A bank will typically loan a business somewhere between 10% and 30% of its annual revenue on a standard term loan, though the real ceiling comes from cash flow ratios, collateral value, and the loan program in use rather than a flat percentage. A company with $500,000 in yearly revenue often qualifies for $50,000 to $150,000, while a business generating $2 million with strong margins can reach much higher. SBA 7(a) loans cap at $5 million per loan, and SBA 504 projects can go larger by splitting the financing between a bank and a Certified Development Company.1eCFR. 13 CFR 120.151 – What Is the Statutory Limit for Total Loans to a Borrower The number a bank will actually approve is the output of a specific calculation, and knowing the inputs tells you what to expect before you apply.
What Sets Your Ceiling
Banks size loans by working backward from your ability to repay. The starting point is annual revenue or net operating income, filtered through debt service and collateral rules. Every other factor either raises or lowers what those numbers can support.
Time in business matters more than most applicants expect. Banks generally want at least two years of operating history for a standard commercial loan. Businesses under five years old get approved at lower amounts than established companies, and startups with less than a year of revenue face the steepest climb. Some lenders will work with as little as six months of history, but the trade-off is a smaller loan at a higher rate.
Industry classification shifts the risk dial too. A medical practice with recurring insurance reimbursements looks different to an underwriter than a seasonal restaurant. Sectors with volatile revenue or thin margins qualify for less relative to their gross revenue. Loan purpose also shapes the structure: a commercial real estate acquisition can reach into the millions with a 20- to 25-year amortization, while a working capital line stays smaller and shorter.
For closely held businesses, lenders also run a global cash flow analysis that combines income and debt across the main business, any side ventures, and the owner’s personal tax return. A business that looks healthy on paper can still see its loan amount cut if the owner carries heavy personal debt.
The Three Ratios That Decide the Number
Three ratios do most of the work in commercial underwriting. Together they produce the specific dollar figure the bank is willing to lend.
Debt Service Coverage Ratio
The debt service coverage ratio (DSCR) is the single most important number. It divides net operating income by total annual debt payments, including the proposed new loan. Most conventional lenders want a DSCR between 1.20 and 1.50, meaning the business generates 20% to 50% more cash than it needs to cover all debt. For SBA 7(a) small loans, the minimum is 1.10 on either a historical or projected basis. Falling below that threshold pushes the loan into stricter standard 7(a) or SBA Express underwriting.
Here is how it works in practice. If your business produces $150,000 in annual net operating income and the bank requires a 1.25 DSCR, dividing $150,000 by 1.25 gives $120,000 as the maximum total annual debt service allowed. That figure has to cover both existing debt and the new loan. If you already pay $40,000 a year on other obligations, the new loan’s annual payments cannot exceed $80,000. The interest rate and term then decide how much principal that $80,000 per year can carry.
Loan-to-Value Ratio
The loan-to-value ratio (LTV) caps borrowing based on what the collateral is worth. Federal interagency guidelines set specific ceilings for different property types:
- Raw land: 65%
- Land development: 75%
- Commercial construction: 80%
- Improved property: 85%
- Owner-occupied residential (1–4 family): 85%
These limits keep the bank from being underwater if the asset’s market value drops during the loan’s life.2eCFR. Appendix A to Part 628 – Loan-to-Value Limits for High Volatility Commercial Real Estate Exposures Equipment and inventory collateral gets even more conservative treatment, often capped at 50% to 70% of appraised value, because those assets depreciate faster or are harder to liquidate.
Debt-to-Equity Ratio
Banks also look at how leveraged the business already is by comparing total liabilities to total equity. A ratio around 1:1 to 1.5:1 is generally comfortable. Once it climbs above 2:1, lenders start seeing the business as overleveraged, which either shrinks the loan amount or ends the deal. Capital-intensive industries like manufacturing or real estate development are the exception, since higher leverage is normal there and underwriters adjust their expectations accordingly.
SBA Loan Caps
SBA loans don’t come directly from the government. A bank makes the loan and the SBA guarantees a portion, which reduces the lender’s risk and expands what borrowers can access. Federal regulations at 13 CFR Part 120 govern the programs.3eCFR. 13 CFR Part 120 – Business Loans
SBA 7(a)
The 7(a) program is the SBA’s most flexible option. The maximum is $5 million per loan, and the aggregate SBA-guaranteed portion across all loans to a single borrower and its affiliates cannot exceed $3,750,000.1eCFR. 13 CFR 120.151 – What Is the Statutory Limit for Total Loans to a Borrower The funds can be used for working capital, equipment, real estate, debt refinancing, and most other legitimate business purposes.
Interest rates are capped as a spread over the prime rate. For loans above $350,000, the maximum is prime plus 3%. Smaller loans carry wider spreads, up to prime plus 6.5% for loans of $50,000 or less. With the prime rate at 7.5% as of mid-2025, effective rates on larger 7(a) loans have generally run between 10% and 11%.
SBA 504
The 504 program targets fixed assets like commercial real estate and heavy equipment. The financing splits three ways: a conventional bank loan covering roughly 50% of the project cost with a first lien, a loan from a Certified Development Company covering up to 40% and backed by an SBA-guaranteed debenture with a second lien, and at least 10% equity from the borrower.3eCFR. 13 CFR Part 120 – Business Loans This structure lets businesses reach larger project financing than a single bank loan would allow, because the SBA guarantee on the CDC portion trims the bank’s exposure to half the project.
Guarantee Fees That Come Out of the Loan
The SBA charges an upfront guarantee fee that gets folded into the loan balance, so the amount you actually receive is slightly less than the face value. For fiscal year 2026 (October 2025 through September 2026), the fee schedule for 7(a) loans with maturities over 12 months runs as follows: 2% of the guaranteed portion for loans of $150,000 or less; 3% for loans between $150,001 and $700,000; and for loans between $700,001 and $5 million, 3.5% on the first $1 million of the guaranteed portion plus 3.75% on the guaranteed amount above $1 million.
Loans with maturities of 12 months or less carry a much lower fee of 0.25%. Small manufacturers with NAICS codes in sectors 31–33 get a break for fiscal year 2026: the upfront fee is waived entirely on 7(a) loans of $950,000 or less, and both the upfront fee and annual service fee are waived on all 504 loans.4U.S. Small Business Administration. SBA Waives Loan Fees for Small Manufacturers in Fiscal Year 2026
Personal Guarantees Expand What’s on the Line
Almost every business loan requires at least one personal guarantee, which means the owner is individually liable if the business cannot repay. Personal assets like a home, savings, and investments become reachable by the lender.
For SBA loans, the rule is codified: anyone holding 20% or more ownership in the borrowing entity must sign an unlimited personal guarantee.5eCFR. 13 CFR 120.160 – Loan Conditions “Unlimited” means the guarantee covers the entire loan balance, not a portion of it. The SBA can also require guarantees from smaller stakeholders when credit conditions warrant, and many conventional lenders follow the same 20% threshold. Some require guarantees from all owners regardless of percentage.
Limited guarantees exist in some conventional relationships, capping the guarantor’s exposure at a specific dollar amount or percentage of the loan. Banks sometimes accept these when the borrower has strong collateral or an especially healthy balance sheet, but they are the exception. If a lender offers a limited guarantee, get the cap amount in writing before signing anything else.
How Collateral Feeds the Amount
Banks secure their position by taking a legal interest in business assets under Article 9 of the Uniform Commercial Code and filing a UCC-1 financing statement with the appropriate state office.6Legal Information Institute (LII) / Cornell Law School. UCC – Article 9 – Secured Transactions The filing creates a public record of the claim and establishes priority over other creditors.
From a borrowing-capacity standpoint, collateral matters because it feeds the LTV calculation directly. A business with $1 million in commercial real estate and no existing liens can potentially support an $800,000 loan against that property. A business whose main assets are aging delivery trucks and perishable inventory sees much lower collateral values, which caps the loan even when cash flow ratios look strong. Different asset types get discounted at different rates when the bank estimates recoverable value in a worst-case liquidation.
Costs That Reduce What You Actually Receive
The loan amount on your commitment letter is not the amount that lands in your account. Several out-of-pocket expenses hit before or at closing and add up quickly.
- Commercial real estate appraisals commonly run $2,000 to $5,000 or more depending on property complexity. Equipment appraisals cost less but are still required for larger equipment loans.
- Phase I Environmental Site Assessments, often required on real estate deals, typically cost $1,800 to $6,500 depending on property size and location. If problems surface, a Phase II can run $5,000 to $100,000.
- SBA guarantee fees range from 0.25% to 3.75% of the guaranteed portion depending on loan size and maturity.
- Legal and document preparation for the lender’s counsel usually costs $500 to $750 for straightforward deals, more for complex transactions.
- UCC filing fees vary by state, generally $10 to $100 depending on the filing method and jurisdiction.
Most of these costs fall on the borrower, and many are due before closing. Factoring them into cash planning keeps them from creating a crunch at the wrong moment, and it gives you a realistic view of what the approved amount will actually fund once the paperwork clears.