hether you want to purchase new equipment, expand to a new location or buy additional inventory, you may someday need a bank loan for business. But, do all banks offer small business loans?
The short answer is that most banks include business loans among their products. Exceptions include investment banks like Goldman Sachs and especially small banks and credit unions.
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With thousands of options, how do you choose the right bank? Your choices range from large national banks like Bank of America; to tiny, local banks like Oakwood Bank of Texas, possibly the smallest bank in the country; to credit unions like Suncoast Credit Union. And some banks even operate entirely online.
Banks vs. other lenders
Whether applying for a business loan from a bank, credit union or online lender, as a small business, you need to determine the type of your loan you want, such as commercial real estate, equipment financing or line of credit. Not all banks offer all kinds of business loans.
You also want to review the lender’s requirements. They may evaluate such things as annual revenue, your business plan and your credit score.
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Banks often set stricter requirements than online and alternative lenders. Often, they require at least two years in business; many online lenders want between six months and a year. They may also require a higher personal credit score and even a well-established business credit score.
However, having a business banking relationship with a bank may help build trust and improve your odds of approval.
|Approval rate, February 2023||Change from January 2023||Change from February 2022|
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Business loans from big banks
When considering a bank for a business loan, some people automatically think of large national banks like Bank of America, PNC Bank, TD Bank, U.S. Bank or Wells Fargo.
As of February 2023, these banks approved small business loans at a rate of 14.2 percent, according to Biz2Credit. This is down 0.2 percent from January and 0.5 percent from a year ago, in February 2022.
Though these banks often have strict qualification requirements, they also tend to offer large amounts, low rates and longstanding expertise in handling business loans.
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Business loans from small banks
While the big banks mentioned above are well known, there are thousands of smaller banks — local, regional or community banks — throughout the country.
Small banks approve business loans at a higher rate — 21.3 percent as of February. While the approval rate for small banks dropped 0.1 percent from January, it increased by 0.8 percent from the previous year.
Smaller banks may lack the financial resources of the Big Five, but they may be more willing to work with fellow local businesses — especially if you have a prior banking relationship.
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Business loans from credit unions
Small business owners should not overlook the options provided by credit unions. There are more than 4,800 credit unions in the country, with many offering small business loans.
In February, credit unions approved small business loans at a rate of 20.0 percent, down 0.1 percent from January and 0.7 percent from February 2022.
You may need to be a member to land a loan from a credit union. But, because credit unions operate as nonprofits, you may find better rates and lower fees with them than at many other lending institutions.
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The bottom line
Between large national banks, small local/regional banks and credit unions — both physical and online — there are thousands of options if you’re looking to secure a bank loan for business.
The key is to compare options and evaluate each institution’s lending requirements.
Start by looking wherever you do your business banking because your existing relationship may increase your odds of getting a loan. Then, compare terms, interest rates and fees among several other banks. Put together the requested documents, and you may be on your way to securing your small business bank loan.