How To Get a 1 Million Dollar Business Loan: The Essential Guide

Video how to get approved for a million dollar loan

How can my business get a $1 Million Business Loan?

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Many small business loans are available for amounts in the tens or even hundreds of thousands of dollars, but million-dollar small business loans are less common. Most alternative funding options don’t go that high, so you might have to do with a bank or credit union.

However, some online lenders can lend over $1 million, especially if they’re SBA-approved lenders. You might also benefit from an alternative lending marketplace or a small business loan brokerage. These businesses maintain relationships with a network of lenders and specialize in finding the loan types and borrowing amounts that best meet your business needs and qualifications.

Once you find a lender or marketplace that can find the larger funding amount you need, the next step is to prepare for the application. Here’s an overview of what you need to know about applying to different types of lenders for a million-dollar business loan.

Traditional Lenders

Banks: Commercial banks can often provide small, medium, and large business loans into the tens of millions. Some of the largest banks only deal with enterprise-level commercial financing.

Most traditional banks also offer the most competitive interest rates. The primary drawbacks of small business loans from banks are the long funding times and stringent eligibility requirements.

You’ll usually need a minimum personal credit score of 650-700, excellent business credit, high annual revenue, and at least three years in business. If you meet the strict qualifications, closing and funding the loan request can take several weeks.

Credit Unions: These financial institutions offer similar rates and funding amounts as banks. But they also have similar requirements and funding times. In addition, you must be a credit union member to apply, and membership can be challenging to obtain.

Even so, if you are a credit union member, asking about your business financing options would be worthwhile. The upside to credit unions requiring membership to apply for a small business loan is that you could get some member benefits that are unavailable from other lenders.

Alternative Lenders & Marketplaces

As mentioned, you’ll have far fewer options for online lenders when looking for a seven-figure small business loan. But that doesn’t mean you’re without options.

The benefit of working with an alternative lender or marketplace is that they typically have lower credit scores and time in business requirements than traditional lenders. However, you’ll still need high annual revenue as a business’s revenue is directly tied to its ability to borrow in the same way a consumer’s income is directly linked to purchasing power.

Another benefit of alternative lending options is that they can provide much quicker approvals and funding times. Alternative lenders use online fintech tools to quickly analyze a business’s financials and determine how much it can borrow. Most online lenders send the funds electronically via ACH or wire transfer, which can occur in 1-3 business days. Some processing delays may occur for larger loan disbursements.

What types of $1 Million Business Loans are Available?

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Several types of small business loans can provide seven figures in funding, depending on the lender and your qualifications. Here are some small business loans to consider.

SBA Loan

  • Loan Amounts: $50k – $5 million.
  • Interest rates: Starting at Prime + 2.75%.
  • Terms: 10 – 25 years.
  • Funding time: 8 – 12 weeks.

SBA loans are one of the primary sources of million-dollar business loans. The US Small Business Administration (SBA) oversees the program to help promote lending practices that benefit the small business community.

Instead of applying directly to the SBA, a small business owner must apply to an SBA-approved lender, which could be a bank, credit union, or alternative small business facilitator like UCS. Lenders must apply to the SBA and meet its requirements to offer SBA loans.

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While the SBA doesn’t directly fund the loans, it partially guarantees them up to 85%. The federal government agency’s loan guarantee gives lenders the security to offer loan amounts up to $5 million with low interest rates and extended repayment terms.

The SBA also helps decrease loan costs by limiting the interest rates and fees lenders can charge. Many consider SBA loans to be the gold standard of small business financing.

Business Term Loans

  • Loan Amounts: $10k – $5 million.
  • Factor rates: Starting at 1-4% p/mo.
  • Terms: 3 months – 5 years.
  • Funding time: 1 – 3 business days.

A business term loan is a conventional financing structure where you receive a large loan disbursement and repay it plus interest and fees in fixed payments. Business term loans of $1 million or more typically have lower interest rates, longer terms, and monthly payments.

However, you’ll still likely have a high monthly payment since the principal is so high. And while the interest rate is probably lower, the total interest paid throughout the loan will be significant.

Businesses can use the funds from term loans for most business purposes, including working capital, equipment purchases, refinancing debt, acquiring another company, expansion, and more. Most lenders will want a detailed plan of how you intend to use the funds. Specifically, they’ll examine how the investment will grow your revenue and the budget models to prove it.

Business Line of Credit

  • Loan Amounts: $1k – $1 million.
  • Interest rates: Starting at 1% p/mo.
  • Terms: Up to 36 months.
  • Funding time: 1 – 3 business days.

Business lines of credit are typically for less than $1 million, but it could be possible to get a seven-figure credit limit. Instead of a large lump sum disbursement, you can draw funds from your line of credit as needed.

Many business owners like the convenience and flexibility of lines of credit. Once activated, it’s funding on demand when you need it most.

You only pay interest on what you draw, and the credit limit replenishes as you repay it, like with a credit card. This is known as a revolving line of credit.

Business lines of credit are excellent for ongoing projects, seasonal businesses, and unexpected costs. The drawback is that you must apply before you actually need the funds in anticipation of a future funding need.

Equipment Financing

  • Loan Amounts: Up to $5 million per piece of equipment.
  • Interest rates: Starting at 3.5%.
  • Terms: 1 – 10 years.
  • Funding time: 3 – 10 business days.

Business equipment loans allow you to purchase needed equipment when you don’t have the cash to pay for them outright. Most businesses across all industries need equipment, including commercial vehicles. Other examples of equipment include computers and office furniture, point-of-sale systems, construction equipment, kitchen equipment, medical and dental equipment, and much more.

With these loans, the asset you’re financing is the collateral. This is known as a self-collateralizing loan, similar to an auto loan or residential mortgage.

Once approved, the lender sends the funds to the equipment vendor, which then delivers and installs the equipment. You can use it immediately, and the lender maintains a lien on the title to the equipment. Once you pay the loan in full, the lender releases the lien, and you own it outright.

Invoice Financing

  • Funding Amounts: $10k – $10 million.
  • Factor rates: Starting at 1% p/mo.
  • Terms: Up to 24 months
  • Funding time: 1 – 2 weeks.

Invoice financing, also called invoice factoring or accounts receivable factoring, lets you convert unpaid invoices into immediate working capital. The process involves working with a third-party funder called a factoring company.

Factoring is a business-to-business transaction where the factoring company purchases, or factors, your invoices at a discount rated, sometimes called the factor rate. The factoring company issues a cash advance based on the invoice value called an advance rate. Most advance rates are between 75%-95%. Therefore, to get invoice factoring for $1 million or more, you must have outstanding invoices worth more than $1 million.

The factoring company owns the invoices and collects payments from your customers. Once your customers pay, the factoring company issues the remaining amount minus its fees.

Merchant Cash Advance

  • Loan Amounts: $5k – $1 million.
  • Interest rates: Starting at 1%-6% p/mo.
  • Terms: 3 – 24 months.
  • Funding time: 1 – 2 business days.

Merchant cash advances (MCAs) are gaining popularity because they’re highly accessible and quick to fund. Most merchant cash advances are for lower amounts, but you could potentially get up to $1 million.

However, you’ll need annual sales numbers that measure in the millions. That’s because repayment for a merchant cash advance comes directly from your sales. Funders determine your advance amount based on previous sales history and projected future sales.

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The MCA funder you work with is purchasing your future receivables at a discounted rate in exchange for the cash advance. Most MCA companies use what’s called a factor rate to determine costs, and factor rates can range from 1.05-1.5. Multiply the advance amount by the factor rate to determine your costs.

For example, if you receive a $1,000,000 cash advance at a 1.10 factor rate, the total repayment amount (not including fees) would be:

$1,000,000 x 1.10 = $1,100,000. You’d have to repay $100,000 for the advance of $1 million. You can think of the $100,000 as “interest,” but in reality, the MCA company is purchasing $1,100,000 of your receivables for $1 million.

You also have a short time to repay that amount. MCA terms run anywhere from 3 to 24 months. You’ll repay it with a percentage of your daily sales, called a holdback rate. Let’s say you have the above MCA for an 18-month term with a daily holdback rate of 20%. You’d have to average about $305,000 in monthly sales to pay back that amount.

Revenue-Based Financing

  • Loan Amounts: $5k – $5 million.
  • Interest rates: Starting at 1%-6% p/mo.
  • Terms: 3 – 24 months.
  • Funding time: 1 – 2 business days.

A traditional merchant cash advance is based on your debit or credit card receipts, but many funders are moving towards a revenue-based funding model based on your total monthly receipts. Since it’s based on total receipts, you could access larger amounts of funding but still need the total sales to pay back the amount in time.

What are the advantages of Million Dollar Business Loans?

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Accessing a significant amount of capital allows you to invest in your business to grow or expand it in major ways. The funds would give you the power to purchase real estate, expand locations, acquire another company, buy expensive equipment, and more.

Lenders typically offer lower rates and longer terms when business loan amounts get into the seven figures. You’re also more likely to get monthly payment schedules. By contrast, small business loans for lower amounts tend to have high interest rates, short terms, and daily or weekly payments.

What are the disadvantages of Million Dollar Business Loans?

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Accessing significant capital also means taking on considerable debt. You must report that debt on your balance sheet in most business loan structures.

The liability can make finding other funding, getting trade credit, or selling the business more difficult. You also run the risk of losing your assets if you default.

Loans at this level almost always require collateral and a personal guarantee. The fixed assets (real estate, equipment, etc.) you pledge as collateral must equal the loan amount.

Even though you may have a lower interest rate, you’re still paying a significant amount since the principal is so high. You want to ensure your business can afford that cost.

Pros & Cons

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Pros:

  • Access significant capital to invest in and grow your business.
  • $1 million business loans typically have lower interest rates.
  • Small business loans for larger amounts tend to have longer repayment terms.
  • These loans usually have fixed monthly payments for easy budgeting.

Cons:

  • Your business takes on a significant amount of debt.
  • Large amount of interest to repay.
  • Almost always requires collateral and a personal guarantee.
  • Risk losing your assets if you default.

What are the qualifications for a Million Dollar Business Loan?

These are the minimum recommended qualifications for the listed small business loans. The actual qualifications will depend on the lender and your annual revenue.

SBA Loan

  • Minimum credit score: 650+.
  • Time in business: 2 years+.
  • Annual revenue: $360k+.

Business Term Loans

  • Minimum credit score: 550+.
  • Time in business: 6 months+.
  • Annual revenue: $75k+.

Business Line of Credit

  • Minimum credit score: 575+.
  • Time in business: 1 year+.
  • Annual revenue: $75k+.

Equipment Financing

  • Minimum credit score: 600+.
  • Time in business: 1 year+.
  • Annual revenue: $250k+.

Invoice Factoring

  • Credit score: 550+.
  • Time in business: 1 year+.
  • Annual revenue: $250k+.

Merchant Cash Advance

  • Minimum credit score: 550+.
  • Time in business: 4 months+.
  • Annual revenue: $120k+.

Revenue-Based Financing

  • Minimum credit score: 525+.
  • Time in business: 4 months+.
  • Annual revenue: $120k+.

How do you apply for a $1 Million Business Loan?

The application takes just a few minutes if you have the required information. Here’s how to get started:

Step 1: Consider Your Financing Needs

Before you begin the process, take some time to ensure this is the right financing option for your needs. Most lenders will want a detailed plan of how you intend to use the funds. This can also be a good exercise to determine how much funding you need and how those funds will help you boost your business.

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Step 2: Gather Your Documents

The application requires the following documents and information:

  • Driver’s license
  • Voided business check
  • Business bank statements from the past three months.
  • Business tax returns for the previous two years.
  • Personal tax returns for the previous two years.
  • Financial documents.
  • A business plan.
  • A detailed plan of how you’ll use the funds.

Step 3: Fill Out the Application

You can begin the process by calling us or filling out our one-page online form. Either way, you’ll be asked to enter the information from the previous section along with your desired funding amount.

Step 4: Speak to a Representative

Once you apply, a representative will contact you to explain the repayment structure and rates of your available options. This way, you won’t have to worry about surprises or hidden fees during repayment.

Step 5: Receive Approval

If and when you’re approved, funds should appear in your business bank account in 1-2 business days for some loans. SBA loans may take longer to close and fund.

Frequently Asked Questions

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Here are the most common questions about million-dollar business loans.

What’s the monthly payment on a $1 Million Business Loan?

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The monthly payment can vary significantly depending on your rates and terms. A 15-year loan with a 6% interest rate would be an average monthly payment of $8,440. A 5-year loan at a 10% interest rate would yield a monthly payment of $21,250. Look for a lender with a business loan calculator to help you determine your costs.

Are there unsecured Million Dollar Business Loans?

Most lenders will require collateral for million-dollar business loans. For example, the SBA requires lenders to collateralize loans to the maximum extent possible for amounts over $350k. Even so, it might be possible to get unsecured financing, but you would need very high annual revenue. Unsecured business loans also have higher interest rates.

Can I get a $1 Million Business Loan with bad credit?

It could be possible to get a bad credit business loan in the millions, but again you would need very high annual revenue to qualify. In addition, the lower your credit score, the higher your interest rate, so the costs would be significant.

Some small business owners take lower amount bad credit business loans as bridge financing until they qualify for lower-cost loans at a higher borrowing amount. You could improve your credit and business history while paying off the lower amount loan. Other business owners might use business credit cards if they can’t qualify for a standard small business loan.

What’s the highest amount for Small Business Loans?

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The term “small business loan” gets muddled when discussing seven-figure loans. “Large loans for small business” might sound more accurate.

However, there’s no strict cutoff between a small business loan versus a medium or large business loan. The term is more about the size of your business than the amount of funding you receive.

But we can use SBA loans as a general guideline. The flagship SBA loan, the 7(a) loan, maxes out at $5 million. The SBA 504 loan could go up to $5.5 million for specialty energy projects, not to exceed $16.5 million for three such projects. Therefore, we can say that $5 million – $16.5 million are, on average, the maximum thresholds for small business loan amounts.

Million Dollar Business Loans – Final Thoughts

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Lender options for seven-figure small business loans are more limited, but they do exist. You can try working with a small business lending marketplace, like UCS, to find the available lenders to fund your business needs.

Before applying, you should think the process out carefully. You want to ensure that you actually need the amount you’re requesting since you’d be taking on significant debt. Lenders will want to see a detailed plan before lending out $1 million or more, so you can use that as an opportunity to ensure the loan program is the best option for your business.

Your credit score and annual revenue are the most significant factors in getting approved for a $1 million business loan. Lenders must ensure you have a positive history of paying off debt and that your business has the revenue to handle the repayment.

Contact us if you have more questions on seven-figure business loans or want to apply for a small business loan. Our loan executives can help you find the funding program that best meets your business needs.