Tesla. Google. Walt Disney. Virgin.
All of these businesses have been hugely successful for a number of reasons. But do you know one thing that each business had in common? They had enough funds for these businesses to realize their full potential.
Maybe you aren’t aiming to become a multi-national conglomerate. Even if you’re just a corner mom-and-pop shop, though, you can set your business up for success by making sure it has enough funds to grow. One of the most common ways to ensure funding for your business is by taking out a business loan. But, how much can you really take out? This article will explore the most common business loan sources.
Small Business Administration (SBA) loans
The SBA is one of the main sources of low-interest small-business loans. The SBA merely funds loans for other financial institutions to give out. That means you’ll need to apply for these loans through a bank or a credit union.
If that sounds confusing, don’t worry. We’ll break down the four major SBA loan types:
1) 7(a) loans
The most common SBA loan program is the 7(a) small business loan. This is a general-purpose loan usually awarded to businesses that are already established and want to expand. You can get up to five million dollars through the 7(a) business loan program. However, in 2015, the average loan size was $371,678.
These small loans of up to $50,000 may sound cutesy, but they can make a world of difference to your business. According to the SBA, the average microloan size is $13,000.
Unlike other SBA loans, these microloans are designed with the express purpose of launching and expanding your business. You can apply for these loans through local nonprofits, which you can find on the SBA website.
3) CDC/504 loans
These small-business loans of up to five million dollars were designed specifically for purchasing real estate and equipment. You can apply for these loans through one of 270 nationwide Certified Development Companies (CDCs).
4) Disaster loans
What happens if your business is hit by an unexpected disaster? You could just close up shop…or; you could apply directly to the SBA for a disaster loan. These loans of up to two million dollars can also include a 20% bonus amount to bolster your business against future catastrophes.
SBA loans are usually your cheapest option. If you aren’t able to meet the requirements for one of these loans, don’t worry! There are tons of other options available for business loans.
You can try applying with banks and credit unions directly. The amount of money you can get from these sources can be virtually limitless, depending on your business needs and the institution’s ability to finance it.
Another good option is to apply for a business loan online. With SuperMoney’s recommended business lenders, you can get anywhere from $30 to five million dollars to start and grow your business.
What determines how much money you can get?
We’ve shown you the theoretical maximums, but not just anybody can walk into a bank and get a five-million-dollar loan. So, how much can your business get? It turns out that it all depends on your situation.
If you’re taking out a business loan, you know what you need that money for. Payroll? A tractor? Rent? Supplies? Tally up how much total money you’ll need for your business.
How much money you can get also depends on how much money you already have. SBA lenders, for example, typically want you to put a down payment of 20% to 40% of the total loan amount. It seems a bit paradoxical that you need money to get money, but it’s one way the lenders can minimize their risk in giving you the cash.
Finally, lenders will look at your ability to repay the loan in deciding whether to approve you for your requested loan amount or not. This is why you’ll need to develop a comprehensive business plan as a part of your application, including future cash flow projections. Lenders need to make sure—both for their financial safety and yours—that you’ll be able to make the loan payments for the requested loan amount.
What are some alternatives to business loans?
It isn’t always easy to get a business loan. Luckily, you still have tons of options if you can’t go this route.
Most new businesses are started up through private savings. You can boost your savings even more by opening a high-interest savings account.
If you don’t have the cash yourself, you can also ask friends or family. It’s also a good idea to formalize this money into a loan, especially if you’ll be receiving more than $14,000. Above that limit, the government “gift tax” kicks in—but not if it’s a loan.
Equity financing is another option. Think Shark Tank: you offer a set amount of shares or business revenue for a given period in return for funds.
Business grants can be a great source of funding if you can find a program you’re eligible for. Crowdfunding can also be an excellent option if you’ve got a snazzy new idea. You can even take out a personal loan to start up your business if needed.
You have tons of options for financing your business, so it makes sense to shop around. A great place to start is with SuperMoney’s business loan recommendations.
Lindsay is a recent college graduate living in Fort Collins, CO. She taught herself how to manage her money after a series of bad encounters with student loans, low-paying jobs, and a house from hell. Today, she’s working hard to pay off her debts, earn more money, and find her dream job as a wildlife biologist. You can find her work on many financial sites like Magnify Money, Credit Sesame, and Centsai.