How Much Should You Borrow for Your Business?

Start with the exact use of funds

A vague need leads to a wrong number. List each cost the money will cover, get quotes, and add them up.

Write down every expense tied to the goal. For example, a restaurant adding a patio might list construction, furniture, permits, staff training and a marketing push. Each line should have a quote or a solid estimate.

• One-time costs, such as equipment or build-out
• Ramp-up costs, such as extra payroll while sales grow
• A contingency of roughly 10 to 15 percent for overruns

Skip costs that belong in regular operations unless the loan is meant to cover them. See line of credit purposes for ways to match money to use.

Test the payment against your revenue

A payment you cannot cover during a slow month is too big. Compare the monthly-equivalent payment with revenue and with profit.

Illustrative example: a business earns $60,000 a month and keeps about $9,000 after all costs. A funding payment of $5,000 a month would use more than half of that profit, so the margin for error is thin. A $2,500 payment is more comfortable.

Run the numbers at 80 percent of normal sales too. Our guide to revenue available for loan payments and stress test payments show the method.

Measure the payback, not just the price

Borrow when the project's added profit exceeds the total cost of funding. If it does not, shrink the project or skip it.

Take the full amount you will repay, subtract what you borrowed, and compare that cost with the profit the project should add over the same period. Illustrative example: borrow $50,000, repay $58,000, so the cost is $8,000. If new equipment adds $2,500 a month in profit, the profit covers the $58,000 repayment in about 23 months. If the equipment lasts longer than that, the project comes out ahead.

Use how to calculate small business loan ROI and total cost of a funding offer.

Avoid the two common sizing mistakes

Borrowing too little forces a second round of funding, and borrowing too much adds interest on money you do not use.

• Too little: you start the project, run out of cash mid-way and pay again for a second funding round, or stall.
• Too much: you pay interest or fees on idle cash, and the payment may exceed what sales can support.

A structure that lets you draw only what you need helps when costs are uncertain. A business line of credit is built for that.

Match the product to the size and purpose

One-time purchases suit term loans or equipment financing, while ongoing needs suit a line of credit or working capital.

For details, see term loan vs. line of credit.

What amounts ROI Funder places

ROI Funder places funding from $5,000 to $5,000,000 for businesses with 6+ months in operation, $20,000+ monthly revenue and 500+ FICO.

The amount an approved file receives depends on revenue, bank activity and the funders in our network that fit it. We show the true cost, payback period and monthly-equivalent payments before you sign, so you can check that the size is right.

Applying takes a few minutes with a soft credit pull and no obligation to accept an offer. Approved, complete files can be funded the same business day. A complete file is the application plus three months of business bank statements. Start with which funding fits your business.