Unless your bakery’s balance sheet has a lot of high-value assets you can liquidate for extra capital, you’ll eventually find yourself seeking financing at some point. Whether you need cash to launch a new bakery or expand your existing one, small business loans can help.

Depending on the lender and the type of loan you’re applying for, you can borrow anywhere from $5,000 to over $5 million. The lenders will first determine how much risk they face before locking in on a figure by evaluating your cash flow, business history, and credit scores.

If you’re looking to apply for business financing and wondering how much your business can potentially get, read on.

How Much Does Each Business Loan Type Offer?

Each type of business loan is designed for different business needs. With that, the maximum loan amount offered by each financing option may also vary. Here’s a breakdown of the different loan amount ranges each business financing option offers.  

1. Bank Loans

Loan range: $100,000 to $5 million

Bank loans are one of the best business financing options for small businesses because banks typically offer higher loan amounts and affordable rates. They also have a longer repayment period than alternative loans.

However, business owners must overcome one caveat. They must meet the potentially strict eligibility criteria. While it can be hard, qualifying for a bank loan will give you anywhere from $100,000 to $5 million. Banks do not usually service lower loan amounts because the cost of underwriting and servicing the loan can be high, which may not be worth it for them.

The latest estimate for bank loan amounts was $493,000 for bigger banks, while smaller banks lent an average of $146,000.

2. Term Loans

Loan range: $5,000 to $5 million

Term loans are given as a lump sum and repaid within a specific period. It’s one of the most common types of loan businesses typically apply for because you can use the proceeds towards any business initiative.

Term loans can be classified into short-term, medium-term loan, or long-term loans. Here’s how much your bakery can qualify for each type:

  • Short-term loan: $5,000 to $50,000
  • Medium/Intermediate-term loan: $50,000 to $100,000
  • Long-term loan: $100,000 to $5 million

 The average loan amount for medium-term loans is  $110,000 and $20,000 for short-term loans. There’s currently no available data for long-term loans.

3. SBA Loans

Loan range: Up to $5 million

SBA Loans are government-backed loans offered to small businesses. Although participating lenders (private financing institutions or community lenders) underwrite the loan, the federal government guarantees up to 85% of the principal amount. They’re extremely hard to qualify for. but once you’re approved, you can take advantage of high loan amounts at very affordable rates.

There are several types of SBA Loans, but the most common ones are the SBA 7(a) and SBA CDC/504 loans. With both loans, businesses can qualify for up to $5 million in funding. The average SBA loan amount is $107,000.

4. Equipment Financing

Loan range: 85% to 100% of the equipment’s total cost

Equipment financing is a common financing option among bakeries because it specifically funds expensive equipment purchases, like ovens and freezers. Because it’s a self-securing loan, equipment financing usually has high funding amounts. Most of the time, businesses can finance 80% of the equipment’s total value. It’s also not unheard of for lenders to fund 100% of the equipment’s total value.

5. Business Lines of Credit

Loan range: $10,000 to $1 million

Business lines of credit grants bakeries a credit line with a set credit limit. Business owners can draw any amount from the credit line whenever needed and pay the same amount back plus interest.  

Generally, businesses can qualify anywhere between $10,000 to $1 million with an average of $22,000. Bakers can negotiate the credit limit once they establish a good repayment record (i.e., they make repayments on time and in full).

6. Microloans

Loan range: $500 to $50,000

As the name implies, microloans are smaller loans designed to address any short-term business needs. Generally, businesses can receive anywhere between $500 to $50,000 in funding. The average microloan amount is around $13,000. Though it’s lower than the maximum amount, it’s still an excellent option for bakeries that need additional capital to invest in supplies, equipment, and other bakery needs.

Factors that Affect How Much You Can Borrow

The combination of the factors outlined below will also affect the loan amount you’ll qualify for. Here’s how.

1. Credit score

Credit scores act as a measure of your creditworthiness. Essentially, the higher your credit score is, the less of a risk you pose to lenders. Businesses with lower credit scores are usually considered high risk, so they’re less likely to qualify for higher loan amounts. 

2. Cash flow

Lenders will look at your cash flow to determine whether you’ll be able to afford the loan repayments after your business expenses. The more money you bring in each month or year, the better your chances are of getting high funding amounts. Depending on the lender, your revenue must be at least ten times the estimated loan amount if you’re applying for an unsecured loan. 

3. Time in business

Thousands of businesses fail each year – including small startup bakeries. Naturally, lenders want to lend to businesses with a high potential for success. If you’ve been in the industry for more than two years, it gives the lenders the impression that you’re doing something right. On the other hand, any number lower than that may affect your chances of getting approved for a high loan amount.   

4. Collateral or down payment

Collateral is any asset (business or personal) used as security for a loan. It could be real estate, equipment, inventory, or high-value assets. The lender can seize the asset to pay for the remainder of the loan in the event that the business defaults on the loan. Although it’s possible to get a loan without the collateral, you won’t be able to qualify for a higher loan amount and may be charged with a higher interest rate.

In other cases, the lender may not ask for collateral but may require a down payment. This proves that you’re serious about paying the money back. Generally, the higher your down payment is, the larger the amount lenders will be willing to offer. 

5. Industry Type

Lenders might also ask what industry your business is in. If it’s considered high risk (i.e., service-based companies), socially unacceptable, or companies with unsteady cash flow, lenders might be hesitant to lend to you. If they do, they won’t be able to offer a larger loan amount. 

The Bottom Line

Knowing exactly how much you can get from lenders will depend on several factors. It’s best to contact the lender directly so that they can evaluate your business and give you an estimate of how much you can borrow based on your credentials.

It’s important to note that interest rates will vary from one lender to another. Be sure to calculate the loan repayments first to know if you can afford the repayments. If possible, get quotes from different lenders so you can compare costs and get the best deal for your business.

About the Author

Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compassa specialty finance company providing education and financing options for business owners.