Loans

Average Small Business Loan Size Explained

Small business owners who need fast cash to run their businesses can apply for a small business loan. But before you apply for emergency funding, it’s crucial to know how much you can get. Learn the average small business loan amount for different types of loans and how to qualify!

What Is a Small Business Loan?

A small business loan is a financing option for small business owners who need to borrow money. A small business loan is typically a long-term installment loan that provides eligible borrowers with a large lump sum. 

Most people looking for business financing want an extended repayment length that lasts a few years. A longer repayment period means smaller monthly payments. But if you prefer to avoid a long-term financial contract, know that short-term loan options only last a few months. Short-term loans can help you save money on interest fees in the long run, although monthly payments may be higher.  

Small business owners can use money from a small business loan to pay for equipment, supplies, licenses, employee salaries, advertising, etc. Making a list of your estimated expenses can help determine how much money you need to open an established business. An estimate of business expenses can also help you avoid borrowing more than you need.      

Small business loans can have fixed or variable interest rates. Fixed rates do not alter the loan amount each month, while variable rates fluctuate depending on a prime or index rate. Business loan rates are affected by your credit score, income, and business financials. 

Small Business Loan Amounts by Different Lenders

Suppose you want to apply for a small business loan. In that case, it’s essential to know the average loan amounts for different lenders. According to the Federal Reserve, the average small business loan amount from commercial U.S. banks is $663,000. 

Take a look at the average business loan amount for different lenders below:

  • Large Domestic Banks — $593,000
  • Small Domestic Banks — $146,000
  • Foreign Banks made by U.S. branches — $8,512,000
  • SBA Lenders — $107,000

As you can see, the average loan amount varies depending on the type of lender you work with. Large national banks can offer significantly more money than regional banks. But if you only need a small loan amount, you may want to apply for a small business loan with online lenders. Online loans tend to have a more straightforward approval process than traditional bank and SBA loans.  

What Are the Qualification Requirements for Different Small Business Loans?

The qualification requirements for a small business loan depend on the type of loan. For example, an SBA loan tends to have stricter qualification requirements than a traditional bank loan. 

Credit scores play an essential role during the approval process for a small business loan. Unfortunately, opening a small business with less than perfect credit can be challenging. However, you can still get business funding with a low credit rating! There are plenty of loans for people with bad credit. For example, suppose you want to start a trucking company. In that case, there are trucking business loans for bad credit

To help you choose the best small business loan for your startup company, learn what requirements you need to meet to be eligible! 

Traditional Bank Loans

A traditional bank loan can help small business owners get a substantial loan amount. Interested borrowers can apply with a bank or credit union. Large national banks typically provide more significant loan amounts, while small regional banks provide smaller ones. 

Traditional bank loans tend to have strict qualification requirements because small business loans are unsecured. To be eligible for a small business loan from the bank, borrowers need to have an established business, meet a minimum annual revenue amount, and have a strong credit history. 

SBA Loans

The U.S. Small Business Administration provides SBA loans to eligible small business owners. An SBA-backed loan reduces financial risk for lenders. It can make it easier for you to get fast financial relief to invest in your business. The SBA offers 7(a) loans, 504 loans, and microloans.

  • 7(a) Loans — This is the most common loan program that provides short and long-term financial help to small business owners. This type of loan has interest rate caps and limited fees. The maximum loan amount is five million dollars.   
  • 504 Loans — Provides long-term, fixed-rate financing to specific businesses. Borrowers must use their loan money to purchase or repair real estate property, equipment, machinery, or other assets.   
  • Microloans — Provides small business loans worth less than $50,000. Borrowers cannot use the loan to buy real estate or pay existing debts. 

To qualify for an SBA loan, you must run an eligible business. According to the U.S. Small Business Administration, eligible businesses must meet the following requirements:

  • The small business must operate for profit
  • The small business owner must do business in the United States
  • The small business owner must have a sufficient amount of invested equity
  • The small business owner must have previously sought alternative financial resources

Certain businesses cannot qualify despite meeting these requirements. For example, you cannot get an SBA loan if you own a real estate investment firm or have a pyramid sales plan.

Personal Loans

Personal installment loans are short to medium-term loans that borrowers can use for almost any expense. Financial institutions provide a lump sum that’s typically paid off through fixed monthly payments for a predetermined duration. Loan amounts range from a few hundred dollars to a couple thousand. 

Eligibility for a personal loan depends on your credit history and income. If your credit is low, you may still qualify for unsecured loans. Many online lenders have flexible requirements so more people can obtain fast financial support.      

How To Choose the Best Small Business Loan for Your Business 

How do small business owners choose the best business loan for their startup? Answering a few questions can help you narrow down your loan options. Consider your desired loan terms and how much you can afford to pay each month. 

How Much Money Do You Need?

Knowing how much money you need can help you choose the best small business loan. If you only need a couple of thousand dollars to buy equipment, consider applying for a personal loan or an SBA microloan. Make a list of your future expenses and the estimated cost of each item to calculate your small business loan amount. Preparing an estimate of business expenses before seeking a small business loan can help you avoid excessive interest fees and high monthly payments.  

How Fast Do You Need Money?

How soon do you need money to spend on business expenses? Specific loan processes take longer, so you may prefer a loan option that offers quick cash. You may want money in your hand today to lock down a lease on a storefront or pay employee wages. Traditional bank and SBA loan processing can take several months. If you can’t afford to wait for business funding, you are better off with other loan options. Personal loans can provide funding in as little as one business day! 

How Much Can You Afford To Pay Monthly?

It’s crucial to ensure you can keep up with the monthly payments on your small business loan. Ultimately, your business loan will affect your personal credit in many ways. Your credit score will be negatively affected if you fall behind on payments. Bad credit can limit your financial opportunities and cost you more money. Many online lenders offer payment calculators so interested borrowers can see how much monthly loan payments will cost depending on the desired loan amount. Remember that the more you borrow, the higher your monthly payments will end up being. 

How High Is Your Credit Score?

Your credit score will ultimately determine your repayment terms. A bad credit score can make it challenging to get the maximum loan amount offered by the lender. You may also have to contend with a higher interest rate at the expense of not using collateral. While there are plenty of bad credit loan options, lenders tend to offer higher rates to reduce the lending risk. Want to know the best way to get a decent interest rate and loan amount? Take time to compare lenders and loan offers! 

The Bottom Line 

What is the average small business loan amount borrowers typically get? The answer depends on the financial institution and the loan. Large national banks can provide as much as five million dollars in funding, while SBA lenders typically provide about $107,000. Knowing how much money you need to open or operate your small business can help you pick the best financial institution. 

Your credit score will also affect how much business funding you are capable of obtaining. Low credit can limit your loan options. Many lenders are wary of working with borrowers with bad payment histories and high credit usage. Building good personal and business credit can help you qualify for low rates and high loan amounts. 

Paying on time, reducing debt, and limiting credit inquiries are essential to building your credit rating. Once you obtain a small business loan, you can start improving your credit by successfully managing your financial account. 

References:
Survey of Terms of Business Lending │Federal Reserve
How SBA helps small businesses get loans │U.S. Small Business Administration
Terms, conditions, and eligibility │U.S. Small Business Administration