How to get a business loan from a bank

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 2024 Report on Employer Firms from the Federal Reserve Banks, small businesses looking for financing were likelier to seek financing at a bank. Of the credit sources applicants applied to, 44 percent chose a large bank, while 28 percent chose a small bank.

Banks approve a majority of the loans applied for, but small banks are the most likely to approve you. According to the Federal Reserve’s Small Business Lending Survey, small banks approved 88 percent of applications in Q3 of 2023. Mid-sized banks approved 68 percent, and large banks approved about 52 percent.

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. Because they will look into your credit, it’s a good idea to check your credit score ahead of time. Three main business credit bureaus assess your business credit: Dun & Bradstreet, Equifax and Experian.

If your score is too low, consider taking time to improve your credit score before applying for a business loan from a bank. You could consider opening a business credit card or secured line of credit to start building a positive payment history to boost your score.

Most lenders look at your FICO score to assess your personal credit history. Typically, banks like Wells Fargo set strict credit requirements to apply, usually requiring a FICO score of at least 670. However, online lenders may grant certain loan types to businesses with personal credit scores as low as 550.

You can also find banks with loan programs that don’t focus on credit scores and consider other factors to assess your creditworthiness. For example, Bank of America offers a cash-secured business line of credit that approves startup businesses as long as you can put down a $1,000 security deposit. Huntington Bank’s Lift Local Business loan is another option that doesn’t solely focus on credit 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.

4. For secured loans, choose your collateral

Any secured loan requires collateral to back the loan. Term loans and credit lines often have both secured and unsecured options. Just be aware that unsecured loans often have higher interest rates.

SBA loans usually have specific collateral requirements, though small loans under $50,000 may not require collateral. 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. You want to consider the lender requirements for a small business loan to make sure your business qualifies. You may also want to consider whether you want to work with a large national bank or a small bank.

Small banks offer more personalized service, which can help you get approved for a loan based on your character and relationship with the bank. Yet, large banks can often provide the most competitive rates and large loan amounts.

When comparing lenders, you’ll want to assess each lender and the features of the loan offered. Compare interest rates and any fees charged and repayment terms offered. Some lenders also offer discounts if you pay off the loan early.

6. Meet the requirements and prepare any documentation

Every bank lender sets its own requirements that you need to meet at a minimum in order to qualify for its loan. Bank lenders tend to keep stricter requirements than other types of lenders, such as fintech companies.

Lenders will look at your personal and business credit score, time in business and revenue. Bank lenders often require at least a 670 FICO score, 2 years in business and $150,000 to $250,000 in revenue annually. These factors assess whether your business can handle the loan payments.

Once you meet the bank’s minimum requirements, you can apply and send in the correct documentation. Each loan application will have different documentation requirements, but typically, you will need to fill out or provide the following:

• Required documents

  • 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

7. Apply online or make an appointment

Once you’ve made all your preparations, you are ready to apply for a small business loan. 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. If your business loan is denied, you can take a few steps to apply again and attempt to get approved.

First, 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 have minimum requirements that your business meets. For example, you could try to find a lender that approves businesses with little time in business if you’re a startup.

It can take a few tries to get a lender to approve your small business loan application. But if you’re persistent and willing to shop around with different lenders, you can find lenders willing to accept businesses with less-than-ideal finances. In some cases, you may need to look into alternative business loans rather than getting a loan from a traditional bank.

Bottom line

Small business loans from a bank 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.

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

• What do I need to get a business loan from my bank?

  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.

• How easy is it to get a business loan from a bank?

  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.

• How much of a business loan will a bank give me?

  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.