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2 min read. July 1, 2021 – by Lauren Coppolone
Looking to secure a large amount of funding for your business? You may be looking to buy commercial real estate or invest in a new phase of growth. Whichever the case, a $5 million business loan gives you enough capital to take on large projects and chase after even larger rewards.
Most business loans cap at $1 million to $5 million. Generally speaking, you’ll have to work with a bank, credit union, or fintech lender to secure a loan amount of this size.
Some lenders offer $5 million loans through the government-backed Small Business Administration SBA 7a program. SBA loans can be a great financing option because of their low-interest rates, but they’re also very difficult to qualify for. The application process is lengthy, rigorous, and has one of the lowest approval rates.
The good news is that there is more than one way to secure a $5 million business loan. From merchant cash advances to business lines of credit – we’ll go over all the options your business has for obtaining funds.
Qualifying for a $5 million business loan isn’t that much different than qualifying for other types of business financing. Criteria will ultimately boil down to your lender’s requirements. Some lenders, such as fintech companies, tend to be more lenient than banks and credit unions.
At a minimum, banks and credit unions will generally need to see the following.
Keep in mind that even if you meet the lender’s minimum requirements, there’s no guarantee you’ll be approved. Securing large funding amounts can be difficult, especially because lenders want to minimize risk.
You’ll have to show that your business is financially capable of managing payments and paying back the loan. It’s also likely that lenders will want to see collateral, which can be real estate or another asset.
Fintech lenders and online lenders can be more flexible. They usually offer a larger array of financing products for different businesses in various situations. It’s even possible for some businesses to secure funds with lower credit scores or shorter business history. Learn more here.
Costs depend on your lender, the interest rate you qualify for, and the length of the loan term. Most $5 million business loan terms are between 10 to 25 years. The interest rate a lender will charge depends heavily on your credit score and other business financials – such as collateral and cash flow.
If your credit score is near the bare minimum of 700, expect to shell out more cash in interest than if your credit score was closer to 800.
On the whole, most lenders offer rates between 6% to 12%. SBA 7(a) loans generally feature the lowest rates, capping at 6%. However, there are also origination fees, which in some cases can be as high as 5% of the total funding amount.
Say you take out a $5 million loan at a 25-year term and secure an interest rate of 10%. Your monthly payments would come out to $45,435.04 and the total interest you’ll pay will total about $8,630,511.
There are a variety of $5 million business loans to choose from. Each one comes with different interest rates, repayment schedules, and more. Some are also a better fit for specific situations.
Business term loans provide a single, lump sum of capital you’ll pay back in installments over a designated time frame – typically 10 years to 25 years for loans of this size. Term loans feature fixed interest rates and predictable monthly payments.
These loans are ideal for one-time investments, such as real estate, machinery purchases, debt refinancing, and more.
Keep in mind that lenders emphasize credit scores on business term loan applications. You may also be asked to provide collateral or in some cases, make a down payment. The approval process with banks is also lengthy, ranging from several weeks to months, making them not a great option for businesses looking for funds fast.
A business line of credit gives you access to a pool of funds you can withdraw from – up until the credit limit – as needs arise. With a $5 million credit line, you’ll have the option to use up all of it or just a smaller portion. This is a great solution if you don’t need the full $5 million or if you prefer flexibility.
Business lines of credit typically feature fixed interest rates. Payments can be made through fixed installments or monthly minimums – and you’ll only have to pay interest on what you’ve borrowed. With a revolving credit line, funds will become available as you make payments.
Business lines of credit are ideal for ongoing purchases or for covering unexpected costs. Many businesses will even use them as an emergency fund. However, like term loans, business lines of credit can be difficult to qualify for – especially at a bank or credit union.
The Small Business Administration’s (SBA) most popular business loan caps at $5 million. With these loans, the government agrees to cover up to $3.75 million in case you default. This gives lenders additional security, which translates to lower interest rates for your business.
Nonetheless, SBA loans are some of the most difficult business loans to secure. You’ll have to meet the SBA’s strict eligibility requirements and the application process can take months.
If outstanding invoices or late payments are an issue for your business, you may be able to use them to secure financing. Some lenders will accept unpaid invoices as collateral and grant you about 80% to 95% of the total value of your unpaid invoices. Instead of interest, you’ll typically be charged a flat fee, also known as a factor rate.
With invoice financing, you may be able to secure funds even if you don’t have excellent credit or strong revenue. And while funding can come fast, costs are usually higher with this type of business financing.
With a merchant cash advance, lenders give you an advance on your business’s future sales, typically in a lump sum. Instead of monthly payments, you’ll repay the funds via a percentage of your daily sales, plus a fee. This financing option is popular among retailers and other brick-and-mortar businesses.
Lenders will emphasize your past sales history, rather than your credit score. However, you will have to show that your sales are strong enough to qualify. Even then, the cost of this type of financing is typically higher than on business loans or credit lines.
Securing a business loan as large as $5 million doesn’t come easily – but you do have options. If you have a strong credit score with sound financials and are willing to wait weeks to months – working with a bank or credit union might be an option.
On the other hand, if you prefer to have your funds sooner rather than later or need more flexibility when it comes to requirements, a fintech lender may be better.
In this case, make sure to check out National. We’re a marketplace, with over 75 fintech companies, where you can pick and choose the best financing solution based on your business qualifications.
Learn more by filling out our 60-second application!
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Lauren is the Marketing Manager at Nationalbusinesscapital.com. She has 7 years of professional experience with a focus on small business marketing and finance. She previously worked as a senior business analyst for B2B SaaS, Sky IT Group. She has covered topics including, business financing, startups, retail, taxes & regulations, etc. Her work has been featured by USA Today, Google & Yahoo News. Lauren holds a B.A. from the Fashion Institute of Technology’s (FIT) School of Business.