When it comes to a secured business loan, one of the first questions that come to mind is "How much can I borrow?" The loan amount you are eligible for depends on several factors, all of which lenders carefully consider before offering a loan. Here is an in-depth look at these factors to give you a clear understanding of how much you might be able to borrow.
The principal determinant of a secured loan amount is the value of the collateral you provide. Lenders will assess the market value of the asset(s), whether it's real estate, vehicles, machinery, or other business assets. The loan-to-value (LTV) ratio is a key consideration in this process, which is the percentage of the asset's value that the lender is willing to loan. Higher value collateral can secure larger loans.
Lenders will closely scrutinize your business's financial performance. They will look at income statements, balance sheets, cash flow statements, and other financial documents to assess your ability to repay the loan. A business with robust financial health and strong projected earnings will be able to borrow more.
Both business and personal credit ratings play a role in determining loan amounts. Good credit scores signal to lenders that you have been responsible with past credit and are likely to repay future loans. While a lower credit score doesn't necessarily rule out a loan, it might limit the amount you can borrow.
Your debt-to-income ratio (DTI) is another crucial factor. This ratio measures your total monthly debt payments against your monthly income. Businesses with a lower DTI may be eligible for larger loan amounts as they pose a lower risk of defaulting due to their manageable debt level relative to income.
Lenders will consider the purpose of the loan in determining the amount. If the funds will be used for activities that promote business growth and increase revenues (such as purchasing new equipment, expanding operations, or launching a new product line), lenders may be more willing to extend a larger loan.
The industry your business operates in and current market conditions can impact loan amounts. Industries experiencing growth or stability may have access to larger loans compared to those in volatile or declining markets.
A well-crafted business plan that presents a clear path to growth and profitability can impress lenders and influence the loan amount. The plan should demonstrate a solid understanding of your market and a strategy to overcome potential challenges.
Established businesses with a strong track record of success are generally eligible for larger loans. Experience in managing a profitable business gives lenders confidence in your ability to repay the loan.
The term of the loan, i.e., the time you have to repay it, also impacts the loan amount. Longer-term loans can sometimes mean larger loan amounts, as they allow more time for repayment.
Each of these factors will be weighted differently by different lenders. At Red Fox Finance, our understanding of lender criteria and in-depth knowledge of the lending landscape allows us to help businesses navigate this complex process. Our aim is to match your business with the right lender, who understands your industry and is willing to provide a loan that meets your needs. Remember, the goal isn't just to secure the largest loan possible but to find a loan that aligns with your business goals and financial capabilities.
Get A Quote
Ascertaining your borrowing limits? Unravel the factors affecting how much you can borrow with our business loans. If you're new to the world of secured business loans, our guide is an excellent starting point. Understand the criteria that determine your eligibility. Any questions? Delve into our comprehensive FAQ section for insights.
Find out the best funding options for your business, enter your number and our team will call you back.
