These Factors Determine Your Business Loan Amount

These Factors Determine Your Business Loan Amount

The amount of money you may need in a business loan varies far and wide; luckily, the requirements necessary for securing the needed amount are fairly standard. Statistics show that the average loan sum is over $600,000. From sources such as private lenders, institutional lenders, and the federal Small Business Administration (SBA). Below, we’ll take a short run-through of the relevant factors.

Business Loan Purpose

This speaks directly to just how much money you’ll need. As there’s a wide financial gap (both of the needed loan amounts are substantial) between standard real estate and commercial real estate. With the latter often requiring loan amounts in the millions. And this is before you tack on marketing and amendments.

Loan Costs vs. Profitability

This is simply the same cost-benefit analysis you perform in any business acquisition you make. You want your net intake to exceed the overall cost of the loan. What you want is your net profit to exceed the low cost. Ensuring this requires that you get a loan with the best terms feasible and that you optimize your business plans to ensure success. To do this, you must do the math on the loan terms, and include administration, origination, and other fees for the total tally.

Credit Score or Collateral Determines Loan Terms

There are some loans for which your credit score is minimally-important – such as merchant cash advances, for example. But for most, creditworthiness often makes or breaks the favorability of the loan terms you can secure. Oftentimes, lower credit scores limit how much you can borrow, and also raises the interest rates on what you can borrow.

If, however, you don’t have much of a credit history for whatever reason (or poor credit), then the collateral is another way to secure enough funds through a business loan. The downside to this is that you will likely lose the collateral in the event of a loan default.

The above represent some of the more essential factors that determine the nature/terms of the business loan that you can obtain. Contact us to get the funding you need!


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