Small business start-ups (and even well-established businesses) eventually need a sizable business loan if they are to:
–Expand their business
–Improve their customer base, or
–Increase profits
If your financing needs reach stratospheric proportions — like a $1 million or more — you should be cognizant of the fact that you must comply with the lender’s requirements if you seek an approval of for a loan of this magnitude. In other words, there is very little wiggle room when working with the lender’s guidelines concerning million dollar plus financing scenarios. Million dollar loan programs are, from any perspective, a significant financial funding transaction that must meet very specific lending criteria.
This is How to Get a Million Dollar Business Loan for a Small Business
Not every business financing program offers loan amounts that reach $1 million or more, so it is prudent to first determine which lenders do offer financing at this premium level. This preliminary exercise omits lenders who might want to help but have no product or the ability to assist. Many small business loan seekers begin their financing search by researching the upper limits of the Small Business Administration’s (SBA) general business loan programs.
Million dollar financing seekers can look to the Small Business Administration’s program entitled “7(a)” whose financing limits max out at $5 million. One can look into the CDC/504 SBA program, (designed to create financing resources) for significant fixed-asset purchases. These includes financing for real estate ventures or for large equipment purchases.
The SBA’s Military Reservist Economic Injury Disaster Loan program is able to fund upwards of $2 million dollars If your small business is impacted by an influential employee called up to military duty. if this ‘call to duty’ prevents the small business’ ability to meet general operating expenses, the small business may then be eligible for the SBA’s Military Reservist Economic Injury Disaster Loan program. When deciding how to get a million dollar business loan, bear in mind that the Small Business Administration is not responsible for funding the business loan.
The actual funding is the responsibility of the lending institutions, as it is the lender who gets a guarantee from the Small Business Administration to insure the lender is repaid a piece of the loan should the borrower default. Check out this article on SBA loans for more assistance with understanding how they work as well as the criteria required to secure a million dollar business loan.
Business Credit Criteria
When applying for a million dollar business loan, underwriters evaluate the business based upon a laundry list of pre-set business credit criteria. Creditors assess the financial health of the business from a number of different perspectives. Large loan lenders require that the small business’ documentation supports the objective that the business can operate safely (from a financial perspective) with the addition of a substantial amount of new debt. Another aspect to consider is the working capital – defined as the current assets minus the current liabilities. The reality is, lenders want to see a business with sufficient working capital, even if the small business generates enough income to pay back a million dollar loan.
The Purpose of the Loan
Qualifying for a a million-dollar loan, typically requires that the borrower use the loan to fund a specific purpose — one that needs to be approved by the lender. For example, the SBA’s CDC/504 loan limits vary based upon the funds purpose. Contact us at LenCred so we can provide the guidance and the resources you need as you continue your search for the best million dollar loan you qualify for.
Additional Criteria
Businesses must meet specific financial eligibility requirements if they are to obtain million dollar – plus financing. Using the SBA’s CDC/504 loan as an example, the CDC/504 requires that the borrower’s net worth not exceed $15 million. Additionally, the small business’ average net income must not exceed $5 million after taxes if they are to be eligible for the CDC/504 small business loan. Small business’s that are speculative in nature, or a real estate rental business do not qualify for a CDC/504 loans. While other programs require the borrower(s) to:
–Be doing business in the United States, or its annexes.
–Be considered ‘small’ business as determined by the Small Business Administration’s standards for the business’ specific industry. For the majority of industries, the SBA defines a “small business” based upon a three year average of business receipts or in terms of the average number of employees for the past twelve months.
–Demonstrate a legitimate need for the loan requested.
–Not be currently delinquent on any United State governmental obligation.
Documentation
A borrower must demonstrate the need for the business loan and the paperwork to document the small business’ financial stability, a borrower must provide a plethora of documentation. A borrower can expect to provide business and personal financial documents, complete tax returns, P/L statements and income projections to a local SBA-backed lending institution.
If your business or business plans do not meet the conventional loan standards offered by the SBA or other business lenders, one can always try to obtain million dollar business financing by thinking outside of the box.
Angel Investors and Venture Capitalists
Over the years, many business entrepreneurs that have come up with fantastic ideas, riddled with potential profits to parlay, yet they do not qualify for standard business loan financing. If you find yourself being denied for a business loan, it might be worth a shot at obtaining venture capital as an alternative source of funds. Venture Capitalists requires the submission of a business plan to begin their processes. Note, however, that this may be challenging for a new business loan borrower. When received, the venture capital firm analyzes the submitted business plan and, if interested in the idea, they will typically offer start-up financing in exchange for an equity portion of the business.
Some national companies (like Amazon and Yahoo!) were funded by venture capital transactions.
Another source of financing large business loans falls into the category of the angel investor. This is typically provided by a ‘rich uncle,’ unexpected funds from a long lost relative or even a lottery win. Angel Investors are challenging to find for most of the population, but worth considering.
The Take-Away on How to Get a Million Dollar Business Loan
Understanding how to get a million dollar business loan is the key to success. Lending regulations become complex and vary from lender to lender. As a result, borrowers are advised to prepare a loan plan and gather monumental amounts of paperwork. LenCred may be able to help you get a million dollar business loan. Contact us for more information.
