What could your small business do with a million dollars? Most small business owners think getting a million dollar business loan is a dream come true. Yet, do you really know what it takes not just to get a business loan of that size, but to pay for it? How much does a million dollars cost? Here’s what you need to know.
How to Get a Million Dollar Business Loan
The more financing your business has access to, the more potential it has.
But where do you begin when you’re researching how to get a million dollar business loan?
We’ve compiled a list of the most crucial elements to focus on to pave the way to seamless funding.
1. Fundable Foundation
Every business needs a fundable foundation if they wish to receive funding. This is crucial whether you’re looking into a small business loan or a business line of credit.
But what is Fundability?
Put simply, Fundability refers to a business’s ability to get financing.
There are several key areas to focus on for a fundable foundation. These include:
- Contact Information: Make sure you have a business name, phone number, physical address, and email account. You can’t register your business or apply for credit without this information.
- EIN: An employee identification number is similar to an SSN. But whereas an SSN is used for personal purposes, your EIN is used for business activity. You can get a free EIN from the IRS.
- Incorporation: Incorporating your business legitimizes it and offers benefits like liability. Work with a legal expert or tax professional to determine if you should form an LLC, S-corp, or C-corporation.
- Business Bank Account: A business bank account is crucial to funding. It allows you to keep your business finances separate and organized. It’s also something that an online lender or credit card company will require you to have when applying.
- Licenses: The average lender and other funding sources only give money to legitimate businesses. If you don’t have the required licenses, you’ll be turned away. Research this carefully when you first form your business.
- Website: In order to be competitive in the modern world, you need a website. Take care to design a solid website that tells institutions more about who you are and what you do. This isn’t a necessity, but it helps. Some lenders do look at this.
- Identification Numbers: Certain identification numbers like a D-U-N-S number are critical to acquiring funding. Register your business with Dun & Bradstreet to build credit and access funding.
Of course, it’s important to remember that this is just the foundation.
What else do you need to get a million dollar business loan?
2. Company Revenue
Naturally, any lender will want to make sure that your business is profitable.
Without consistent revenue, the likelihood of you paying back your debt is low.
But how much revenue do you need to qualify for a million dollar loan payment?
Opinions vary depending on who you ask. But it’s important to remember that the revenue that your business needs depends on loan type.
There are several million-dollar loan options, including:
- Business Term Loan: A business term loan is a good loan option for one-time investments. You’ll need over $100,000 in annual revenue to qualify.
- Business Line of Credit: A business line of credit is a recurring source of funding that can offer you access to more financing with desirable terms. As with the above, you’ll need at least $100,000 in annual revenue.
- Equipment Financing: Equipment financing is for those in industries where machinery is necessary. For example, restaurant owners might need equipment financing. You will need more than $250,000 in annual revenue for this type of loan.
- Invoice Financing: Invoice financing isn’t the most obvious choice for financing. However, it can be a way to obtain cash as you need it. You’ll need more than $250,000 in annual revenue for this option.
- Revenue-Based Financing: Revenue-based financing is similar to a merchant cash advance. The key difference is that you have access to higher borrowing limits. As the name suggests, you’ll need more cash flow for this type of loan. It’s reported you’ll need at least $120,000 in annual revenue for a million dollar loan.
- SBA Loan: An SBA loan is a desirable choice when you’re looking for funding. You’ll need at least $180,000 in annual revenue to qualify for a loan program.
3. Good Personal Credit Scores
Most business owners understand that good credit is necessary for funding. This includes both your credit score and your credit history.
But what you might not expect is that your personal credit score can have an impact on acceptance. You’re not taking out personal loans, but personal elements will still be considered.
Your lender will look at both personal scores and business credit scores to determine eligibility.
This is why it’s important to raise both scores if you want a million dollar business loan.
What score will suffice?
At the bare minimum, you’ll want a FICO score of at least 680. This is the lowest number that you should aim for if you wish to qualify.
However, you’re going to get further with a score in the mid-700s. A score of 720 and above is going to make any lender seriously consider you for a million dollar business loan.
If you have a score of 620 or below, it’s best to work on your bad credit. Most lenders you approach will turn you away until you raise your score.
4. Good Business Credit Scores
Business credit scores are vastly different from personal FICO credit scores. If you’re accustomed to the latter, brushing up on the former is essential.
The three major business credit bureaus are Dun & Bradstreet (D&B), Experian Business, and Equifax Business.
The D&B PAYDEX Score ranges from 1 to 100. The lower end of the range is considered high risk, with bad credit scores falling there. A low-risk score ranges anywhere from 80 to 100. This can be achieved by making on-time or early payments.
The Experian Intelliscore Plus credit score model is identical to D&B PAYDEX. A score that’s considered high there is anywhere from 76 to 100.
Meanwhile, you’ll want to focus on your Equifax Business Delinquency Financial Score.
The Equifax Business Delinquency Financial Score features a range of 101 to 650. Lower scores indicate a higher likelihood of delinquency on financial accounts. This is different from the credit score model listed above.
For this score, you want to fall anywhere from 585 to 650.
5. Professional Business Plan
Every business requires a professional business plan in order to succeed.
It’s the road map that details a business’s journey as it transitions from vision to functioning organization.
You’re likely already aware of the essentials that make up a solid business plan. These include your company description and mission statement, organization structure, and service or product details.
There are two key elements that any financial institution will look at most, however. These are your marketing and financial analysis sections.
Market and marketing elements in a professional business plan detail:
- A comprehensive market analysis to demonstrate your knowledge of your industry.
- Deep competitor research.
- Research on target customers as well as development of new products and services (if applicable).
- A well-developed marketing and sales strategy that demonstrates how you will reach/convert customers.
- A growth and expansion strategy to enact as your business scales.
More than that, a bank or a lender will want to know that you’re on track financially. Financial planning is important regardless of whether you’re assessing profitability or using a business loan calculator to map out your financing strategy.
Financial projections are critical to showing investors that you have a profitable business model.
Financial analysis should include important documentation like:
- Financial statements
- Balance sheets
- Cash flow statements
- Capital expenditure budgets
- Sales forecasts
- Profit and loss statements
- And more…
The more detailed these elements are, the easier it will be for your desired lender to determine eligibility.
6. Collateral
It’s important to consider the loan type you need and how it pertains to collateral.
Some loan types are inherently backed by collateral. These include equipment financing, large vehicle loans, and even a commercial real estate loan. These are considered easier to obtain because of this.
Should you fail to make your monthly payment, the items you’re financing can be repossessed.
Other loans, like 7a SBA loans, aren’t backed by collateral.
Instead, you’ll have to sign a personal guarantee on your home or other assets. This can include retirement accounts, cash, and other similar accounts and property.
This provides traditional lenders with the protection they need knowing that they’ll be able to get their money back. Whether it’s a credit union or a bank, they’re interested in seeing their investments pay off.
Collateral plays a critical role in debt repayment. It’s something you should consider before you seek out a secured or unsecured business loan.
You can plan ahead by using a business loan calculator to see how much you’ll owe and what repayment will look like.
Example Monthly Payments on a Million Dollar Business Loan
Business loan terms and payment amounts are variable based on terms and rates. Consider a $1M loan with an interest rate of 4% fixed for 20 years. The monthly payments on that business loan would be $4,774.15.
Then, consider the same business loan with the same interest rate for 15 years. The payment on that is $7,396.88 a month.
Lending Options for a Million Dollar Business Loan
There are multiple lending options for million dollar business loans.
Here are some of the choices at your disposal as a business owner.
Term Loans
Term loans offer business owners a lump sum of cash that can be used to finance their business.
This is the most common type of business loan business owners think of when they’re looking into large business loans.
Term loans offer similar terms to most other loans. You pay back the amount you borrowed in monthly installments (interest and principal).
You can gain better insights into what paying back million dollar term loans will look like with a business loan calculator.
Tip: Keep in mind that term loans are not the same as a short-term loan like working capital loans.
Business Lines of Credit
A business line of credit is a solid alternative to a term loan.
With term loans, you receive a lump-sum payment and pay it back over time.
With business lines of credit, you receive a flexible loan and revolving line of credit.
You use your line of credit up to the loan amount extended, pay it back to access the funding you’ve used, and repeat.
Business lines of credit are often extended for as little as a few months to years at a time.
Once the agreement expires, a lender may be willing to renew so you can continue to receive financing.
Business Credit Cards
Business credit cards are great if you need more business financing.
Why? You can have several different business credit cards at one time for more funding.
A business credit card functions the same as a consumer credit card.
Credit card issuers provide you with a credit line, you use it, and then you pay it back monthly.
It’s important to be strategic about which cards you choose.
Look for cards with low APR, cash back benefits or points, and other perks that will support your business.
SBA Loans
SBA loans are a valuable resource available to businesses that need funding.
Unlike other term loans, SBA loans are backed by the federal government.
They offer a wide range of other benefits that conventional loans don’t. Better loan term agreements feature:
- Greater accessibility for startups and smaller businesses
- Larger lending limits for a higher loan amount
- Lower interest rates
- May be more willing to work with those who have bad credit
The only downside is that SBA loans do require you to wait longer to get funding for a large business loan.
If you’re looking to enhance small business loans, consider business grants. Business grants don’t need to be paid back. This will help you tap into funding while you’re waiting for your small business loans to be approved.
You could also look into alternative lender options. Venture capital or platforms like Funding Circle are other options for businesses with stellar potential.
The SBA is very transparent about what they require and their application process. They provide you with all the information you need to know about 7a SBA loans to apply with confidence.
Equipment Financing
Some businesses need funding to purchase the materials needed to run their business.
This might include specialized packaging machinery, food preparation equipment, and beyond.
All of this equipment adds up. This is on top of the other expenses that come with running a business.
Equipment financing is a type of financing that provides you with the cash you need to purchase business equipment.
These types of loans are generally readily available, flexible, and offer access to fast funding.
Better yet, there’s no need for additional collateral as the equipment you’re financing serves as the collateral.
Invoice Financing
Invoice financing allows you to borrow against unpaid invoices.
Put simply, the invoices serve as collateral for the financing of the loan amount you need. Then, your lender will give you some (not all) of the amount that the customers owe ahead of time.
This approach can improve cash flow and help small businesses get funding fast.
Just keep in mind that fee structures and other obstacles can make this form of financing a challenge.
What Does it Take to Get a Million Dollar Business Loan?
To get the most funding possible, whether through small business loans or other funding, you need:
- Fundable Foundation
- Company revenue that meets loan qualifications
- Good business credit scores
- Good personal credit scores
- Professional business plan
- Collateral helps
Credit Suite Can Help
We can help with the Fundability and business credit. We know the secret sauce to get you started and help you grow in the most efficient way possible.
Then, you can get the funding you need, when you need it. With Credit Suite, you may be eligible for a million dollar loan sooner than you think.
Can’t qualify for a $1,000,000 business loan? Consider our articles about how to get a $900k business loan, $800k business loan, $700k business loan, $600k business loan, $500k business loan, $400k business loan, $300k business loan, $250k business loan, $200k business loan, and $150k business loan.
