Deciding on Your Business Loan Amount

Expanding your business is always exciting, but it takes careful planning. Figuring out the right amount of credit you need is a big part of it. If it’s not enough, you won’t complete your expansion project. If it’s too much, you won’t be able to pay for it. Finding the right balance may take a little finesse, but some basic planning and a few simple calculations will give you the insights you need.

Finding the Loan Amount That Is Right for You

To determine the right size for your business loan, two things have to be taken into account: how much money you need for your expansion project and how much money you can provide. Crucially, the second figure should include a debt component no larger than you can service. This may require a few rounds of adjustments to find the right balance between the expenses you expect to incur in your project and the funds you expect to be available.

Where Can I Get Help With This?

Try using an online loan payment calculator to help you determine the actual cash amounts implied in loan conditions.

Let’s say you are thinking of relocating your business to new premises. The move, including the cost of the new premises, will cost of $1.2 million. You have $200,000 you can use as a down payment on a loan. If you took out a bank loan for $1 million at 8% interest for 20 years, with a term of five years, your payments on the loan would be about $8,500 a month, or $102,000 a year, until your balloon payment.

How can you afford to implement this project? To answer this question, you can make some projections about your future financial life. Banks recommend that your cash flow exceeds your total debt servicing payments by at least 25%. In this case, that cash flow would be $10,625 a month, or $127,500 a year, assuming you are not paying for any earlier debt.

Then there are expenses to factor in. If your loan has a balloon payment at the end, a  big consideration will be refinancing. You should also ask yourself if you will need more financing in the future. If so, be sure you will have the financial resources available to afford those payments as well, when the time comes.

Where Can I Get Help With This?

You might find that a mentor like a SCORE volunteer can give you the guidance you need to optimize your business plan. You can get mentoring, training and other forms of assistance at your local SBA Small Business Development Center as well.

Perhaps you will make your project somewhat more economical, or perhaps you will find more affordable financing. Online lenders may charge more interest than banks, but you may find a better repayment option—one without a balloon payment. If you are buying or improving a building, or buying new equipment, you may want to apply for a Small Business Administration (SBA) 504 loan.

Financing Your Business Growth with an SBA 504 Loan

The 504 loan program provides accessible credit to small businesses, which make up the vast majority of American businesses, in partnership with a conventional lender (a bank or credit union). The SBA portion of 504 loan is administered by a Certified Development Company (CDC) such as TMC Financing.

Your CDC facilitates the SBA loan for up to 40% of the total project cost, or $5 million ($5.5 million for manufacturing projects or if the project includes energy-efficiency measures), at a fixed, below-market rate. Budgeting for a fixed-rate loan is easier than for  variable-rate loan because it is more predictable. The SBA has the second lien position on the loan.

Your conventional lender provides 50% or more of the project total. You and that lender determine the amount and conditions of that loan, which becomes your first mortgage. If you do not have a conventional lender already, TMC can help match you with the perfect banking partner for this loan. The conventional lender’s first lien position means the loan has a very low risk, which makes you a more attractive borrower.

You provide 10% of the project cost as a down payment. Certain types of facilities are classified as single-purpose properties by the SBA and require a 15% down payment. The 504 has a 10-year, 20-year, and a new 25-year term, and it is fully amortized.

A 504 loan can be used to:

  • purchase land or buildings
  • construct, upgrade or renovate buildings
  • purchase equipment with a service life of ten years or more
  • refinance conventional debt

The 504 loan was created to help small businesses. It is an effective way to reduce the cost of credit and improve its terms. When deciding on your business loan amounts, keep the 504 loan in mind.

You can find out more about it from one of TMC Financing’s 504 loan experts. TMC is an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.


Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison