Whether you’re looking for a $1 million business loan or $5 million business loan, the good news is that there are million dollar business loans available for small business owners who want to invest in a new stage of growth.
Maybe your business has been thriving for years and you’re ready to up your game. Or, perhaps you have the opportunity to acquire another business or want to expand your current business by purchasing a warehouse. Whatever your plans, they’re going to require capital. And, potentially, a lot of it.
Let’s look at how to get a million dollar business loan so that you can get those plans on track.
How Does a Million Dollar Business Loan Differ From a Small Business Loan?
Before we dive into how to get a $1 million business loan, $2 million business loan, or more, let’s look at how such a large business loan compares to a smaller one, besides the amount you’re borrowing.
| Million Dollar Loans | Smaller Loans |
|---|---|
| Generally only offered by banks, credit unions, and SBA lenders | Offered by banks, credit unions, SBA lenders, and online lenders |
| May require collateral or a down payment | May not require collateral or down payment |
| Stricter requirements to qualify, including credit scores, time in business, and revenues | Even newer businesses and those with poor credit may find smaller loans they qualify for |
Because of the risk and the capital outlay, you will typically only find $1 million or more loans from banks, credit unions, and SBA lenders. Online and alternative small business loans tend to focus on smaller loans and may not be able to help if you want to borrow a million or more.
Also, because there is inherently more risk in lending millions to a borrower, banks may require larger-value collateral or a substantial down payment on a million dollar loan, whereas smaller loans may or may not require either collateral or a down payment.
Larger loans for small businesses can also be more difficult to qualify for than smaller loans. Generally, the more you want to borrow, the more assurance lenders want that you will pay back the loan. To that end, they may have higher criteria regarding credit score, time in business, and annual revenues.
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Criteria for Million Dollar Business Loans
As far as how to qualify for a million dollar loan, requirements will depend on the lender and the type of business loan. Here are some of the key factors that lenders look at.
1. Credit Score
When you’re applying for a million dollar loan, a lender may look at both your personal and your business credit score.
Business Credit Score
Credit scoring firms calculate business credit scores based on a company’s credit obligations and repayment histories with lenders and suppliers, as well as any legal filings (such as tax liens or bankruptcies). Instead of ranging from 300 to 850, business credit scores typically range from 1 to 100, as follows:
• Good: 80-100
• Fair: 50-79
• Bad: 0-49
For million dollar loans, your business will most likely need a “good” credit score.
If you don’t yet have business credit scores, you can work on building them by opening a business bank account, taking out business credit cards, and getting smaller business loans and repaying them on time. This may help you qualify for larger loans later.
Personal Credit Score
If you don’t have a business credit history, lenders will likely look closely at your personal credit scores. For a $1 million business loan or more, you generally need a personal FICO credit score of 650 or higher.
If you run a sole proprietorship or partnership, or if you personally guarantee a business loan, you may want to keep in mind that taking out a business loan can affect your personal credit. It could, for example, increase your debt-to-income ratio, which could make it more challenging for you to take out a mortgage or personal loan.
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2. Time in Business
Business loans under $1 million dollars typically require you to have been in business for at least two years (sometimes less in the case of some online lenders). However, for $1 million dollar business loans or more, that requirement can increase to at least three years.
The longer your business history, the better you can demonstrate to lenders how financially responsible you are, which makes you less of a risk as a borrower.
3. Collateral
Another way lenders mitigate risk in giving you a $1 or $2 million business loan is to require collateral against the loan.
For example, the Small Business Administration (SBA) requires collateral for its 7(a) program for loans between $350,000 and $5 million. The fixed assets (e.g., buildings, equipment, land) put up as collateral need to meet the full value of the loan, otherwise the lender may include trading assets (at 10% of current book value) and available equity in personal real estate as additional collateral.
4. Loan Purpose
When a lender is giving you a $1 million-plus loan amount, they will generally want a sense of how you will spend that money. As a result, you will likely need to present a detailed business plan outlining how you’ll spend the loan proceeds and how the investment will lead to increased profits, along with a detailed budget for your plan.
Creating a plan and budget doesn’t only benefit the lender; it can be helpful to you, too. This is a good exercise to go through even before you start applying for a loan, since it will help you think through why you want the loan and exactly how much you will need to borrow.
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5. Financial Documentation
Lenders may ask for financial statements, such as bank statements going back four months, balance sheets, profit and loss statements, and tax returns going back several years. All of these give them a better sense of how financially stable your company is.
If you’re not accustomed to reviewing these statements, you may want to spend some time getting to know them before applying for a loan. How will a potential lender view your company’s financial well-being? Do you meet the qualifications for the loan you’re looking at?
For example, an SBA CDC/504 loan requires a borrower’s net worth not exceed $15 million and their average net income not exceed $5 million after taxes for the past two years. You may want to ask an accountant to review your financial documents and provide input, too.
6. Business Documentation
You may also be asked for certain business documents, such as your articles of incorporation if you run a corporation, or your articles of organization if your business is an LLC. In addition, you may need to submit business licenses and permits, disclosure of other debt, and any other legal contracts and agreements.
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Pros and Cons of Million Dollar Business Loans
Before we dive into how to get a million dollar business loan, let’s first weigh the benefits and drawbacks to borrowing such a large amount of money.
| Pros of Million Dollar Business Loans | Cons of Million Dollar Business Loans |
|---|---|
| Having access to a large amount of capital allows you to grow faster | You may have trouble paying it back, which could put your collateral at risk |
| Interest rate may be lower than for smaller loan amounts | The more you borrow and the longer the repayment period, the more you pay in interest |
| A large infusion of cash can stabilize unsteady cash flow | The application and approval process may take several months |
Pros
With a million dollars or more, there’s a lot you can do in your business. You might be able to acquire another company, purchase real estate, buy high-dollar equipment, or expand your company significantly faster than you could on your own.
Often, the larger the loan (and the longer the repayment period), the lower the interest rate you can get, assuming your credit is outstanding.
Cons
While having access to a large amount of capital can help you do more, that money has to be repaid. And, if your investment isn’t yet reaping financial reward, paying back that loan may be a challenge. If you should run into difficulty making monthly payments, you could default on the loan and risk losing your collateral.
Even with a low interest rate, you’re still paying a percent of what you borrowed, which is a lot. The more you borrow and the longer you take to repay the loan, the more you’ll spend in total interest.
Lending Options for a Million Dollar Loan
There are a few resources where you can find large loans of a million or more for small businesses, including the SBA, banks, and credit unions. Online lenders are also an option, assuming they offer loans backed by the SBA.
Each lender may have slightly different criteria as to who can qualify for a business loan of $1 million or more.
SBA
The U.S. Small Business Administration (SBA) guarantees SBA loans, which are offered by banks and online lenders it partners with to help serve small businesses. SBA loans go as high as $5 million and have capped interest rates, which keeps them more affordable for small businesses. Repayment terms are up to 25 years, helping keep payments low. Fees, which include the SBA Guaranty Fee (up to 3.75% of your loan’s guaranteed amount), also tend to be lower than other lenders.
However, the application and approval process for an SBA loan can take several months, and businesses must meet strict eligibility requirements from both the lender and the SBA. To qualify for an SBA loan, you typically need to have been in business for at least four years, have an annual revenue over $180,000, and a credit score of at least 680.
Banks
Many banks offer loan amounts up to $5 million, though they typically have strict requirements to qualify. A bank loan is typically best for a business that has been in operation for many years with a track record of positive financials. Banks will also require a good business credit score, as well as a strong personal credit score from the individual who’s representing the business. Businesses also typically need to have low debt-to-net-worth ratios to qualify for a large bank loan.
Credit Unions
If you are a member of a credit union that offers business financing services, you may want to reach out and see if they can meet your larger loan needs. Like banks, credit unions typically offer larger loans at attractive interest rates for qualified borrowers.
Applying for Million Dollar Business Loans
Getting approved for a million dollar loan generally requires jumping through a few more hoops than getting a smaller loan. The process of applying for business loans varies slightly from one lender to another. Generally, however, you will need to gather a fair amount of documentation in order to complete the application. This may include:
• Business bank account statements
• Tax returns and supporting IRS documents for both your business and personal tax accounts
• Accounts receivable and balance sheets
• Proof of collateral
• Copy of your commercial lease, if applicable
• Any applicable licenses and registrations for doing business in your state
• Disclosure of other debt
• Any legal contracts (such as franchise, incorporation, leasing)
• Updated business plan with details on your growth and marketing strategies
• Plan for how you will use the loan
Once you’ve gathered all the paperwork you will need, the next step is to fill out the application. Depending on the lender, you may be able to do all or some of this online, or you may be required to visit a local branch. Filling out the application will likely take some time, but having all your documents at the ready can help simplify the process.
When will you get an answer? Million dollar-plus loan applications tend to take longer to process than applications for smaller loans, so it may be weeks before you get a response from the lender and even months before you get an approval.
Once you are approved, you’ll need to review the loan agreement. This will outline details on how much you were approved to borrow, your interest rate, and what your monthly payment will be. The final step is to sign the document and wait for the funds to be disbursed.
Alternative Funding Options
If you’re looking for a large infusion of capital but your business or startup doesn’t qualify for million dollar loans, you’re not necessarily out of luck. There are other ways you may be able to get access to a large amount of capital. Here are two options to consider.
Outside Investors
An investor, such as a venture capitalist or an angel investor, may be able to provide the high-dollar capital you need for growth. These investors may also be able to connect you with industry contacts and helpful resources that can help you expand or launch your venture.
However, an investor will want a slice of the pie in exchange, typically in the form of equity in your business. And because they’re invested in your success, they may want to have a say in decisions you make about the business. You’ll have to consider whether giving up a portion of ownership and control of your business is worth getting access to a large amount of capital.
Crowdfunding
Crowdfunding can be a viable way to get capital that doesn’t necessarily need to be repaid. There are crowdfunding platforms where you can list a project, such as the launch of a new product line. Anyone who’s interested can contribute to the project. Some types of crowdfunding do need to be repaid, while others just require you to provide a token of appreciation to investors/donors.
Crowdfunding might be a good stop-gap between where you are and the millions you need. You can also get feedback on a new product from the market before investing in developing it.
The Takeaway
Banks and SBA lenders offer $1 million to $5 million loans to small businesses, but they can be tough to get. There are typically pre-set criteria regarding your credit score, annual revenue, and years in business. In addition, you will likely have to put up collateral, provide a detailed plan for how you will use the funds, and supply documentation that supports that your business can operate successfully with an additional large debt.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
Are there unsecured $1 million business loans?
There are some banks that offer unsecured $1 million business loans. However, loans for amounts larger than that tend to be secured business loans.
Can startups get million dollar business loans?
It may be challenging for businesses that have been in operation for less than two years to qualify for a loan of a million or more. There are lenders that will work with startups, but they may charge higher interest rates and require collateral.
Can you get $1 million business loans with bad credit?
Loans of $1 million or more tend to have stringent qualification requirements, including good credit. There are some alternative lenders who may offer loans of lesser amounts to businesses with bad credit, albeit with high interest.
How much will it cost to pay back a $1 million business loan?
It will depend on the loan’s interest rate and the fees, but you can quickly figure out the total cost of a million dollar loan with an online loan calculator. You just need to input the loan’s annual interest rate, fees, loan amount, and loan term.
What’s the monthly payment on a $1 million dollar business loan?
Many factors determine what your monthly payment will be, including the total loan amount, the interest rate, and the length of the loan. As an example, if your interest rate was 6% and your term was 25 years, your payment on a $1 million loan (not including fees) would be just over $6,400 a month.
Photo credit: iStock/VioletaStoimenova
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