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Understanding how to get a business loan from a bank is essential for many small business owners. If you’ve operated your business for a year and have financial records showing profitability, you stand a good chance of securing a small business loan from traditional lenders such as banks or credit unions.

Start-ups can also secure bank loans, sometimes using personal loans. Since a personal loan can be unsecured, you won’t need to use business assets as collateral.

Choosing a personal loan? Getting business credit cards from the same bank is a good idea. Regular, on-time monthly payments can boost your personal credit score, setting you up for a future business loan.

Here’s a word from Andrew Cartwright about how small businesses & the self-employed can get business funding In 3 Days:

Next, we’ll let’s look into the specifics of securing 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?

Pros:

  • 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.
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Cons:

  • 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.

how to get a business loan from a bank

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:

  1. 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.
  2. 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.
  3. 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

how to get a bank loan - loan officer giving client cash

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.

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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

how to get a bank loan - visual of credit scores and coin

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.

6. Network

Reach out to other small business owners to see which lenders they recommend.

7. Make an appointment with a lender

A direct conversation can provide clarity, allow for questions, and establish a rapport with the lender.

Table of Steps to Secure a Bank Loan for Your Business

Navigating the process of securing a bank loan for your business requires meticulous preparation and a clear strategy. Below is a step-by-step guide in table form to enhance your chances of loan approval:

Step Description Why It Matters
1. Business Plan A detailed outline of your business operating expenses, credit profile, and long-term goals. Demonstrates professionalism and provides lenders a comprehensive view of your business. Many lenders require this as part of the application process.
2. Loan Purpose A short letter included in your application describing why you need the loan. Gives lenders clarity on how funds will be utilized, helping them assess the viability and purpose of the loan.
3. Loan Type Understand the best loan agreement for your needs and identify lenders offering that specific type. Ensures you pursue the right kind of financing that aligns with your business objectives and increases your chances of approval.
4. Credit Scores Monitor and improve both your business and personal credit scores. Credit scores determine your creditworthiness. A higher score can lead to better loan terms and rates. Many banks have a credit score threshold for considering loan applications.
5. Financial Records Organize documents that prove your business credit history: business bank statements, credit card transactions, and personal tax returns. Having organized and comprehensive financial records eases the loan application process and provides lenders with a clearer picture of your business’s financial health.
6. Networking Engage with other small business owners to get recommendations on lenders. Peer recommendations can direct you to credible lenders and give you insights on which institutions have a track record of supporting businesses like yours.
7. Schedule an Appointment with a Lender Set up a face-to-face meeting to discuss your needs and application. A direct conversation can provide clarity, allow for questions, and establish a rapport with the lender. This personal touch can be instrumental in moving the loan application forward.
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Tips for Getting a Bank Loan for a Business

Image of man excited about getting a bank loan letter

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?

how to get a bank loan - good time to apply for a loan (metrics shown)

The optimal time to apply for a small business loan is when:

  1. Your business has consistent and provable cash flow.
  2. You’ve maintained accurate financial records and can demonstrate business profitability.
  3. Your credit score (both business and personal, if relevant) is strong.
  4. You have a clear plan or purpose for the loan, whether it’s expansion, purchasing equipment, or covering operational costs.
  5. The economic conditions are favorable, and interest rates are relatively low.

Once you’ve assessed these factors and decided it’s the right time, scheduling a meeting with a bank loan officer is key to discussing your needs and application in detail.

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.

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