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How to get a $5 million business loan
Banks and SBA lenders might offer low rates — but there's options for bad credit too.
Where can I get a $5 million business loan?
Banks are most likely to offer business loans as large as $5 million — especially large national banks, which have the funds to offer loans of this size to more businesses.
Some online lenders and credit unions can offer $5 million loans, often through the government-back Small Business Administration (SBA) 7(a) program. These are inexpensive but involve a lengthy application and have one of the lowest approval rates.
Merchant cash advance and factoring companies sometimes offer advances up to $5 million, based on your business’s revenue. These come with minimal requirements and have a high approval rate, but are often the most expensive.
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How can I qualify for a $5 million business loan?
Exact criteria will vary by lender, but you typically need a well-established business that earns revenue high enough to afford monthly repayments on a $5 million loan. Just meeting a lender’s minimum requirements won’t be enough.
Generally your business will need to have been around for at least three years, and you’ll need to have strong personal credit and enough equity in business assets that you’re willing to put up as collateral. Having an existing relationship with a bank or lender can also help your chances of approval, if you’re in good standing.
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Thomas Ulbrich
Executive Director
University of Buffalo School of Management's Center for Entrepreneurial Leadership
What will lenders look at when considering my application?
How much will a $5 million business loan cost?
Since $5 million loans often have strict credit requirements, these tend to come with competitive rates of around 6% to 11% APR. Especially if you’re applying for an SBA 7(a) loan, which caps interest rates at 6% for loans of this size. This may come with an origination fee, which could be as high as $250,000 — 5% of the loan amount.
But $5 million loans also typically come with the longest terms available — somewhere around 10 to 25 years, depending on the lender and loan type. A long term can decrease your monthly cost, but makes your loan more expensive in the long run.
But even a low interest rate paired with a long term can spell high monthly repayments. A $5 million loan with a 25-year term at an interest rate of 10% would cost $45,435.04 a month. And the total interest paid would be around $8,630,511.
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5 types of $5 million business loans
The type of loan you need depends on how your business plans on using the funds and what you can qualify for. For loans of this size, you generally need to provide collateral to back the loan, such as real estate or other business assets.
Business term loan
Term loans come in one lump sum that you repay in installments over several years — usually 10 to 25 years for a loan of this size. These are often best for one-time expenses with costs that are easy to predict. You typically need to have good to excellent credit to get this loan, in addition to a high enough revenue to afford repayments.
Consider using a term loan if …
- You have a one-time expense.
- You and your business are strong financially.
- You have time to spend on the application.
Consider other options if …
- Your costs are unpredictable.
- You or another business partner have poor credit.
- Your business needs money fast.
Business line of credit
Not sure you’ll need exactly $5 million? Taking out a business line of credit might be a better option. This allows you to draw up to $5 million from a credit line. You either pay back each draw in fixed installments or with a minimum monthly payment. Like with a term loan, your business finances and personal credit need to be strong for such a high credit limit.
Consider using a line of credit if …
- You’re funding an ongoing project.
- You want to have cash available to cover unforeseen costs.
- You and your business have strong financials.
Consider other options if …
- You only need a one-time loan.
- You don’t need continual access to cash.
- You or your business partners have poor credit.
SBA 7(a) loan
The SBA offers loans up to $5 million through its popular 7(a) program. With these loans, the government guarantees up to $3.75 million, making it easier to qualify for more competitive rates.
These loans are available to businesses that have struggled in the past to secure funding — though they’re still hard to qualify for. They also require a lot of paperwork, and the entire process can take months to complete.
Consider using an SBA 7(a) loan if …
- You have months to complete the application process.
- You’ve unsuccessfully applied for $5 million in the past.
- You and your business partners can meet the SBA’s eligibility requirements.
Consider other options if …
- You lack the resources for a drawn-out application.
- You haven’t already applied for funding elsewhere.
- You need money immediately.
Invoice factoring
This option allows you to sell your unpaid invoices from other businesses and government agencies to avoid breaks in cash flow. Typically, you can get around 80% to 95% of the value of your business’s unpaid invoices. Rather than interest, companies charge a flat fee called a factor rate. You don’t need to have excellent credit or even strong revenue to qualify, though these loans are typically more expensive than other options.
Consider using invoice factoring if …
- You have $5.26 million to $6.25 million in unpaid invoices.
- You need funding fast.
- You or your business partners have poor credit.
Consider other options if …
- You have strong credit.
- You don’t rely on invoices from businesses or government agencies.
- You can qualify for a less-expensive option.
Merchant cash advances
A merchant cash advance is an advance on your business’s future sales, which you repay plus a flat fee with a percentage of your daily sales. How much you can borrow typically depends on your past sales history. These have a high approval rate and can get you funding as soon as the next business day. But the fee is often high, sometimes equivalent to a 300% APR.
Consider using invoice factoring if …
- Your business makes enough monthly sales to qualify.
- You need funding fast.
- You have bad credit.
Consider other options if …
- You can qualify for any other type of financing.
- You rely on government contracts and other businesses for revenue.
- Your business can’t afford to lose a portion of daily sales.
Bottom line
It’s a challenge to qualify for $5 million in business funding — many lenders don’t even offer loans this high. You and your business must be financially sound and have the collateral to back the loan to qualify. You can learn more about how business financing works by checking out our guide to business loans.
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