When it comes to getting a business loan, the right question to ask isn't how much you can borrow. Responsible borrowers should ask "How much should I borrow for a business loan?"
Read on to learn about the considerations you should make to decide on a business loan amount.
Business owners who take out a loan without proper planning do so to their detriment. Why? Whether a business loan is short- or long-term, it has far-reaching consequences.
A loan that is too large can disrupt your business's cash flow. It can prevent you from forecasting your financial future. Moreover, it can affect your ability to secure a loan at a later time.
On the flip side, an inadequate loan can impede your business launch. It can stymie your ability to carry out day-to-day operations. It can also prevent you from meeting crucial financial commitments to business partners.
Your goal should be to pick a loan amount that keeps your company afloat without drowning it in debt.
Based on Federal Reserve data, ValuePenguin put the average small business loan at $663,000 in 2018. But the amounts varied by the lender.
For example, alternative lenders handed out small business loans of $50,000 to $80,000 on average. U.S. branches of foreign banks skewed the results by doling out a whopping $8,512,000 in small business loans.
The answer to the question "How much should I borrow for a business loan?" depends on a variety of factors:
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