Small businesses typically need a steady cash flow to succeed. But ebbs and flows in business, along with opportunities to grow,  mean businesses sometimes need an infusion of cash.

One way to get additional capital is by securing a small business loan. While there are many types of lenders small business owners can turn to, many prefer to work with a traditional bank. Banks offer hands-on, in-person service

If that’s your philosophy, read on to learn what to consider when researching the best banks for business loans.

1. Consider the different kinds of banks

Many business owners turn first to large national banks, like U.S. Bank. But most banks offer small business loans.

Small business owners may find borrowing opportunities with regional and small community banks, along with credit unions. In fact, the loan approval rate at small banks and credit unions is higher than at big banks.

Bank type Small business loan approval rate, Feb. 2023
Big banks 14.2%
Small banks 21.3%
Credit unions 20.0%

Source: Biz2Credit

The pros and cons of each type of bank should be among the factors you consider when choosing a bank for a business loan.

Big banks may offer more types of loans and larger maximum amounts, but there may be more fees associated with them. And as outlined above, it is more difficult to get your loan approved.

Conversely, small banks and credit unions sometimes offer a more personalized service. You may personally know the lending manager, and the bank or credit union may be heavily involved in the community. Additionally, fees may be lower. However, loan amounts may be smaller. 

2. Determine your business’s needs

Before deciding on the best bank for your business loan, you must determine the loan’s purpose. This will help you choose a type of loan.

You may want a term loan for long-term funding or a line of credit to fill temporary gaps. You might want a specialized loan that fits a specific purpose, like an equipment loan or commercial mortgage. Or, if you don’t mind the wait, you might want the interest rate caps a government-backed SBA loan offers.

After you’ve chosen a loan type, determine how much money you want to borrow and how much you can comfortably repay.

3. Assess your business’s qualifications

Each lending institution will have its own loan requirements. But there are several common requirements

Among the factors often considered are the company’s annual revenue, time in business, business plan, business credit score and owner’s personal finances.

Some lending institutions are transparent about their requirements and publish them on their website. Others won’t reveal that information until you either talk to a loan officer on the phone or start your application.

4. Search for matching banks that offer small business loans

Now that you’ve determined the purpose of your loan, the amount of funding you need and the amount you can afford to repay each month, it’s time to start looking for the best bank for your business loan.

Compile a list of banks you may want to consider that offer small business loans. Consider including institutions from all categories — large and small banks and credit unions. This list should also include any bank in which you already have an account, either business or personal. 

5. Compare rates, fees and other details

For each lending institution you consider, compare their lending requirements. You may want to create a chart listing their interest rates, term lengths, fees, minimum credit scores and minimum annual revenue. 

Additionally, you may want to compare the interest rate each institution charges to the national median. Just remember that lenders offer a range of rates — the rate you receive will depend on your and your business’s creditworthiness, among other factors.

6. Gather your information and apply

Once you’ve completed this evaluation and chosen the best bank for your business loan, it’s time to gather the necessary business documents and submit your application or applications. 

Traditional lenders often have more extensive documentation requirements than online and alternative ones. The bank or credit union you select will list their required documentation. It typically includes your company’s financials, articles of incorporation and your personal and business tax returns.

You may be able to apply online, but many traditional lenders will require you to call or make an appointment to apply in person.

The bottom line

Choosing the right bank for your business loan takes time and work. But it’s an important decision. You will have a relationship with this bank for months or years as you repay your loan. So, systematically go through these steps to select the best bank for your business’s loan.