How To Get A Small Business Loan From A Bank

If you’re a small business owner looking for long-term, low-interest loans, start your search for funding at your local bank. Although you may encounter strict requirements and longer processing and funding times, the tradeoff is affordable funding options that can be used to grow your business.

Keep reading to learn how to get a business loan from a bank.

What Is A Bank Small Business Loan?

A bank small business loan is a loan that a business owner receives from a bank. This can be a traditional loan that provides a lump sum of cash, or a more flexible option like a business line of credit.

Bank loans typically offer low rates and long repayment terms but may be more difficult to qualify for than other types of business funding.

How Bank Loans For Businesses Can Be Used

Bank loans for businesses can be used for business expenses, including:

• Acquiring a business
• Startup costs
• Purchasing commercial real estate or land
• Renovating a business
• Purchasing supplies, inventory, or equipment
• Hiring employees
• Refinancing existing business debt
• Working capital

During the application process, you will need to state the purpose of your business loan. Depending on lender policies and the type of loan, there may be some restrictions on how funds are spent.

Types Of Bank Loans For Businesses

Many banks offer several types of small business loans. Here are some of the most common types of bank loans for businesses.

Eligibility Requirements For Bank Business Loans

While eligibility requirements vary by lender, type of loan, and other factors, there are a few general requirements to keep in mind before getting a bank loan for your business:

• Personal Credit Score: Banks will look at your personal credit score to determine if you qualify for a loan. If you do qualify, your score will be used to help determine your rates and terms. While score requirements vary, banks will typically want to see a score of 680 or higher before approving you for a loan.
• Personal Credit History: In addition to your personal credit score, recent defaults on loans, foreclosures, and bankruptcies may disqualify you from receiving a business loan. You should also be prepared to explain any negative credit items such as late payments, collections, or numerous inquiries.
• Business Credit Score: Some banks may also check your business credit score, which is based on factors like industry, company size, and payment history for business debt. Business credit scores range from 0 to 100, and the higher your score, the higher your odds for approval.
• Time In Business: Most bank loans require a business to be in operation for at least two years.
• Annual Revenue: A bank wants to make sure you have the income to repay the loan, so it will look at your annual revenue. While requirements vary by lender, most want to see a minimum of $100,000 in annual revenue.
• Industry: Your industry will also be considered when you apply for a bank loan. The bank will assess the risk of your business to determine if you qualify for funding. High-risk industries (such as gambling businesses or real estate investing) may not qualify for some types of bank loans.

Documentation Requirements For Bank Loans For Businesses

In addition to meeting the standard requirements for a business bank loan, you’ll also be expected to provide documentation during the application process. While your bank will provide you with specific documentation requirements, here’s a general idea of what you’ll need for a business bank loan:

• Driver’s license or other ID
• Business licenses & permits
• Articles of incorporation
• Business plan
• Loan proposal
• Resumes for all business owners
• Balance sheets, P&L statements, and other financial documentation
• Business & personal income tax returns
• Business & personal bank statements
• Future financial projections

Collateral Requirements For Bank Loans For Businesses

Collateral is typically required for certain types of bank loans, including larger loans. Collateral is business and/or personal assets that are used to secure the loan. If you default on the loan, the collateral can be seized and sold to repay the debt.

Even if specific collateral isn’t required, most loans require all owners to sign a personal guarantee (which makes you personally liable for the debt), or a blanket lien is attached to the loan, which gives the lender the right to seize all of your business assets to repay a loan that’s in default.

Some loans, such as equipment loans and commercial real estate loans, use the item being purchased as collateral to secure the loan.

Down Payment Requirements For Bank Loans For Businesses

A down payment may be required for your loan. Investing your own money into the loan shows the bank that you’re serious about repaying your debt.

Down payments vary but typically range from 10% to 30% of the borrowing amount.

How To Apply For A Business Loan From A Bank

Now that you know about business loans from banks, you should have a good idea of whether this is the right funding option for your business. Once you’ve made the decision to pursue a bank loan, you can apply by following these six steps.

What is the fastest small business loan to get?

Chelsea Krause is a writer who specializes in accounting, payroll, and small business loans. She has been with Merchant Maverick helping small business owners manage their finances since 2016. She is a QuickBooks Certified User and former eCommerce store owner. Her accounting expertise has been quoted in Forbes and her work appears in Startup Nation, Small Business Bonfire, and Women on Business. Chelsea graduated summa cum laude with a BA in English & Creative Writing from George Fox University and studied abroad at the University of Oxford as well. She currently resides in Boise, Idaho.

Chelsea KrauseLead Staff Writer

If you’re looking for fast business funding, OnDeck is a good option. With OnDeck, a line of credit can be accessed almost instantly once your application is approved and term loans often have same-day funding.

Alternatives To Bank Business Loans

Business loans from banks aren’t the right choice for everyone. Whether you don’t meet requirements or you need fast funding, here are some alternatives to bank loans for businesses.

What's the best advice you'd give to someone applying for a business loan for the first time?

Shannon has been writing for Merchant Maverick about small business software and financing since 2015. She started writing professionally about business topics in 2005. Shannon has been featured in the Washington Post, Reader's Digest, US News, MSN, Yahoo Finance, Business Insider, and other publications. She has a bachelor's degree in English from San Diego State University and currently resides in San Diego, California.

Shannon VissersLead Staff Writer

Check your credit report so you can see what a potential lender might see when running your credit. Before applying for loans, do what you can to improve your credit — for example, pay down your credit card balance or, if your spouse or a loved one has better credit than you, have them add you to their credit card as an authorized user.

The Bottom Line On Bank Loans For Business

If you meet the requirements and have the time to wait for approval and funding, you can’t go wrong with a business loan from a bank. Competitive rates and longer repayment terms make these loans a more affordable way to grow your business.

However, bank loans aren’t right for everyone. If you don’t qualify for funding or you want to explore other options, our guide on how to get a small business loan can help you every step of the way, from selecting your lender to submitting your application.