If you’ve operated your small business for a year, and have financial records proving business profitability, you’re ripe for approval for a small business loan from traditional lenders such as banks or credit unions.
Start-ups may also attain bank loans, even as personal loans. A personal loan may be an unsecured loan as you’re not putting up business assets as collateral.
If you opt for a personal loan, get business credit cards from the same bank. Make your monthly payments. That will up your personal credit score and improve your positioning to get a business loan in the future.
Let’s look at getting a traditional bank loan for your business.
Should you apply for a business loan from a traditional bank?
There are many options for business loans, other than traditional lenders.
Should you go to a bank?
Term loans typically have longer repayment times than loan repayments from online lenders
If you choose a Small Business Administration-affiliated and approved bank, all your financials will already be on record. That means you’ll be ready to access SBA programs, even disaster relief offerings such as the assistance offered during the pandemic.
SBA loans typically have a lower interest rate.
With good business financials and a proven positive cash flow, the approval process for a business loan can be short and smooth.
The approval process for small business financing will most likely be longer than it would be with online lenders.
If you have bad credit, either your business credit score or your personal credit history, you’re unlikely to get a loan.
Your financial institution will require loan application fees and other costs in the approval process.
Obtaining an SBA loan usually requires additional paperwork, such as documentation of business assets.
Types of Business Loans Offered by Banks
The type of loan to seek depends on your business needs.
There are 3 main types of bank business loans for small businesses offered by business lenders:
Term loans – With this type of loan, several elements are set – the amount of money borrowed, the monthly payment amount, the number of monthly payments, and the annual percentage rate. With a term loan, there are fixed monthly payments.
SBA guaranteed loans – Within the SBA loan offerings are additional types of loans and financing options:Working capital – There is typically a 7 to 10-year repayment period for a working capital loan.Equipment loan – This can help small business owners add to their business assets. The loan terms are usually for 10 years.Real Estate loan – Depending on your business credit report, the loan term can be up to 25 years.
Business Line of Credit – This is similar to a business credit card, but with a better interest rate. A line of credit loan is basically an unsecured loan with a set revolving credit line and limit, based on your business cash flow. You only pay interest on the money you draw. This is a good choice if you are waiting for accounts receivable to be paid.
How to Get a Bank Loan for a Business
Only about 15% of most small business loans are approved. That can be a daunting statistic for a small business owner. But you can take steps to upgrade your chances for approval and the best business loan terms.
1. Write or update your Business Plan.
A concise, informative business plan stamps you as a professional business owner. It is a necessary part of your bank loan process. The business plan details your business operating expenses, business credit profile, and business goals for the long term. Many lenders require them as part of the business loan application.
2. How will you use the loan?
With your application, include a short letter describing why you need the loan money.
3. What type of loan do you need?
Make sure of what type of loan agreement is the best fit for you, and which of the small business lenders offer that type.
4. Clean up credit scores
If you’ve got a bad rating with major business credit bureaus or with your personal credit scores, take steps to boost your score. Banks have a minimum number for the rate of credit scores they’ll accept before considering a loan request.
5. Organize financial records
Make sure you have every document needed to prove your business credit history, such as business bank statements, business credit card transactions and personal tax returns.
Reach out to other small business owners to see which lenders they recommend.
7. Make an appointment with a lender.
Tips for Getting a Bank Loan for a Business
Here’s how to help your application move to the top of the pile:
Dress the part – Dress as if you are also employed by the bank. Present a professional appearance.
Practice your pitch – Have a friend or family member act as the loan officer.
Have someone proofread your business plan.
Make sure you have all the financial records you need and that they are organized.
Don’t just show up. Make an appointment. At that time, ask how the loan officer would like the financial records presented. The loan officer may want to review the documents ahead of time, either mailed as hard copies or attached to emails.
When is a good time to apply for a small business loan from a bank?
Always make an appointment to meet with a loan officer.
Is it difficult to get small business loans from a bank?
Only 15% of applications are approved. Many are rejected because they are incomplete. With proper documentation and professionalism, you can get a business loan.
What bank is easiest to get approved for a business loan?
By the numbers, based on the number of business loan approvals, here are the top lenders: Bank of America, JP Morgan Chase, Wells Fargo, Citibank, PNC, and US Bank.
How much will a bank loan you for a business?
The amount you can get depends on your business credit score, business assets and cash flow, and more. Remember this number can change according to the number of years you’ve been in business and your overall business financial stability.