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- Compared to other types of lenders, banks may offer larger loan amounts and lower rates
- Banks typically require a credit score of at least 680 for a small business loan
- Compare lenders to ensure you get the best rates and terms
If your business is ready to grow, you may be considering applying for a small business loan at a bank. Many small business owners lean toward bank loans because they may offer larger amounts, lower rates and more hands-on support than online lenders.
According to the 2023 Report on Employer Firms from the Federal Reserve Banks, small businesses seeking financing were likelier to seek financing at a bank. Of the credit sources applicants applied to, 43 percent chose a large bank, while 30 percent chose a small bank.
As your business needs to meet certain requirements for a bank small business loan, you’ll want to find the right bank to be your lender. Here’s everything you need to know about how to get a business loan from a bank.
1. Check your business and personal credit scores
The bank will likely check your business credit score and the personal credit scores of any business owners when you apply for a loan, so it’s a good idea to check these scores before you apply.
The credit score requirements differ from lender to lender, and they may alter their requirements for each applicant depending on other factors. Plus, there are some banks that won’t check your business credit score.
Most lenders look at your FICO score to assess your personal credit history. Typically, banks want a credit score of at least 680, like Wells Fargo. However, some lenders may grant certain loan types to businesses with credit scores as low as the mid-500s.
There are multiple business credit bureaus, and scoring scales vary between them. There are three main business credit bureaus: Dun & Bradstreet, Equifax and Experian.
If your score is too low, consider taking time to improve your business credit score before applying for a loan. Make sure you have a business bank account, open a business credit card, and start building a positive payment history to boost your score.
2. Calculate how much money you need — and how much you can afford to repay
When you apply, the bank will want to know how much funding you want. Calculate your business needs to determine the right loan size.
Think about how much you can afford to repay as well. You will have a monthly payment until you pay off the loan, so you should be able to budget for the monthly payment each month from your business finances. The monthly payment will include both interest and principal payments.
3. Choose a loan type
There are many small business loan types. Research and choose the best option for your needs.
|Loan type||Typical amount||Purpose||How it works|
|Term loan||$1,000 to $1 million||Highly versatile; can be used for equipment, real estate, working capital and more||Money is funded in a lump sum, which you repay over a fixed period|
|Line of credit||$1,000 to $2 million||No specified purpose; can be used for a variety of expenses and is a great option for short-term funding||Works much like a credit card — can be used and reused once the amount borrowed is paid back|
|SBA 7 (a) loan||Up to $5 million||Government-backed loan used for a variety of reasons, including real estate purchases, refinancing business debt, short and long-term working capital and purchasing business supplies||SBA loans are administered through local and national lenders. They’re funded through a lump sum and repaid through monthly payments|
|SBA 504 loan||Up to $5 million||504 loans can be used to purchase, build and improve land, facilities, equipment and utilities||Loans are administered through Certified Development Companies (CDCs); these are long-term, fixed-rate loans|
|Commercial real estate loan||$25,000 to $5 million||Used to finance any income-producing property||Like a home real estate loan, these loans typically require a down payment; the loan is secured by the commercial property and borrowers make monthly or quarterly payments|
|Equipment loan||$25,000 to $1 million||Can be used to fund repairs, purchases or replacement of any business equipment||Funded through a lump-sum payment; secured by the equipment and repaid in monthly payments|
4. For secured loans, choose your collateral
SBA loans usually have specific collateral requirements. Equipment and commercial real estate loans are usually backed by the equipment or real estate purchased.
Your lender may allow you to choose your collateral. You can use any business asset to back the loan — some will even let you use personal assets. It could be a vehicle, property, equipment, cash or investments.
It’s not always needed, but sometimes you may want to get the collateral appraised. If you are in the midst of a business merger, acquisition or bankruptcy, the value of the collateral you use may be debatable. An appraisal can help you get an accurate value for your collateral. In addition, certain SBA loans have specific appraisal requirements. You can talk to your lender to find out more about these.
5. Compare lenders
It’s a good idea to consider multiple lenders when looking at bank business loans. One may offer you better rates or terms than another. What’s more, if you have a business checking account, this established relationship with the lender can enhance your odds of approval. However, you still want to consider the lender requirements for a small business loan to make sure your business qualifies.
6. Prepare any documentation you need
Each loan application will have different documentation requirements, but typically you will need to fill out or provide the following:
- Resume of all business owners
- Business plan
- Bank statements
- Income tax returns from the last three years
- Business tax ID number
- Financial statement
- Accounts receivable and accounts payable statements
- Collateral (if the loan is secured)
- Business license and registration
- Any lease agreements the business has
The business plan is one of the most extensive and important documents you must provide when applying. If you don’t already have a business plan prepared, you will need to take the time to make one for your application.
This plan includes everything about your business, including how the business will make money, your marketing strategy, where funding will come from and the costs of running the business.
7. Apply online or make an appointment
Once you’ve made all your preparations, you are ready to apply. Find out the best way to apply from your lender. You may be able to apply online, by phone or in person. Some lenders offer all of these options, while some may only offer one.
Before you start the application, it’s a good idea to review your documents. Make sure everything is there and scan for typos. If you apply in person, dress professionally to make a good impression. Be prepared to answer questions from the loan officer about your documents or application.
What to do if your bank loan is denied
Once you submit your application, you may get an answer immediately, or the lender may take some time to decide. Even if you did everything right, the answer could be no. Big banks only partially approved 68 percent of applicants, and 77 percent of these applicants were low credit risk, per the 2023 Report on Employer Firms.
But you can always try again.
Think about asking the lender why they denied your application so you can build a better application the next time. Look for other lenders who have a similar loan offering and apply again.
It can take a few tries to get a lender to approve your small business loan application, but each loan application is good practice and can help you build a successful application.
Small business loans allow businesses to get the funds needed for expansion, working capital, equipment purchases, inventory management and more. Banks may offer larger amounts, lower rates and a more personalized lending experience than other lenders, but expect stringent eligibility requirements.
And if applying for a small business loan at a bank doesn’t seem like the best fit for your business, exploring alternative options can be beneficial.
Frequently asked questions
When getting a business loan from a bank, you’ll need to meet minimum credit score, annual revenue and time in business requirements, as well as provide business documentation and a business plan. In some cases, you may also need collateral. Before applying, reviewing your bank’s specific small business loan requirements is best to confirm that your business qualifies.
Getting a business loan from a bank can be challenging, requiring borrowers to meet specific criteria, including a strong credit history and stable revenue. However, businesses that meet these requirements can secure a loan relatively easily.
Small business loan amounts can reach up to $5 million or more, but the amount a bank will lend you depends on factors like your business’s financial health, creditworthiness, collateral, loan type and purpose of the loan.