of cash, franchise loans may be worth considering.
Pros
Cons
Can be used to purchase a franchise or make renovations to an existing one
Franchisor may require you to use one particular lender, which limits your options
Business Lines of Credit
If you don’t plan to use a large business loan all at once, a line of credit may be a better option than a loan. Similar to a credit card, a business line of credit allows you to borrow up to a set limit and gives you access to funds as you need them. You pay interest only on the amount you've borrowed.
Pros
Cons
Can be used for any purpose
Generally available in smaller amounts than business loans
Applying for Large Business Loans
Large business loans tend to have more hoops to jump through in the application process. You may be required to provide tax statements, financial documents, and even a business plan. Plus, many lenders will want particulars on how you will use the funds, and may ask also about assets you can use as collateral.With many lenders, you can fill out an online application. To get started, you’ll likely need to provide:
Your name, phone number, email, and social security number
Business name, address, and EIN
Business industry
Length of time in business
Gross annual sales/revenue
Your intended use of financing
Your desired loan amount
Larger loans tend to take longer to process than small loans, so it may be weeks before you get a response from the lender, particularly for bank and SBA loans. Once you’re approved, you will need to review the loan agreement, which will tell you how much you have been approved for and the repayment terms.Once you sign the agreement, the funds can often be deposited into your bank account in as little as one business day.Recommended: Applying for a Small Business Loan in 6 Steps
Alternatives to Large Business Loans
If you don’t qualify for any of the loan options above, you have a few other options.
Peer-to-Peer Lending
Rather than going through a bank to be approved for a loan, you can also borrow money through peer-to-peer lending. This is a situation where private individuals loan money to businesses like yours.There are sites specializing in connecting private investors with companies seeking financing. Rates may be higher than with traditional loans, but you may find these loans easier to qualify for.
Venture Capital
If you run a start-up and are willing to give up equity to investors in exchange for capital, venture capital is an option. Sometimes investors bring more than money to the table, as they may have useful industry contacts and advice to help your business grow.
Crowdfunding
Through crowdfunding websites, you can create a campaign to raise funds for a particular purpose, such as launching a new product line. Anyone who finds your campaign interesting can donate. Typically these funds do not have to be repaid.Some crowdfunding sites require you to give a gift to contributors, such as your product, a t-shirt, or a personal experience with your brand.
The Takeaway
When the time comes for your business to expand, to buy new equipment, or to fill an unusually large order, you might find yourself in need of a big infusion of cash that you simply don’t have. That’s where a large business loan might come into play.Understandably, large business loans can be harder to come by than small ones. For a business to get a large loan, it often needs to have a good track record, have been in business for several years (or have experienced explosive growth in a short time), have a good credit score, and collateral.To see how much you may qualify for (and what the terms would be), it can be a good idea to apply with more than one lender. That way, you can compare offers and find the best deal. Another option is to use a loan comparison site like Lantern by SoFi. By filling out one simple form, you can quickly get access to small business financing options matched to your needs and qualifications.
Frequently Asked Questions
How big can a business loan be?
What is considered a large business loan?
How hard is it to get a 1 million dollar business loan?
Can you get a large business loan with no collateral?
Where can large business loans be found?
Photo credit: iStock/Kerkez
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About the Author
Susan Guillory
Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
