Small businesses are the backbone of the U.S. economy, contributing to job creation, innovation, and community development. Yet, to thrive and expand, many small businesses need financial support, often from large national bank, in the form of loans. Understanding what is the average small business loan amount is essential for entrepreneurs planning their financial strategies.
In this comprehensive guide, we’ll break down the average loan amounts, the types of small business loans available, factors influencing loan eligibility, loan programs, and industry-specific insights to help you make informed decisions.
What Is the Average Small Business Loan Amount
The average business loan amount for small businesses depends on various factors, including the lender, loan type, and the borrower’s financial profile. According to the Federal Reserve, the average small business loan amount is approximately $663,000. However, this figure can vary widely among most lenders.
Common Uses for Small Business Loans
Small business loans are versatile and can be used for:
- Working capital: Managing day-to-day operations.
- Equipment purchases: Acquiring machinery or technology.
- Commercial real estate: Buying or leasing office space.
- Expansion: Opening new locations or launching new products.
Knowing how you intend to use the loan will help you choose the right type of financing.
Related: How to Get A Small Business Loan – Essential Steps
Types of Small Business Loans
Small business loans come in many forms, each tailored to different needs. Here’s a breakdown of the most common types:
Invoice Financing: This type of loan allows businesses to borrow money against their outstanding invoices. It’s a great way to improve cash flow without waiting for customers to pay their invoices.
Medium Term Business Loans: Medium-term business loans are funding options provided by alternative lenders that allow businesses to borrow larger sums over a longer repayment period of 2 to 5 years. These loans offer advantages such as set repayment timelines, regular payments, and potential loan amounts of up to $500,000, depending on eligibility and other factors, like credit and revenue.
1. SBA Loans
The U.S. Small Business Administration (SBA) partially guarantees these loans, making them less risky for lenders and more affordable for borrowers.
- SBA 7(a) Loans: The most popular program with an average loan amount of $538,903. These loans are ideal for working capital, equipment, or real estate.
- SBA 504/CDC Loans: Designed for major fixed-asset purchases, such as commercial real estate or equipment. These loans can go up to $5.5 million but come with community development requirements.
- Fastest funding 1 business day
- Min. time in business 6 months
- Term lengths Up to 60 months
4.8
- Loan amount Up to $500,000
- Min. time in business 6 months
- Min. annual revenue $250,000
4.8
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
2. Traditional Bank Loans
Banks offer term loans and lines of credit for established businesses, and offer loans often compared to traditional loans. These loans often have competitive interest rates but stricter qualification criteria.
3. Online Lenders
For businesses needing quick access to funds, online lenders provide loans within 24 to 48 hours. These loans include short-term loans, which have a repayment schedule of 24 months or less and are accessible for startups and businesses with varied credit ratings, and medium-term options but may have higher interest rates.
4. Equipment Financing
This short to medium term loan type helps businesses purchase equipment. The equipment itself serves as collateral, reducing the lender’s risk.
5. Invoice Financing
Businesses can use unpaid invoices to secure a loan. This is a great option for companies waiting on customer payments. Additionally, a business line of credit provides flexible funding options, allowing borrowers to access funds up to a limit and only incur interest on the amount utilized, making it a favorable alternative to traditional loans.
| Loan Type | Average Loan Amount | Best For |
|---|---|---|
| SBA 7(a) Loans | $538,903 | Working capital, equipment, real estate |
| SBA 504 Loans | Up to $5.5 million | Large fixed-asset purchases |
| Online Loans | Varies | Fast funding |
| Equipment Financing | Varies | Purchasing equipment |
| Invoice Financing | Varies | Managing cash flow |
Determining How Much You Can Borrow
Your borrowing capacity depends on several factors:
Lenders will look at your credit score, income, and existing debts to determine how much you can borrow. They will also consider the type of loan you are applying for and the maximum loan and term. For example, a mortgage typically allows for a higher borrowing limit compared to a personal loan.
Business lines of credit offer flexible financing options for small businesses, allowing commercial banks and them to borrow and repay amounts as needed while only paying interest on the utilized funds.
1. Financial Profile
Lenders review your financial health, including revenue, profit margins, and existing debt.
2. Debt-to-Income (DTI) Ratio
The DTI ratio measures your ability to manage monthly debt payments. A lower DTI increases your chances of approval.
3. Debt Service Coverage Ratio (DSCR)
DSCR compares your business’s operating income to its debt obligations. A higher DSCR indicates that your business can comfortably repay the loan.
4. Personal Guarantee
Most small business loans require a personal guarantee, making you as business owners personally responsible for repayment if your business defaults.
Lender Options for Small Business Owners
Here’s a quick comparison of the primary lending options:
| Lender Type | Loan Features | Who It’s Best For |
| Traditional Banks | Larger loans, low interest rates | Established businesses with strong credit |
| SBA Lenders | Government-backed, favorable terms | Businesses seeking affordable rates |
| Online Lenders | Fast funding, flexible qualifications | Businesses needing quick cash |
| Alternative Lenders | Diverse loan options, higher rates | Startups or businesses with bad credit |
How to Find the Right Business Loan
Choosing the right loan involves several considerations:
- Determine Your Needs
- Do you need funding for expansion, inventory, or day-to-day operations?
- How quickly do you need the funds?
- Evaluate Your Qualifications
- Check your credit score and business revenue.
- Understand your industry’s average loan amount.
- Compare Loan Options
- Look at interest rates, terms, and repayment schedules.
- Understand the Total Cost
- Calculate the total cost, including interest, fees, and penalties.
Example of Total Cost Calculation
| Loan Amount | Interest Rate | Loan Term (Years) | Monthly Payment | Total Cost |
| $100,000 | 8% | 5 | $2,028 | $121,680 |
Industry-Specific Loan Amounts
Different industries have unique financing needs and average loan amounts. Here’s what you need to know:
- Retail: Loans often range between $50,000 and $500,000, depending on inventory and store size.
- Restaurants: Average loan amounts are around $250,000, with funds typically used for kitchen equipment or renovations.
- Construction: Loan amounts can exceed $1 million due to the cost of heavy machinery and materials.
Tips for Industry-Specific Loans
- Research lenders specializing in your industry.
- Highlight relevant experience to strengthen your application.
Location-Specific Loan Amounts
Loan amounts can vary by location. Urban businesses may qualify for higher amounts due to higher operating costs, while rural businesses might receive smaller loans but benefit from lower costs of living.
Key Factors
- Urban Areas: Larger loans for higher rent and payroll costs.
- Rural Areas: Smaller loans but potentially more favorable terms from local lenders.
Business Age and Loan Amounts
Your business’s age significantly impacts your borrowing capacity:
- New Businesses: Limited options and smaller loan amounts. Focus on building credit and demonstrating a solid business plan.
- Established Businesses: Access to larger loans and more favorable terms.
The average small business loan amount provides a benchmark, but the actual maximum loan amount you qualify for depends on your business’s financial profile, industry, location, and goals. By understanding the types of loans available, determining your borrowing capacity, and comparing lenders, you can secure the funding your business needs to grow.
- Fastest funding 1 business day
- Min. time in business 6 months
- Term lengths Up to 60 months
4.8
- Loan amount Up to $500,000
- Min. time in business 6 months
- Min. annual revenue $250,000
4.8
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
Whether you’re launching a business financing a startup or expanding an established enterprise, the right loan can make all the difference. Take the time to research and plan—your business’s future depends on it.
