Pros and Cons of a Business Bank Loan

To qualify for a business bank loan, however, you’ll likely need excellent credit and several years in business.

Before applying for a business loan from a bank, consider the following advantages and disadvantages.

When you submit your loan application, the bank may ask you to identify a purpose for the financing to evaluate the risk of lending to your business. Once you’re approved, however, the bank is unlikely to interfere if you change your intentions, as long as you make your payments. This flexibility is one of the biggest advantages when comparing debt versus equity financing.

Bank business loans are often available in amounts up to $1 million or more. Many online lenders, on the other hand, only offer financing in smaller amounts. For example, popular online lenders Fundbox and Bluevine, for example, both have maximum loan limits of $250,000.

Business loans from banks also tend to have long terms — up to 25 years in some cases. These loans usually follow a monthly repayment schedule, rather than requiring daily or weekly payments.

In comparison, online business loans typically have shorter repayment terms, ranging from a few months to a few years. Many of these loans require daily or weekly repayments.

Although some online lenders can offer competitive rates, their products are generally more expensive than bank loans, with rates that range from 14% to 99%.

The interest rate you receive on a bank loan, or any small-business loan can vary based on a number of factors, such as:

In general, the stronger your qualifications and the more collateral you can offer, the better rates you’ll be able to receive.

Many banks provide ongoing support for their lending customers, such as business credit score tracking or a dedicated relationship manager to work with your business. Most banks also offer other types of financial products, including business checking accounts, business credit cards and merchant services — if you prefer to use one institution for your financial needs.

You may have to visit a bank branch and work with a lending representative to complete and submit an application — although some banks offer online applications for certain business loan products.

The entire process, from application to funding, can take anywhere from several days to a few weeks, or even longer, depending on the type of loan and the bank. Some banks will also require you to open a business checking account with them before you can receive funds.

To qualify for a business loan from a bank, you’ll generally need strong personal credit (often a FICO score of over 700), several years in business and a track record of solid business revenue. For example, Bank of America, requires a minimum annual revenue of $100000 for unsecured term loans and a minimum annual revenue of $250000 for secured term loans.

Depending on the bank and the loan type, you may need to provide collateral, such as real estate or equipment, to secure your financing. Most banks will also require you to sign a personal guarantee that holds you personally responsible for the debt in the event that your business can’t pay.

Although online lenders may still require a personal guarantee, they’re less likely than banks to require physical collateral.

Business bank loans are often a good option for those who can qualify. You might consider a bank loan if:

✅ You have an established business with strong credit.

✅ You’re looking for the lowest possible interest rate.

✅ You want to establish a relationship with a bank.

✅ You already use the bank for financial services.

If you can’t qualify for a bank loan, explore alternative options, such as: