How to get a $1million business loan

$1,000,000 business loans can be obtained from banks, credit unions, lending marketplaces and some online lenders, however securing loans of this size can be more challenging than getting a quick business loan for a few thousand dollars. As a rule of thumb, the larger the sum you are trying to borrow, the harder lenders will look at your business and your application, which means they will typically review:

• The risks associated with what your business does
• Your business and personal credit scores
• The length of time you have been in business
• Your business structure – corporation, LLC, partnership or other
• Your business track history – especially your repayment of debts
• Business and personal assets
• Your business plan – especially what you intend to use the funds for
• Any current debts or tax liabilities

If your business satisfies this lending criteria, you may have a choice of $1million business loans. Each comes with its own pros and cons:

Business term loan

Commonly used for one-off investments where you know exactly how much cash you need. Commercial real estate purchases, plant and equipment investment, and debt repayment and restructuring activities work well with this kind of loan. You receive a single, lump-sum cash injection and then pay it back in regular instalments, plus interest and any fees, over a fixed period of up to 25 years. 

• Pros: Fixed interest rates and predictable repayment instalments
• Cons: Few options to ask for extra funding or change the terms of the loan after closing

Business line of credit

A line of credit is a business loan that functions like a high-value credit card but comes with lower interest rates and fees. Organizations can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing. Interest rates are usually fixed, and businesses may repay on a set or flexible schedule. This kind of loan is ideal for organizations that want maximum flexibility or for investment situations where the total cash required is unknown. However, expect the lender to request regular financial updates and increased cashflow monitoring as part of the deal.

• Pros: Only pay interest on the cash you use
• Cons: Higher levels of reporting usually required to maintain access to the loan facility

Invoice financing

Also known as account receivables financing, this type of loan allows you to borrow against the value of your unpaid invoices and is best for B2B organizations. The lender will usually provide up to 95% of the invoice value within a few days or even hours of the bill being raised. You may still be responsible for collecting the cash from your clients, or the lender (also known as the ‘factor’) may collect on your behalf. If you collect, you must repay the lender on their schedule. If they collect, they will take back their advance from the client’s payment and then pass any residual sum (after charging interest and fees) back to you. 

• Pros: Get paid in days instead of waiting weeks or months
• Cons: Higher fees and interest rates. You may lose control of your sales ledger

Revenue-based financing

Functions like a merchant cash advance but with higher borrowing limits. Based on the size and regularity of their total revenues, (not just their credit card sales), businesses may receive a lump sum and pay it back over a short-term schedule, typically by small deductions from their daily sales. This type of revenue-based loan can usually be secured quickly as qualification rules are less intensive and credit scores are not so critical. The loan may also be structured as subordinated debt which can keep the pressure off your existing and future banking relationships. 

• Pros: Fast and easier to secure than many other $1million business loans
• Cons: Strong cashflow necessary to service the loan

Equipment financing

Buying big ticket machinery and equipment can put a major dent in your cashflow, but $1million equipment loans can pay for your new plant and machinery without causing financial stress. Equipment loans are ‘self-collateralizing’ – they use the asset you’re financing as security, similar to a car loan or a residential mortgage. Once the loan is approved, the lender sends the funds to the equipment vendor, who then delivers the machinery. You can use the equipment as you pay for it and the lender maintains a lien on the title to the machinery. Once you pay the loan back, the lender releases the lien, and you own the equipment outright.

• Pros: No need to provide your own collateral
• Cons: Can only be used for equipment purchasing, does not provide any cash