How to Get a $3 Million Business Loan: Lenders, Costs, and Covenants

Getting a $3 million business loan comes down to four things: a debt service coverage ratio of at least 1.25, personal credit generally at 680 or higher for every major owner, collateral worth roughly $3.75 to $4 million, and two to three years of clean financials that match what you reported to the IRS. From there, your choice is a conventional bank loan at the lowest rates but the tightest standards, an SBA 7(a) or 504 loan with longer terms and rate caps but more paperwork, or a non-bank lender that moves faster and looks at your business differently but charges 10% to 15%. Expect 30 to 60 days of underwriting and $15,000 to $50,000 or more in closing costs before the funds hit your account.

The Financial Bar You Have to Clear

The single most important number in your application is the debt service coverage ratio. Lenders calculate it by dividing your net operating income by total annual debt payments, including the proposed new loan. The standard minimum for a loan this size is 1.25, meaning if annual payments on all your debt total $400,000, you need at least $500,000 in net operating income. Some banks push this to 1.3 or higher for borrowers without long banking relationships or with cyclical revenue.

Underwriters won’t stop at the borrowing entity. They look at your global cash flow across every company and investment property you own. A strong DSCR on the applicant business can be undermined if your other ventures are bleeding cash or carrying heavy debt.

Personal credit scores for all major owners typically need to be at least 680. SBA lenders treat that as a floor, and conventional banks often prefer scores in the 700s at this dollar amount. Business credit history matters too. Underwriters want to see clean trade credit records with no late payments, collection actions, or tax liens. Most lenders require at least two years of operating history with stable or growing revenue. Startups can qualify through SBA programs, but the equity injection requirements go up and the scrutiny intensifies.

Collateral coverage is the third pillar. Lenders generally want a loan-to-value ratio no higher than 75% to 80%, so the $3 million must be secured by assets worth $3.75 million to $4 million. Real estate is straightforward; the appraisal drives the number. Equipment or inventory-heavy collateral gets discounted significantly, since machinery and stock lose value fast in a forced sale.

What Goes in the Application Package

A complete package starts with three years of federal business and personal tax returns for every owner holding 20% or more of the company. Lenders use these to verify that the income on your profit and loss statements matches what you reported to the IRS. You also need a year-to-date P&L and a balance sheet updated within the last 90 days, plus a debt schedule listing every existing obligation: monthly payment amount, interest rate, remaining balance, and maturity date.

An SBA 7(a) application also includes SBA Form 1919, which collects detailed ownership information and requires you to disclose affiliate businesses where any owner has management control. The SBA uses this to determine whether your company meets the size standards for your industry and whether affiliate revenue pushes you over the threshold.¹ Size eligibility is based on your NAICS industry code, with limits expressed as either maximum employee counts or maximum average annual receipts depending on the sector.²

Your business plan needs a detailed use-of-proceeds section that breaks down exactly how the $3 million will be spent. If $1.2 million goes to equipment, include vendor quotes or invoices. If $800,000 is for working capital, show the monthly burn rate that justifies the amount. A collateral schedule listing each asset offered as security, identified by legal description, serial number, or account number, rounds out the package. Lenders use this schedule to prepare lien filings, so vague descriptions slow down the process.

Lenders routinely require proof of insurance as a loan condition, and at this size that often includes key person life insurance on the primary owner. If the person running the business dies, the lender wants a policy large enough to cover the outstanding balance. You can sometimes avoid the requirement by demonstrating a strong management team with a written succession plan, or by offering enough collateral that the loan is fully secured without the policy.

Where to Get a $3 Million Loan

Commercial Banks and Credit Unions

Traditional banks offer the lowest interest rates for borrowers with strong profiles, and they also impose the tightest underwriting standards. Expect them to want a long-standing deposit relationship, pristine credit, and collateral that comfortably exceeds the loan amount. Credit unions with commercial lending divisions sometimes offer more flexibility for local businesses, though their capacity for loans this large varies by institution size.

Variable-rate commercial loans are typically priced as a spread over the Secured Overnight Financing Rate, which replaced LIBOR as the standard benchmark for U.S. dollar lending.³ Some banks still price off prime. Either way, the spread depends on your risk profile, the loan term, and whether the loan is secured by real estate or other assets.

SBA 7(a) and 504 Loans

The SBA 7(a) program guarantees loans up to $5 million for general business purposes, including working capital, equipment, and real estate.⁴ The 504 program covers loans up to $5.5 million specifically for major fixed-asset purchases like land, buildings, or heavy equipment.⁵ Both allow longer repayment terms and lower down payments than conventional bank products; 7(a) loans go up to 25 years for real estate and 10 years for working capital.⁶

SBA loans have interest rate caps that make them attractive at this size. For 7(a) loans above $350,000, the maximum rate a lender can charge is the base rate plus 3%.⁶ The trade-off is a more demanding application, SBA-specific paperwork, and guarantee fees that represent a meaningful upfront cost. The SBA publishes its fee schedule annually; the FY2026 schedule took effect on October 1, 2025.⁷

Not every business qualifies. Federal regulations bar certain business types from SBA lending entirely, including nonprofits, financial companies primarily engaged in lending, passive real estate holding companies, life insurance companies, businesses earning more than a third of their revenue from gambling, and companies engaged in illegal activity.⁸ Review the full list before you invest time in an application.

Alternative and Non-Bank Lenders

Private debt funds, online commercial lenders, and specialty finance companies make up a growing segment of mid-market lending. Their interest rates run considerably higher, often in the range of 10% to 15%, but they underwrite differently. They focus more on revenue trajectory, contract backlog, and industry potential than on historical tax returns and traditional collateral. For businesses in technology, healthcare, or other sectors where banks are hesitant, alternative lenders can fill the gap. Speed is often faster too, with some closing within two to three weeks.

Personal Guarantees and Collateral Exposure

Almost every lender making a $3 million loan will require personal guarantees from the business owners. For SBA loans, any individual holding at least 20% ownership must personally guarantee the full loan amount.⁹ The SBA can also require guarantees from individuals with less than 20% ownership when it deems it necessary for credit reasons, though it generally won’t require them from anyone under 5%.

Watch the distinction between a limited and an unlimited guarantee. A limited guarantee covers only the specific loan you’re signing for and expires when that loan is paid off. An unlimited guarantee, sometimes called a “continuing guarantee,” makes you personally responsible for all current and future obligations your business has with that lender, including loans you haven’t taken out yet. If you see the word “continuing” in the document, understand exactly what you’re signing. Many banks use unlimited guarantees as their standard form, and negotiating down to a limited guarantee is worth the effort.

When the loan is secured by commercial real estate, lenders file a mortgage or deed of trust on the property. For equipment, inventory, and accounts receivable, they file UCC-1 financing statements with the state to record their security interest publicly.¹⁰ The lien means you cannot sell or refinance the collateral without the lender’s consent. If you default, the lender can seize and liquidate the secured assets, and the personal guarantee exposes your home, savings, and other personal assets to cover any remaining balance.

Closing Costs You Should Budget For

Upfront costs on a $3 million loan collectively run between $15,000 and $50,000 or more, depending on structure. The main categories:

Legal fees. You pay for your own attorney and, in most cases, the lender’s attorney. Combined legal costs at this size typically start around $5,000 and can climb considerably for complex transactions.
Appraisal costs. Commercial property appraisals generally cost between $2,000 and $10,000, with higher-value or more complex properties requiring an MAI-designated appraiser at the upper end.
Loan origination fees. Lenders commonly charge 0.5% to 2% of the loan amount. On $3 million, that’s $15,000 to $60,000.
SBA guarantee fees. If you use an SBA program, the guarantee fee is a percentage of the guaranteed portion and adds a meaningful upfront cost. The SBA publishes exact percentages each fiscal year.⁷
Environmental site assessments. When real estate is collateral, most lenders require a Phase I assessment to check for contamination risks. These typically cost $2,000 to $5,000 and must be completed within 180 days of closing.
Recording taxes. Jurisdictions that impose mortgage recording taxes can add 0.1% to nearly 3% of the loan amount, depending on where the property is located. On $3 million, even a modest recording tax becomes a five-figure expense.

These are paid by the borrower at closing or, in some cases, rolled into the loan balance. Either way, they affect your effective cost of capital.

From Application to Funding

After you submit your package, usually through a secure lender portal, expect a meeting with a commercial loan officer to walk through your objectives and answer questions about the business plan. The file then moves to underwriting, where analysts verify every financial claim, assess collateral values, review industry conditions, and stress-test your ability to repay under adverse scenarios. For a $3 million loan, underwriting typically takes 30 to 60 days. Smaller or simpler deals close faster; acquisitions and multi-property collateral packages take longer.

If underwriting approves your request, you receive a commitment letter outlining the final interest rate, repayment term, collateral requirements, and any conditions you must satisfy before the bank releases funds. Common pre-closing conditions include obtaining insurance, completing environmental assessments, and clearing title issues on real estate. The closing itself involves signing the promissory note, security agreements, and personal guarantees. The lender files UCC-1 statements and, for real estate, records the mortgage.¹⁰

Disbursement is usually handled by wire transfer to your operating account. For real estate purchases or business acquisitions, funds often go through an escrow agent or closing attorney. Construction loans and equipment installation projects may be disbursed in stages tied to project milestones, with each tranche released only after the lender verifies the previous draw was used as planned.

Covenants You Have to Live With

Signing the documents is the beginning of an ongoing relationship with your lender. The loan agreement contains covenants that dictate what you must do and what you cannot do for the life of the loan. Violating them, even without missing a single payment, puts you in technical default and gives the lender the right to demand accelerated repayment of the entire balance.

Affirmative covenants are things you’re required to do. The common ones include maintaining adequate insurance coverage, paying taxes on time, keeping equipment in working order, and submitting financial reports on a regular schedule. Most commercial loan agreements require annual financial statements, and many require quarterly or monthly reporting as well. Depending on your revenue level, the lender may require audited or reviewed statements prepared by a CPA rather than in-house compilations.

Negative covenants restrict your actions. Typical restrictions include taking on additional debt without the lender’s approval, selling or transferring collateral outside the ordinary course of business, distributing large dividends or making owner withdrawals above a set threshold, and making significant changes to the ownership or management structure. These restrictions exist because the lender underwrote based on your current financial profile and doesn’t want you to change the picture without its knowledge.

Technical defaults often happen by accident. An owner takes a distribution they didn’t realize was restricted, or the company misses a financial reporting deadline during a busy quarter. Even when lenders waive the violation, the concessions they extract in return can be painful: higher interest rates, additional collateral, tighter covenants going forward, or fees. Read the covenant section carefully before signing, and set internal reminders for every reporting deadline.

Prepayment Penalties

If your business does well and you want to pay off the loan early, check the terms first. SBA 7(a) loans with maturities of 15 years or longer carry prepayment penalties when you voluntarily pay down 25% or more of the outstanding balance within the first three years. The penalty is 5% of the prepaid amount during the first year after disbursement, 3% in the second year, and 1% in the third year. After three years, there is no penalty.⁶ On a $3 million loan, a 5% penalty on a large prepayment could cost $75,000 or more.

Conventional bank loans vary widely on prepayment. Some include yield maintenance provisions that require you to compensate the bank for the interest it would have earned, effectively eliminating most of the benefit of early repayment. Others use declining percentage penalties similar to the SBA structure. A few allow prepayment without penalty. This is a negotiation point, and it’s worth pushing for the most flexible terms you can get. Business circumstances change, and the ability to refinance or pay off a loan without a five-figure penalty preserves your options.

1
U.S. Small Business Administration. SBA Form 1919 Borrower Information Form
2
eCFR. 13 CFR Part 121 – Small Business Size Regulations
3
Federal Reserve Bank of New York. An Updated Users Guide to SOFR
4
Office of the Law Revision Counsel. 15 USC 636 – Additional Powers
5
U.S. Small Business Administration. 504 Loans
6
U.S. Small Business Administration. Terms, Conditions, and Eligibility
7
U.S. Small Business Administration. 7(a) Fees Effective October 1 2025 for Fiscal Year 2026
8
eCFR. 13 CFR 120.110 – What Businesses Are Ineligible for SBA Business Loans
9
eCFR. 13 CFR 120.160 – Loan Conditions
10
Cornell Law School. UCC 9-501 – Filing Office