If your small business is looking for large amount of funding, you need to be ware that you need to comply with the requirements that the lender has. A million dollars is a lot of money from any perspective and it requires you to meet very specific criteria.
If you find that you need a million dollars for your business, you first need to determine which lenders offer financing at this level. This will omit lenders who are willing to help you but do not have the ability to assist to you to meet your needs. Many small business loans begin their financing search by researching the limits of the Small Business Administration’s general business programs.
The SBA’s 7(a) program has a maximum of $5 million that it can lend out. Also, the CDC/504 SBA program can be looked into for significant fixed-asset purchases. These includes financing for real estate ventures or for large equipment purchases.
Business Credit Criteria
When you are applying for a million-dollar business loan, there is a list of pre-set business credit criteria. Assessing the financial health of the business is done in different ways. One of the criteria you need is documentation that supports that the business can operate successfully with an additional large new debt.
Also, the working capital is considered. Working capital is the current assets minus the current liabilities. Lenders want to see a business that has a positive working capital so that they feel as if they can trust you to pay back the million-dollar loan overtime.
The Purpose of the Loan
The borrower needs to have a purpose for the use of the loan that needs to be approved by the lender. There are loan limits set by lenders that vary based upon the purpose of the funds, such as the SBA’s CDC/504 program.
The CDC/504 requires that the borrower’s net worth not exceed more than $15 million. Also, the average net income of the business cannot exceed $5 million after taxes to be eligible for the CDC/504 small business loan.
The borrower needs to demonstrate that the business is need of the business loan and the paperwork to document the small business’ financial stability, you must provide lots of documentation. Documentation that is accepted includes personal and business financial statements, complete tax returns, profit and loss statements and income projections.
Venture Capitalists and Angel Investors
If you find that you are denied for a business loan, you can try obtaining venture capital or seeking angel investors. Venture capitalists requires you to submit your business plan to being the process. This can be challenging for a new business borrower.
Angel investors are also a great source for financing large business loans. This type of funding may be challenging to find for most people, but it is worth trying.
The Bottom Line
Every lender has their own set of regulations to get a million-dollar business loan. The best thing a borrower can do is prepare ahead by gathering a lot of financial documents.