Large Business Loans
The path to growth for many small businesses will involve accessing more capital than the business can generate. Most business owners start with small business loans, credit cards, and business lines of credit to meet their first business funding needed. But what if it is time to borrow more?
Your business plan either calls for a major expansion, or you have naturally outgrown your space. Your machinery cannot keep pace with demand. It becomes obvious that you need a large influx of working capital loans to grow your business to the next level.
The adage that one must spend money to make money holds true in the business world, and no more so than when a business is trying to scale up. If it is time to seek out a large business loan, Shield Funding can help with one of various types of private business loans. We understand that some companies need larger business loans than are traditionally offered to growing businesses. We make the process fast and easy and you can get started online in minutes. Below is a list of the requirements to get approved for business funding with our most basic program. There may be additional factors that are considered, meeting these three requirements though gives you a very high chance of having your application approved.
What Do I Need to Qualify?
Below is a list of the requirements to get approved for business funding with our most basic program. There may be additional factors that are considered, meeting these three requirements though gives you a very high chance of having your application approved.
What are Large Business Loans
A loan which meets the definition of “large” can fall anywhere in between $10,000 to $2 million. While the minimum starts at $10,000, typically the lowest lending amount is $50,000.
Due to the loan’s size, it could have a longer repayment period than a short term business loan. If you are planning a major capital investment, such as construction of a building, you will want the loan’s term to line up with the projected construction timeline. Longer repayment periods lead to smaller monthly payments.
A large business loan should have the following characteristics:
- A term that aligns with the capital’s use
- Funds disbursed in a manner that works for your business
- Longer repayment periods and preferably no prepayment penalties.
Whatever capital tool you select to meet your need for a large amount of capital, make sure that it meets these criteria.
Can I Get a Large Business Loan From a Bank
Banks actually prefer to lend higher amounts of capital because they will make more in interest and fees on them. Generating one large business loan for $200,000 versus 20 loans for $10,000 is actually more cost-effective for them. They can pay an underwriter once instead of 20 different times.
While loans through a traditional lender usually have the best rates, it is hard to qualify for them. Typically, you need to meet the following to qualify for a bank’s large business loan;
- A credit score above 620.
- Been in business longer than two years.
- Strong monthly and annual cash flows.
- Annual revenues above $100,000.
The qualifications vary between banks; Bank of America requires annual revenues of $100,000 but other banks require more, as do the rates. Bank of America starts at 6.25%, Well Fargo’s loans start at 8.00%.
Those are the minimum qualifications, but the underwriter could also require more documentation throughout the loan approval process. They could ask to see a five-year business plan which includes detailed information on how you plan on using the capital, a few years of tax returns, bank statements, and financial statements.
While you may be able to qualify for a business loan through a bank, by the time they have approved your application the reason for which you needed the capital could have passed. Alternative lenders also offer large business loans at competitive rates, but also offer much easier application processes and shorter approval times.
Types of Large Business Loans
Generally speaking, the more that you are borrowing; the harder it is to get approved for a loan. In those cases, the lender is risking more capital and will want more assurances about your repayment ability.
Large Business Loans with an Alternative Lender
Alternative lenders lend from a pool of private or equity capital, and are not brick and mortar banks. They take more risks in order to give their investors higher returns, and can do so because of the rates they charge and years of experience.
Alternative lenders often offer products geared to those with bad credit, but if your credit is good their rates can be competitive with a bank. Their quick turnaround times and easy approval processes make them a good choice if you want to jump on a limited time opportunity.
An underwriter can approve a large business loan in just 24 hours. The loan’s funds could be in your bank account or usable within 24-48 hours, again depending on how much capital you need. And it will take you much less time to apply.
Underwriters at alternative lenders decide to lend based on your business’ annual revenues and how long you have been in business, which can be as little as two months. Business owners with credit scores above 500 and whose businesses generate $8,000 of monthly revenues meet their minimum requirements for a bad credit business loan.
Alternative lenders fund loans for anywhere between $5,000 to $1 million, and unless you are borrowing near that upper limit they are unlikely to request tax returns or bank statements.
Alternative lenders charge higher interest rates than a bank to cover their risk. The interest rate on a large business loan from an alternative lender will range from 12% to 45% depending on the length of the loan. Some banks have rates that start at 13% so it would be a mistake to assume that you will pay more to access capital with an alternative lender.
If you have a higher credit score, the interest rate you pay could be comparable or less than that offered by a traditional lender, with the added convenience of getting access to that business loan faster. Plus, alternative lenders offer easy repayment terms to align with your business’ cash flow.
While a traditional lender might insist on a flat-fee, monthly payment, an alternative lender will agree to monthly, bi-weekly, weekly, or even daily payments. By paying through automatic bank withdrawals you can set up your payments and walk away, rather than worrying about missing a payment or hurting your credit score.
Business Lines of Credit
A business line of credit to raise capital could meet your needs, but only if you plan on borrowing a smaller amount. This is because the lender has to keep the LOC’s funds open and ready for you to use without any guarantee that you will, in fact, use them and incur fees and owe them money.
Once you have been approved for a LOC, the line remains open and the capital can be accessed when needed. It has a limit to your borrowing ability, like a credit card, and can remain open for one or more years. At some point defined in the LOC’s documents the line of credit freezes and converts to a term loan.
If you are unsure of when you will need the large business loan, you could apply for an LOC and have it open just in case. If you never draw on the line, you never have to make a payment or pay interest. However, some lenders charge annual fees to have the line open if you are not using it. You also might be charged a fee when you take out a withdrawal.
Documentation requirements for an LOC vary, and could be very little if you already have a banking relationship with the lender. Because there is underwriting involved, you will pay a lower rate than a business credit card. And they can be approved quickly, too. The downside being that, depending on your definition of “large,” a LOC might not offer enough capital to meet your needs.
Business Credit Cards
Many small business owners use credit cards to finance their business in the early days, but will they work if you need a large business loan? The answer is maybe.
While you can get approved for a business credit card through an online application, just like a line of credit you might not get access to the amount of capital that you need. A credit card is an unsecured form of credit, which means that the lender could be last in line behind a bank or mortgage company if you default and they are trying to get repaid. Due to this risk, you will have a limit on how much capital you can access.
A business credit card is better for covering cash flow ups and downs than it is for meeting the purposes of most large business loans. Charge a payment to a vendor on Friday, then pay it off after a weekend’s sales, and you can charge that same amount next week. It is a renewable form of capital.
But compared to a line of credit, credit cards charge extremely high interest rates. Rates for business credit cards start around 14.49% and can get as high as 26.99%. Business owners with poorer credit will receive a higher interest rate, and it could easily be more than the rate an alternative lender would give you on a bad credit line of credit.
Not only can that rate go up and down while you have the credit card, if it is based on Prime, you could incur late fees or the company could raise your rate if you miss a payment. Annual fees are not uncommon, and the company could raise that fee every year.
Unfortunately, small business owners with credit scores below 690 might not even get approved for a business credit card. When trying to decide if a business credit card will meet a large capital need, keep in mind that if you are not approved for enough you will have wasted time applying, or might have to engage in loan stacking to get the full amount.
Equipment Financing Loans
If your capital needs relate to machinery or equipment, consider equipment financing. This type of loan is offered by almost every major lender, and while your credit will be a factor it is less important than when obtaining capital through an unsecured loan.
The equipment purchased with an equipment financing loan serves as the loan’s collateral. If you are buying a new forklift, the bank would be able to seize the forklift as payment if you defaulted on the loan. Some lenders may want to perform a credit check, too, but if you can put down enough of the equipment’s cost it may not be necessary.
Because of the collateral, equipment financing loans often charge lower interest rates than a term loan. Those with lower credit scores can still get approved on the basis of the equipment’s value, though the lender may require a down payment to offset their risk.
Some equipment lenders will finance up to 125% of the equipment’s value to cover soft costs like shipping and delivery. Traditional lenders require two years of business history, and if it is a higher value loan you could be asked to provide the same amount of documentation as a term loan. Some lenders require minimum annual revenues of $250,000.
The most detailed questions the lenders asks could be about the equipment that will be their collateral. They may want to know its age, condition, and value. For extremely large capital investments, the lender could send an independent appraiser to assess its value.
The loans terms can be shorter than a term loan, and could align with a depreciation schedule. A typical term of 2-3 years would align with the equipment’s useful life or depreciation schedule. Another plus is that many equipment financing lenders give you a 90-day grace period before you have to make your first payment.
How to Find the Best Large Business Loan
If you are taking out a large loan, your monthly payments will be higher, the interest you pay will be more, and default could have serious consequences for your business. When significant sums of capital are involved, take the time to investigate your lender.
Ask about fees, whether or not the interest rate is fixed or variable, and any prepayment penalties. Compare interest rates and APR’s between lenders. The APR, or annual percentage rate, blends together both the interest and fees to more accurately present your cost of capital. While two lenders may quote you the same simple rate, knowing the APR could make your lending decision for you.
The length of time your lender has been in business, such as Shield Funding’s ten years, will also give you confidence that they know how to responsibly lend and serve their customer’s needs. Reputable lenders will gladly answer questions or make clear information available on their website, as they wish to support a successful lending experience for all involved.
Lastly, in the midst of finding and comparing lenders don’t lose sight of your business’ goals. The intended purpose of the large amount of capital that you are seeking can often help you land on the best large business loan for your business.
The Final Word on Large Business Loans
Taking out a large business loan can be a big step for many small business owners. There is a lot to consider, not the least of which being your risk and expected return on the capital. An experienced lender will analyze your needs and can help you decide between products. Call Shield Funding today to find out more about your options when you need a large business loan.