Small business loans tend to come in smaller amounts than you might expect, given how much these businesses need the cash. Even SBA loan programs limit you to a maximum of $5 million, and most banks won’t go higher than that. Why? Lenders are rightly skeptical about putting money into a small business with such a limited track record. If your business has less than $5 million in equity value, however, there probably aren’t many other financing options available to you. But what if your company is worth more than that? Can you still get a loan? Yes, but not as much as you might want. Banks are cautious about lending money to small businesses with high equity values because they see them as investors who could walk away from the loan if things go south. They also see it as an unnecessary risk since many smaller companies don’t have the liquid capital they need to get started anyway.
Types of Small Business Loans
There are many types of small business loans, including secured and unsecured business loans. Secured loans, like a home equity line of credit, allow you to borrow money against an asset you own. An unsecured loan, like a SBA loan, is backed solely by your creditworthiness. In addition, there are many different types of small business loans that are designed to fit the needs of different industries. The following are just a few example of what’s out there: Commercial real estate loans – These go toward commercial projects like office buildings, hotels, or other large-scale investments. Private equity real estate loans – These are typically used to finance smaller commercial real estate projects. Commercial business loans – These go toward short-term working capital needs, like inventory or equipment.
SBA Loan Basics
The SBA is not a lender, per se. The Small Business Administration is a federal agency that partners with banks to provide loan guarantees for small businesses. This means that banks are willing to give you a loan with lower interest rates because the government is essentially guaranteeing that they’ll be repaid eventually. The downside is that you have to deal with more red tape and have a longer wait time for funds. Depending on where you live, you might also have to travel to a regional SBA office to get the loan. The following are the SBA loan requirements: You must be a U.S. citizen, residing in the country. You must own a majority stake in the company. You must be able to prove that the business is viable (i.e. you have a business plan and a money trail). You must show that you have enough cash flow to pay back the loan.
High Equity Small Business Loan Basics
Even if you have a high equity value, you might qualify for a high-risk bridge loan. These are short-term financing options designed to help you get your company up and running as quickly as possible. They may also be available to companies with high equity values as a last resort, if they don’t qualify for a standard business loan. The drawbacks of these types of business loans are that your interest rates will be higher and the terms will be less flexible. Furthermore, you may be required to put up collateral to get them. The following is a typical high equity small business loan: Loan amount – $250,000 Term – 1 year Interest rate – 10% Collateral – $1 million in company equity
What is a small business loan worth?
We’ve seen that even a loan worth $5 million is effectively capped at $1.5 million for a company with high equity. Similarly, a low-interest bridge loan or SBA loan might only be worth $250,000 or less. The good news is that you can put the money to work for you, even if it’s not enough to get your company to the next level. You can use it to hire employees or buy inventory to help you expand your business and grow your revenue. The bottom line is that a large loan will always be more valuable than a small loan. But that doesn’t mean that small business loans can’t be helpful.
Other Options to Get the Money You Need
If you don’t qualify for a small business loan, or want more control over how the money is spent, consider getting investors on board. You can take equity stakes in your company as a way to raise money. Another option is to sell debt instruments, like bonds or notes. Debt is a promise to pay back money with interest at a specific time. However, you’ll want to be careful when selling debt instruments that you don’t violate any federal regulations. Another option is to use a combination of debt and equity to finance your business. You can put up a smaller amount of money and then use debt to make up for the rest. You can also look for alternative funding sources, like a grant. You’ll have to jump through several hoops and prove that your company is worthy, but it’s worth investigating. Other funders include microfinance organizations and crowdfunding platforms.
Conclusion
Small business loans are often harder to obtain than many people think. You’ll need to show that your company is worth the risk, and even then, you’re likely to get a smaller loan than you hoped for. That’s why it’s important to put as much money into your company as you can upfront. Only then will you have enough equity to get the money you need to grow your business.