How to Get a $1 Million Business Loan

How to get a $1 million business loan

Although each lender has its own process, these steps should help guide your business toward the right loan option:

1. Compare lenders. Your first step should be to compare business loan lenders. Not every lender offers loans of $1 million, and those that do have different requirements that could make the difference between approval and rejection.
2. Prepare financial documents. Lenders want to see your business plan, annual revenue projections, bank statements, tax documents and other information that demonstrates your business’s ability to repay a loan.
3. Speak with a financial advisor. Loop a financial advisor into your plan for a $1 million business loan to ensure your business can afford it and develop a plan to repay it.
4. Apply for preapproval. This lets you see your loan’s potential rates and terms before your personal or business credit is officially checked. Not all lenders offer preapproval, but if it’s available, take advantage of it.
5. Review and sign the loan contract. If approved, review your loan contract with your partners and financial advisor to ensure the terms work for your business.

How to qualify

Your business needs to prove it can afford a $1 million business loan. While requirements vary by lender, you’ll typically need to meet the following criteria to be considered:

• Good to excellent credit. Lenders look for high personal and business credit scores. The better your credit scores, the more likely you will be approved.
• Two years in business. Lenders are generally wary of giving this amount to businesses that are new to the game, especially if you’re applying with a bank.
• $10 million in annual revenue. The higher your loan amount, the higher your revenue requirements. It might be possible to secure $1 million in financing with revenue under this amount, but it won’t be easy.
• Profit margin. On top of having a strong annual revenue, many lenders want to see that your business is actually making money rather than breaking even.
• Personal guarantee. Many business loans require the owner or owners to back the amount they’re borrowing with a lien on their personal assets. You and your business partners will likely need at least $1 million in equity on your homes, cars and other investments.

How much a $1 million business loan costs

The cost of a $1 million business loan varies depending on the lender and type of loan. For example, a traditional bank business loan might start as low as 7% to 8% APR, while SBA loan rates are capped at the prime rate plus 3% to 6.5% for 7(a) loans. You may also have to pay origination or other fees, which can significantly add to the loan’s cost.

For short-term financing like lines of credit, APRs can run much higher — typically starting around 10% for the best credit borrowers and exceeding 60% APR for borrowers with lower credit scores. Other short-term options like business cash advances and invoice factoring and financing are typically the most expensive forms of financing.

You can use our business loan calculator to compare monthly payments and the total loan cost based on different rates and loan terms.

8 types of business loans

Business loans for $1 million can cover a wide range of business needs. Here’s a list of the most common types of business financing.

Term loans

One of the most popular types of business loans is term loans, offered by the majority of business lenders, with both short-term and long-term options. Loan amounts can reach up to $5 million or more, and you can typically find some of the most competitive rates in the business loans marketplace. Term loans offer lump sum funding and equal monthly payments. But you’ll likely need strong credit and financials to qualify, particularly with a bank versus an online lender.

Business lines of credit

A business line of credit is a flexible form of business funding. It works kind of like a credit card, where you can borrow money as often as you need it up to your credit limit, and it replenishes as you pay it back. Business lines of credit can be useful if you don’t know how much you need to borrow, have an ongoing project or need an emergency fund. But unlike credit cards — which have virtually unlimited loan terms — LOCs typically have loan terms of 24 months or less.

SBA loans

Federally backed SBA loans can reach as high as $5 million or more, with loan terms of up to 25 years and a variety of loan types to choose from. Because they’re guaranteed by the Small Business Administration — up to as much as 90%, depending on the loan type — they present a lesser risk for lenders, which can make them easier to get for certain borrowers. But SBA loans have fairly strict requirements and the loan process can be lengthy.

Commercial real estate loans

If you’re looking to buy property, a commercial real estate loan usually makes the most sense. These loans are comparable to a residential mortgage, and the terms are similar as well. Borrowing limits can easily reach up to $1 million or more, and real estate loans typically have long terms and competitive rates. But you’ll usually need to make a down payment of at least 10%, and because the loan is secured by the real estate, you risk losing the property if you fall behind on payments.

Equipment loans

Another type of secured loan is equipment financing, where the purchase acts as collateral for the loan. And because the loan is secured, you can often get a lower rate than an unsecured loan. But as with any secured loan, you risk losing the asset if you can’t make your loan payments. Plus, you may need to make a down payment, depending on the lender.

Business cash advances

A business cash advance — also known as a revenue advance or merchant cash advance — is a way to borrow money based on your future sales or revenue. Lenders that offer business cash advances will advance you a lump sum that you’ll then repay in weekly or daily repayments as you bring in new revenue. How much you can borrow depends on your monthly sales volume. Cash advances are typically only meant for short-term funding needs, as it’s typically an expensive form of financing.

Invoice factoring

A type of short-term funding, invoice factoring might be an option if your company invoices other businesses or government agencies. How it works is you sell your outstanding invoices to a factoring company — for a percentage of their worth — in exchange for cash. Then, as your customers pay the factoring company, you’ll receive the remaining balance less fees. Funding is typically fast for invoice factoring, but it’s expensive.

Invoice financing

Similar to invoice factoring, invoice financing also leverages your invoices for cash, except you don’t sell your invoices. Instead, you take out an advance based on a percentage of your unpaid invoices and repay it as your customers settle their bills. Invoice financing might make more sense if you prefer to maintain control of your invoices, but it’s a pricey form of funding.

How to get a $1 million business loan with bad credit

If your credit isn’t the best, look for lenders that have more lenient requirements to qualify for business loans, such as online lenders. You may also have better luck getting a secured loan because lenders might be more likely to extend a loan if there is collateral to fall back on if you can’t repay it.

Another option is to look for loan types that aren’t as concerned with your credit score, like invoice factoring or merchant cash advances. In any case, you should expect to pay more for business funding if you have poor credit, but there are a number of solutions for borrowers of all credit types.

Bottom line

Well-established enterprises with high annual revenues are most likely to qualify for business loans of $1 million or more. To find the best deal for your business, compare multiple business loans and do your research on what you can expect to pay in interest.

Frequently asked questions

Can I find an unsecured business loan for $1 million?

It depends on your business’s revenue, age and profit. In general, lenders require your business to back your loan with an asset, but some lenders offer both secured and unsecured loans for loans of $1 million or larger.

Are startups eligible for $1 million business loans?

Probably not. Even business loans for startups typically stop well under $1 million. Instead, you might want to tap into other resources like crowdfunding, investors or startup grants.

Can I get a $1 million business loan with bad credit?

It’s possible, though it might not be cheap or easy to find a lender willing to offer that amount. Typically, you need good or excellent credit to qualify for the most competitive rates on large loans.

Can I buy a business with a $1 million loan?

Yes. Many lenders offer financing designed to cover business acquisition costs.

Other business loan amounts:

Anna Serio was a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna’s written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY. See full bio

Anna’s expertise

Anna has written 163 Finder guides across topics including:

• Personal, business, student and car loans
• Building credit
• Paying off debt