How much can I borrow for a business loan?

The amount you can borrow on a business loan comes down to several factors and criteria. Eligibility can differ between lenders and loan products, so it’s important to understand how this criteria works, and how you might put yourself in a good pos
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What kind of loans might be available for me?

How much a lender is willing to lend can depend on a variety of factors. One of the key factors is whether or not the loan is secured or unsecured. Let’s explore the difference.

Secured Loans.

When your business takes out a secured business loan, you use an asset as collateral should you default on your payments.

In many cases, this collateral is what you have used the loan to buy. A mortgage on a property, or a car loan are typical examples where the property and the car remain the property of the lender, until the loan is paid off.

Basically, if you default on your loan, then the lender has the legal right to recover their losses through the sale of your asset.

So, with secured loans, the risk to the lender is lower, therefore, they may be prepared to lend you higher amounts.

The lender may also be more likely to let you pay back the loan over a longer period of time.

Unsecured loans

With an unsecured loan, the lender will let you borrow money according to your personal and business financial circumstances rather than against a physical security. How much they will let you borrow, can depend on individual circumstances.

Types of unsecured business loans

  • Business loan. A straightforward loan that you can use however you wish. Paid back over an agreed term, generally a shorter term than with secured loans.
  • Line of credit. An accessible source of money that you only pay interest on when you use it.
  • Merchant Cash advance. Often used as a quick cash injection to meet a business’s short term needs.

Can I qualify for a higher loan amount with an unsecured loan?

Because these loans are unsecured, they are harder to get approved for.

Things that could help you qualify for an unsecured business loan.

  • Good personal credit score
  • Creditworthy business
  • Good business records
  • Consistent revenue stream
  • Good annual turnover

Certain documentation can be helpful, such as a cash flow statement, which can give a lender full details of things like:

  • Current income
  • Details of net profit
  • Future projections
  • Expenses

You could also benefit from having a good business plan to show to lenders.

So, as you’ve probably worked out, the better all of the above details look to a lender, the more they are likely to lend to you.

Never mind ‘how much can I borrow?’, how much can I afford to borrow?

If you can answer this question truthfully and have the stats to back it up, then you could be in with a chance of convincing a lender to fund your loan.

Here are a few things you may want to think about:

  • How will repayments fit in with your business cash flow?
  • What is your loan to value ratio? – ie: is the benefit you will gain from taking the loan worth more than the cost of the loan?
  • Do you have assets to act as security?
  • Do you have a guarantor if one is required?
  • Are unexpected costs likely to derail your repayment plan?

Okay, let’s have a look at what a lender can do for me?

iSelect have teamed with Valiant to let you compare a wide range of lenders and help you find a loan that suits your business. Get started comparing loan online today!

Last updated: 15/03/2022