Recently, someone asked me how much they can borrow from a business loan, and this question is actually more complicated than you might think. I’ll share what I know.

First, you need to understand that how much you can borrow really varies from person to person. Data from the Federal Reserve shows that, on average, commercial banks issue about $660,000+ in commercial loans, but in reality it can range from as low as $1,000 to $5 million or even more. The key depends on which type of loan you choose, which lending institution you go with, and your own financial situation.

I’ve found that many people don’t really understand the differences in how much can be borrowed under various loan products. For example, for term loans offered by online lending institutions, the usual range is between $1,000 and $500,000. Some large platforms can even lend up to $6 million. If you need more than $500,000, you may have to provide collateral such as equipment or real estate. Another option is a business line of credit, which is more flexible: you can draw funds at any time, and interest is calculated only on the portion you actually use. The annual interest rate is typically around 10% to 99%, and the borrowing limit is usually anywhere from $2,000 to $250,000.

Loan amounts from traditional banks are often larger. If you work with a large national bank, you may be able to borrow $1 million or more, but the prerequisite is that your business’s financial situation is strong enough. Smaller community banks may have more limited limits. Banks also offer credit line products, generally in the range of $1,000 to $500,000.

SBA loans are a bit special because they are guaranteed by the federal government. The maximum amounts for 7(a) loans, 504 loans, and microloans are different. 7(a) and 504 can both be as high as $5 million, while microloans are capped at $50,000 (average around $13,000). The CAPLine program can also provide up to $5 million.

So the question is: how do lenders decide how much you can borrow? In plain terms, they want to reduce risk. They will look at your personal and business credit scores, whether your business income is enough to support loan repayment, and how long you’ve been in business. Some lenders require annual income of at least $100,000 to $250,000 to approve a business loan. They will also review your debt service coverage ratio—your annual net operating income compared to your annual debt payments. Typically, banks want this ratio to be above 1. Your personal debt-to-income ratio will also be scrutinized, which typically needs to be below 43%.

Whether you have collateral is also crucial. Providing collateral can help you obtain a larger loan amount because it lowers the lender’s risk. A down payment can play a similar role. Finally, they will look at whether your business plan is thorough and whether the industry you’re in is stable.

To get a larger loan amount, the key is to submit a strong application. This means you need a decent credit score, proof of your ability to generate profits, and maintaining a healthy debt ratio. If you don’t need to borrow money urgently, you can spend time improving your credit score first—for example, paying bills on time, reducing credit utilization, and clearing any errors on your credit report.

Another approach is to shop around. Online lenders usually have less strict requirements than big banks. If you can provide collateral, it can also help you get approved for a higher loan amount. But remember not to borrow more than you can afford to repay, because late payments can have serious consequences. Finally, it’s recommended that you use a loan calculator to see what your monthly payment would be for different loan amounts, repayment terms, and interest rates—so you’ll have a clear sense of what to expect.