How Much Can I Borrow with a Business Loan?

Securing adequate financing is a crucial aspect of starting or expanding a business. One common question entrepreneurs have is, “How much can I borrow with a business loan?”

The loan amount you can obtain depends on various factors, including your business’s financial health, creditworthiness, collateral, and your ability to repay. In this  guide, we’ll explore some of the factors that lenders consider when determining loan amounts and provide insights to help you understand how much you can potentially borrow for your business needs.

Understanding loan amounts

Every business is unique and has unique loan needs, here are some of the factors that will play a role in the size of your business loan:

Loan types and their limitations

Different types of business loans come with varying limitations. Traditional bank loans, Agency guaranteed loans (Small Business Administration, Finance Authority of Maine, Rural Development, etc.) , lines of credit, equipment financing, and other loan options all have specific borrowing details. Research and understand the maximum loan amounts applicable with each type of loan to determine which option aligns best with your needs.

Creditworthiness and financial history 

Lenders assess your creditworthiness and financial history to gauge your ability to repay the loan. A strong credit score, positive payment history, and strong debt-to-income and other financial ratios improve your chances of qualifying for a higher loan amount. Lenders will  scrutinize your personal credit score as well as your business’s credit profile. Demonstrating a solid financial track record can improve the likelihood of loan approval and potentially increase the loan amount you’re able to obtain.

Business financials and cash flow

Lenders evaluate your business’s financial health by analyzing financial statements, tax returns, profit and loss statements, and cash flow projections. These documents provide insight into your business’ revenue, expenses, profitability, and ability to generate consistent cash flow. The stronger your financials, the more confident lenders will be in extending a higher loan amount, but keep in mind that borrowing the maximum amount you can may not always be the best approach for you and your business.  Always consider your situation and consult with trusted professionals.

Collateral and loan-to-value ratio

Secured loans, which require collateral, often allow for higher borrowing amounts. Collateral can include real estate, inventory, equipment, or other valuable assets. Lenders may require valuations of your collateral  to determine the appropriate loan amount and loan-to-value ratio. The higher the collateral value, the more you may be able to borrow.

Business plan and growth projections

A comprehensive and well-thought-out business plan can positively impact your ability to borrow . Lenders review your business plan to understand your goals, target market, competitive advantage, and growth projections, etc. If your plan demonstrates a clear strategy for growth and profitability, lenders may be more inclined to offer a higher loan amount to support your expansion or development plans.

Industry and market factors

The industry in which your business operates can influence the loan amount you can borrow. Lenders consider industry-specific risks, market trends, and growth potential when assessing loan applications. Some industries may be viewed more favorably  due to their stability and growth prospects, while others may be subject to more conservative lending practices.

Relationship with the lender

Establishing a positive relationship with lenders may  enhance your borrowing ability  within lending limits and policies. Building a track record of responsible financial management, timely repayments, and open communication with your lender can create trust and potentially make borrowing easier in the future. Cultivating relationships with lenders who have experience lending in your industry can be beneficial.

Seeking professional guidance

Navigating the complexities of loan types, amounts, terms and conditions as well as understanding the various factors involved can be overwhelming. Seeking guidance from professionals such as financial advisors, accountants, attorneys, or business consultants can provide valuable insights. They can help you analyze your financials, evaluate loan options, and provide personalized recommendations for the potential loan you need.

Putting it all together

Determining how much you can borrow with a business loan depends on several factors, including loan types, creditworthiness, financial history, collateral, business financials, guarantor strength, and growth projections.

By understanding these factors and taking steps to strengthen your position, such as maintaining a good credit score, developing a solid business plan, and building relationships with lenders, you can increase your chances of borrowing what you need. Remember to consult with professionals for personalized guidance and make informed decisions that align with your business needs and goals.

Norway Savings Bank—Business Banking that starts with you

At Norway Savings, we have the privilege of working alongside business owners from start-ups to national expansions. We’re right there with you as you take that first step—and every step afterwards—to listen, strategize, celebrate and advocate. Our lenders have a broad range of experiences and can offer valuable insight and recommendations as you embark on a new path to build or expand your business. If it’s important to you, then it’s important to us. Check out Business Banking or let’s talk.