Expanding a business often requires a substantial amount of capital. When the stakes are as high as $3 million, the decision-making process becomes more intricate and crucial.
As a business owner, the path you choose to access capital can significantly impact the trajectory of your enterprise. You have to consider the implications of your investment, of course, but you also have to evaluate how you’ll get the money you need to make that investment.
Your main players are banks, credit unions, and alternative lenders, also known as non-bank lenders or “private credit.” Many entrepreneurs’ first thought is the bank they do business with regularly. But – in 2023 – market conditions have slowed bank lending to the point that even those with existing relationships are unable to reach an approval.
The world of business finance is akin to a vast ocean, and navigating it requires a strategic approach. Continue reading for a breakdown of $3 million business loans, including the advantages, costs, and use cases.
Advantages of Acquiring a $3 Million Business Loan
Imagine if you found $3 million on your doorstep…
A $3 million business loan is likely the closest you’ll come to that reality. Although you have to pay it back, a $3 million loan offers the liquidity businesses need to grow, scale, and invest in revenue-driving opportunities.
You can:
- Increase your purchasing power and afford assets/opportunities you were previously unable to
- Streamline cash flow
- Leverage one or more financing products to reach your desired funding amount
- Take advantage of opportunities on your schedule
- Negotiate your contract to align with your business opportunity/challenge
- Benefit from potential tax advantages
Cash flow can’t support every growth plan. With a $3 million business loan, you can stop putting your plans on the shelf and move forward with them immediately.
Where Can I Find a $3 Million Business Loan?
Entrepreneurs can secure business loans from banks, credit unions, non-bank lenders, and marketplaces. Here’s a breakdown of each option.
| Type of Lender | Description |
| Banks and Credit Unions | Banks and credit unions are characterized by low interest rates, strict eligibility requirements, and slow funding times. Their lending behavior is dictated by U.S. economic conditions and the prime rate. If the economy is tightening, expect this type of lender to constrict their lending guidelines and limit the businesses they work with. |
| Non-Bank Lenders | Non-bank lenders are essentially the opposite of banks and credit unions. They feature fast funding times, less intensive eligibility requirements, and higher interest rates. Although their rates are also affected by the economy, they don’t slow or constrict their lending. |
| Marketplaces | Marketplaces combine multiple non-bank options into one centralized platform, allowing owners to apply once and receive multiple offers. They charge a fee for their service, but it’s the fastest, most efficient way to compare your loan options. |
There’s no “best” type of lender for every business. If you’re looking to secure the best rate and the highest funding amount, you’ll need to apply with multiple lenders and compare your options.
How Much Will a $3 Million Business Loan Cost?
The cost of your $3 million loan will depend on many factors, including your credit score, the type of loan, the repayment terms, the lender you’re doing business with, and more. Typically, higher credit scores and shorter repayment terms will result in lower interest rates, but it also depends heavily on the lender you’re dealing with.
Generally, you’ll likely have repayment terms of 7 to 25 years with a loan of this size. Interest rates vary depending on other factors, but you can expect anywhere between 7% to 15%.
Applicants with strong credit scores, lengthy times in operation, and comprehensive business plans are often given the most favorable rates. You can still qualify for a $3 million business loan without these credentials, but you may have to pay higher interest rates as a result.
Tips to Get Approved for $3 Million Business Loan
Before lenders can offer a contract, they must first evaluate your business and determine whether your business meets their eligibility guidelines. They may review your time in business, credit history, and revenue levels, among many other factors, using the information you’ve provided and what they’re authorized to see legally.
If you’re looking to increase your odds of an approval, here are some helpful tips:
- Maintain strong credit leading up to your application
- Create a comprehensive business plan, then be prepared to present it
- Apply when you’re able to prove profitability
- Ensure regular deposits into your business bank account leading up to your application
- Pay down existing debt
- Provide accurate, error-free documentation
- Apply to multiple lenders so you have options to choose from
An approval from one lender doesn’t mean you’re automatically approved by another. Each lender has different requirements and eligibility guidelines that change constantly with the swings of the market. They may favor one industry for a few months, then switch their focus to another and refuse to work with the former.
Much of the process comes down to timing, which is why it’s so important to apply with multiple lenders at once. This way, you’re able to quickly switch gears to a better offer if needed and keep your business moving forward, not waiting unnecessarily for application responses.
Who Needs a $3 Million Business Loan?
Any business with an opportunity or challenge that costs $3 million can leverage borrowed money – instead of their cash flow – to ensure they’re able to continue regular business operations after they’ve invested their funds.
Think about it. Let’s say you have an opportunity to secure $4.5 million worth of inventory at $3 million through a bulk discount. Your business has $3 million in liquidity, but using those funds would leave you without money for expenses, challenges, and opportunities that come along as you recoup that money.
With a business loan, you maintain your pace AND invest in growth. As long as your industry isn’t unorthodox or illegal, your business should be able to reach an approval with a bank or non-bank lender. Some may have specific industries that they work with, though, so it’s important to know this information before you waste your time.
What Are the Purposes of Using a $3 Million Business Loan?
Some financing products allow you to use the funds for any business purpose, while others are reserved for specific scenarios. Here are a few examples of how other entrepreneurs have used $3 million loans in their businesses.
- Maximized their ROI by securing bulk inventory discounts before busy seasons
- Purchased equipment to increase productivity and efficiency
- Invested in game-changing technology that improved their product or service
- Renovated physical locations
- Expanded to new ones
- Established new shipping routes to sell products in different locations
- Purchased competitors’ businesses
- Bought out partners
Chances are, you aren’t seeking $3 million in working capital; You likely have a specific opportunity or challenge on your hands. If you’re looking for more information about how a $3 million loan can help your unique circ*mstances, reach out to National Business Capital’s team to learn more.
What Are the Requirements for a $3 Million Business Loan?
If you don’t have $3 million on hand to afford the venture, you can secure a $3 million loan to break down the sizable expense into much more manageable monthly or weekly payments.
Securing a $3 million loan isn’t something you can do in a few hours; You’ll have to plan accordingly to find a lender offering a loan of this size. Banks and credit unions will likely be your first stop, as these organizations are considered the “traditional” business lenders.
If you’re working with a bank or credit union, at a minimum, you’ll have to provide the following information to get a $3 million business loan:
- Last 2-3 years of Business Tax Returns
- Last 2-3 years of Personal Tax Returns
- Last 2-3 Years and YTD Financials
- Cash Flow Statement
- Personal Financial Statement
- Collateral: real estate or quality B2B account receivables
- Projections
- Established Business credit (700 minimum)
- Personal credit score (700 or more)
- Business plan (including information on your industry, competitors, growth strategy, etc.)
However, while they offer low-interest rates, the eligibility requirements of banks and credit unions are strict, and the underwriting process is lengthy.
They might also require you to offer an asset as collateral to further minimize the lender’s risk of financing your business, which essentially shifts the liability onto you, the borrower.
Alternatively, online lenders have more inclusive eligibility requirements, but the interest rates are higher. You’ll need to find a middle ground, and what better way to do so than teaming up with National Business Capital’s award-winning team?
5 Types of $3 Million Business Loans
Your $3 million business loan can be structured differently depending on your needs. Here are five popular types of $3 million business loans that you can use to grow your business:
| Type of Financing | Description |
| Business Term Loans | Your first option for multi-million dollar business loans are business term loans. They’re given in a one-time lump sum payment and are used for a variety of business purposes, including equipment purchases, working capital needs, growth opportunities, and more. They’re best for projects where you know the exact cost. You can structure your repayment plan to your needs, but keep in mind that you may have to provide a detailed business plan of how you intend to use your funds to reach an approval. |
| Business Line of Credit | Business lines of credit are similar to business credit cards but feature higher credit limits and more flexibility. You only pay interest on what you take, and you can draw the same funds again after you’ve repaid them if your credit line is revolving. They tend to have higher interest rates on average, but the favorable interest structure mitigates some of the cost. |
| SBA Loans | SBA loans are some of the most coveted financing options available to entrepreneurs. They feature high borrowing limits, up to $5 million, making it an attractive option for anyone seeking to secure a $3 million business loan. SBA loans are broken down into a few subcategories, including SBA 7(a) loans, SBA 504 loans, and microloans. If you’re looking to secure a $3 million loan, you likely won’t find too much benefit from microloans, as they’re designed for smaller financing needs. |
| Invoice Financing | Invoice financing unlocks the value of your current receivables, allowing businesses to keep moving forward despite late customer payments. The lender you’re working with will take a percentage of your total invoice value as a fee for the service, typically between 5% and 15%. And, since your invoices are technically securing the financing, it’s much easier to qualify for compared to other financing options. |
| Revenue-Based Financing | Revenue-based financing isn’t a loan. Instead, it’s an advance on your future sales that’s provided in a lump sum format. You repay your lender through small deductions from your daily sales over a short term schedule. Funding times are fast, and the qualifications focus primarily on your profitability rather than your credit history. |
