Large Business Loans: Know Your Options
Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
Businesses often qualify for secured loans through the U.S. Small Business Administration. If, however, your business is larger — perhaps employing hundreds of people — then what do you do? Even larger businesses might qualify as small, according to the SBA, and be eligible for an SBA guaranteed loan. If not, loans can be secured through banks and can be put toward inventory or commercial real estate acquisitions.
What’s considered a large business loan?
Business loans are any form of loans extended to businesses in order to finance that business’s operations. Business loans can be used for a wide variety of purposes, from using them for working capital to acquiring new real estate. Not all businesses, however, qualify for all types of financing. As an example, some businesses are excluded from applying for SBA loans due to their size.
The U.S. government secures small business loans through the Small Business Administration, but the loans themselves come from organizations such as banks. The SBA’s checklist of requirements, however, shows no hard employee limits on what constitutes a small or large business, because size standards vary by industry. At best, the SBA states that a small business is simply a business that is not dominant in its industry and that has independent owners.
The government evaluates each business within the context of its industry. These larger companies often employ hundreds of employees and make millions of dollars. Larger businesses are also often able to control other businesses through stock ownership. A general rule to follow is that the SBA considers a small business to employ fewer than 500 employees. However, this guideline isn’t set in stone, and what categorizes a business as large or small changes from one industry to another.
Small businesses can qualify for up to $5.5 million in loan financing through a guaranteed SBA loan. Larger businesses may qualify for large business loans, since they may have assets with which to secure those loans. Secured loans from banks often begin at $25,000 and don’t have set limits. If your business does not qualify for an SBA loan because of its size, there are still financing options in the form of term loans.
Short-term vs. long-term business loans
A business loan can either be short-term or long-term. What’s the difference? Short-term loans can provide funds in a relatively quick amount of time, with some approvals happening within 24 hours. These are often smaller loans that can be applied as working capital and be paid back within a relatively brief amount of time. Long-term loans come in larger amounts that often require multi-year repayments. They can help fund larger business operations, however, including the purchase of real estate or other existing businesses. Long-term loans are often easier to acquire through banks, although short-term loans are offered by both banks and alternative lenders.
Short-term loans carry higher interest rates that enable banks to make a profit off the loans they extend. Shorter-term loans might also suggest a bank thinks a borrower is more likely to default, so the higher interest allows banks to recoup their money faster. Long-term loans suggest a business is more likely to pay back the amount of the loan. Banks believe they will make back their loan over time plus interest, which allows them to extend the loan at a lower interest rate.
Why do you need a large business loan?
Although not an exhaustive list, business loans are often used in the following ways:
- As working capital
- To acquire inventory
- To acquire new equipment
- In order to buy another existing business
- When expanding existing real estate or when expanding to new real estate
- To buy vehicles that your business will use
3 types of large business loans
When applying for any type of business loan, you’ll be required to provide documentation reflecting the profitability of your business. The SBA maintains a checklist of required documents businesses need to show when taking out a loan, but you’ll need many of the required documents even when taking out loans not secured by the SBA. These documents include:
- A personal financial statement
- Profit and loss statements
- Balance sheets
- Business certificate or license
- Income tax returns
- Business history statement
Here are three loans that larger businesses can apply for.
If you’re a larger business that stills qualifies for an SBA loan, then an SBA secured loan is worth applying for. An SBA loan can be put toward everything from core needs, from purchasing inventory to the purchase of another already existing business. If the purpose of your loan is to buy an existing business, you will also need to provide information about the business you want to buy. This information includes additional information such as the terms of sale and the asking price of the business. SBA loans are typically acquired through a bank.
- Low down payments when down payments are required.
- Typically structured without balloon payments and for longer terms.
- Must qualify as a small business with the SBA, even if your business is larger within its industry.
- Requires good credit that includes both business and credit history.
Secured business loan
Even if your business doesn’t qualify as a small business after the SBA reviews it, you can still attempt to take out a secured business loan through a banking institution. Secured business loans require that you secure the loan by either using business assets or with cash deposits.
The loan can be for a term of four to five years and usually requires that your business make a minimum of $250,000 annually. This is a more stringent requirement than unsecured business loans that smaller businesses pursue, which offer smaller loan amounts, but only require the business to make $100,000 per year. Banks usually offer secured business loans, but you might find them from online, alternative lenders as well.
- No pre-set maximum on loan amounts.
- Lower interest rates when compared against unsecured loans.
- Requires securing the loan with cash or assets.
- Business must make higher annual revenues to qualify.
Real estate loans
Large business loans are also available if you’re looking to purchase real estate. In some cases, these loans can be as large as tens of millions of dollars, and you can use them to expand your existing location or to expand to new locations. Real estate loans have varying terms based on whether you make a balloon payment or use a full amortization plan. Balloon payments are large payments made at the end of your loan term, while amortization plans spread the full payment over a larger loan term. Banks — and some online, alternative lenders — offer commercial real estate loans.
- Lower interest rates when compared against unsecured loans.
- Associated fees are kept low.
- Can only be applied to real estate acquisitions.
- Often requires a large balloon payment you must pay off in a short time.
The bottom line
Larger businesses can sometimes still qualify for an SBA loan through their local banking institution. Even if not, banks will often extend secured loans to large businesses that can be put toward a range of needs, such as acquiring inventory or performing upgrades to your building. Secured loans are most often acquired through a bank, but may sometimes be available through alternative financing organizations that can be found online. Finally, comparatively large business loans are made available for real estate purchases when you need to expand a location or move to a new one.