Should you use a bank loan to fund your business?
A Harvard Business School study shows that nearly half of all small business owners finance their businesses via commercial bank loans. More than a quarter of small business owners (about 38%, in fact) finance their businesses with regional or community bank loans.
Where are small business owners finding these bank loans for business?
Well, securing a bank loan for your business is notoriously hard for small business owners. The nation’s largest banks have tight credit for the smallest companies.
With that being said, clearly there are some banks lending to small businesses.
Here are the eight best places to find bank loans for business.
What Are Bank Loans for Business Like?
If you’re new to the world of small business financing, you might not know what kinds of small business loans are available from a bank—and what sets them apart from business loans you can find with other lenders.
Here’s a quick overview of what bank loans for businesses look like, and why you’d want to seek one out in the first place.
The Types of Bank Loans for Business
Traditional banks both large and small offer the “tried-and-true” types of business financing.
Bank loans for businesses are the most standard kinds of loans out there—and probably the ones you’re most familiar with.
- Term loans are the types of business loans that you probably think of first when you hear the term business loan. They offer a lump sum of capital that you can use for most business purposes—expanding a business, purchasing an asset, or covering working capital needs. With a term loan, you pay back your lender over a set amount of time with fixed (often monthly) payments.
- A business line of credit is a similarly common financing option, but it’s structured differently than term loans. A business line of credit works much like the credit card in your back pocket does. You’re approved for a pool of funds that you can draw from to cover business expenses. You only pay interest on what you draw from the credit line, and once you pay the line of credit lender back, your credit line gets refilled to its original amount. The best part of a business line of credit is the flexibility it offers business owners. The revolving line of credit gives you the option to keep the financing in your back pocket or use it continually.
In general, these are the two loan products you can expect to find at a bank. You could also find a short-term loan or equipment financing here or there—but a generic term loan or line of credit is a bank’s main offering.
Why Seek Bank Loans for Business?
Why would a small business owner want to pursue a bank loan over an online business loan in the first place?
Well, bank loans for business are the gold standard of business loans.
That’s mainly because bank loans offer the lowest rates for business owners.
In general, interest rates on a bank loan will never be above 10%. And while you can find single-digit rates with alternative business lenders, it isn’t as consistent as it is with a bank loan product.
The average APR on bank loans for business from a large national bank is somewhere between 2.24% and 4.77%. And the average APR on business loans from smaller, regional banks is similarly low, ranging from 2.86% to 5.43%.
Not only do these loans come with low rates, they also last over a long term. Lots of bank loans for business have terms of 5 to 10 years—making your monthly payments easy on your business’s cash flow.
The caveat with bank loans for business is that they’re so desirable, but not many small business owners qualify for them. Banks only give these low rates and long terms to the most qualified business owners—think strong personal and business credit scores, a long time in business, strong annual revenue, profitable, etc.
The 8 Best Places to Find a Bank Loan for Business Purposes
Even though bank loans are hard for small business owners to qualify for, there are still some places you can look to score one yourself.
Let’s dive into the best places to find bank loans for business—from large banks, small banks, to SBA lenders.
The Top 3 Large Banks to Find a Loan for Your Business
Of the large, national banks, where can you find the best business loans?
These are the banks that are household names—and have major assets behind them. Here are the national banks that are lending most to small businesses.
1. Wells Fargo
Wells Fargo has positioned itself as the bank dedicated to small business owners.
And when you look at its small business lending statistics, it just might be: Wells Fargo lent $34.8 billion to small business owners in 2015, giving out the most money of any big bank to small businesses.
Wells Fargo has a strong offering of business lines of credit and term loans.
The Best Options for Small Business Owners:
If you’re looking for a Wells Fargo bank loan for business, then here are their top options for small business owners:
- Wells Fargo Unsecured Business Loans: The unsecured business loan from Wells Fargo is a term loan that offers $10,000 to $100,000 in loan amounts over a 1 to 5 year term (making it much like the online lenders that offer medium-term loans). The benefit of using this bank loan is that you don’t have to offer collateral on the loan—unlike most (almost all) bank loans. While there’s no valuable collateral required for you to risk on the financing, you’ll get higher interest rates on this bank loan. That’s because in the event you can’t pay back your loan, Wells Fargo doesn’t have any assets to seize to recoup their losses. This is inherently a riskier deal for the bank, so they charge higher interest rates—ranging from 6.50% to 22.99%. Under the unsecured business loan offering, Wells Fargo offers the FastFlex Small Business Loan. This is an especially good option for small business owners looking for quick business loans—Wells Fargo offers just one easy application to apply for this loan.
- Wells Fargo Business Lines of Credit: The other Wells Fargo business loans fit for small business owners are their business lines of credit. Wells Fargo offers both unsecured and secured lines of credit. Their unsecured lines of credit are probably best for business owners with two or fewer years in business. The unsecured options offer credit lines up to $100,000 with rates as low as the 1.75% on top of the prime rate (currently 3.75%). One disadvantage of the unsecured line of credit products is that they come with annual fees for lines over $10,000.
2. Bank of America
The next big bank on the list of bank loans for business is another giant in the lending space, Bank of America.
In 2015, Bank of America came in second for most money lent to small business owners—lending $33 billion to small businesses.
You’ll find a product offering much like what Wells Fargo offers—term loans and lines of credit.
Will a Bank of America loan be the best bank loan for business owners like you? Well, if you have an existing relationship with Bank of America, it just might be.
The Best Option for Small Business Owners:
- Business Advantage Financing: The Business Advantage program offers both unsecured lines of credit and unsecured term loans. Besides the main differences between lines of credit and term loans in general, the two Bank of America products are pretty similar. They both offer up to $100,000 in financing, come with rates as low as 4.50% (for the term loan) and 5.50% (for the line of credit), and an origination fee of $150. And because these are unsecured financing options, you won’t have to offer collateral on either product. The reason why these might be the best bank loans for your business is the fact that you can apply online in just about five minutes if you use Bank of America’s online banking app. You need to already have a business bank account set up with Bank of America, but this feature offers convenience that’s often not found with traditional bank loans.
3. JPMorgan Chase
Just a step below Wells Fargo and Bank of America is JPMorgan Chase, lending $19.1 billion to small business owners in 2015.
Even though Chase is a major consumer banking institution, it still has great financial products for business owners.
You’ll find traditional bank loans like business lines of credit and term loans. However, with the help of OnDeck Capital, they’re entering the world of online business lending with their Quick Capital Loan. If you’re looking to work with Chase, this is probably your best bank loan for business.
The Best Option for Small Business Owners:
- Chase Business Quick Capital Loan: If you, like most small business owners, need working capital for your business, then Chase has a solution for you without the hassle of traditional bank loans—the Quick Capital Loan.
You can apply for the Quick Capital Loan online—unlike other Chase loans that need to be applied to at a local branch. They give you a personalized offer where you can choose your loan amount and term length. When deciding on the financing you need, you’ll get a loan agreement that you sign electronically, and the funds will appear in your bank account the next day. Again, convenience is the name of the game with this bank loan for business: Repayments are automatically deducted from your Chase bank account.
The Top 5 SBA Lenders Offering Bank Loans for Business
The one thing you need to know about these banks offering business loans is that they’re extremely hard to qualify for.
As of 2014, only about 20% of all small business owners’ bank loan applications were approved. That statistic just goes to show that bank loans are really the only options for the most qualified borrowers.
If you’re looking for bank loans for business but think that you won’t be a strong candidate for one, your next option to check out is an SBA loan.
SBA loans are technically bank loans for business owners considering the fact that the Small Business Administration doesn’t actually lend to businesses. Instead, they guarantee small business loans that are issued by traditional banks.
While SBA loans are by no means easy to qualify for, they’re slightly more accessible for small business owners.
That’s because the SBA’s guarantee takes some risk away from the banks. In the case that the borrower defaults on the loan, the bank still gets a majority of their money back. In the end, the bank is more comfortable lending out to more small business owners than it would without the SBA’s guarantee.
So, who are the top SBA lenders giving these bank loans for business? Here’s a list of the best SBA lenders in 2016.
- Wells Fargo. Wells Fargo approved 2,810 SBA loans—lending a total of about $839 million.
- Live Oak Banking Company. Live Oak approved only 549 SBA loans but lent just about $710 million to small business owners. Live Oak is known for its consistent low rates for expansion projects, refinancing, real estate purchases, and other business purposes.
- Huntington National Bank. Huntington approved 1,821 SBA loans for a total of about $337 million to small business owners.
- JPMorgan Chase Bank. Chase approved 1,497 SBA loans—lending a total of about $304 million in SBA loans.
- U.S. Bank National Association. U.S. Bank approved 1,042 SBA loans for a total of $282 million lent to small business owners.
If you look at the top SBA lenders in the country, there are many more impressive banks making SBA loans than just these 5. Lots of them are community banks or banks that have local branches near your business.
Oftentimes, these banks offer the best bank loans for business owners due to the relationships they have with businesses in their local community.
Looking for a Bank Loan for Business? Other Alternatives to Consider
When it comes down to it, securing a bank loan for business is tough.
The largest national banks have the strictest lending standards, and SBA loans aren’t too easy to qualify for either. And even though credit unions have twice the approval rate of big banks, they still only work with more established businesses.
If you don’t qualify for the top bank loans for business, then another financing route to pursue is online lending.
Nowadays, alternative lenders offer loan products that are similar to what you’d find at a large bank—but the loan amounts will be a little bit smaller, the loan terms a little shorter, and the interest rates a little bit higher.
But all in, online medium-term loans from these lenders are affordable options when a traditional bank loan for business isn’t an option.
And you don’t have to worry about these loans being too expensive—APRs typically range from 6.5% to 30%.
If you have an established relationship with a bank, then the best place to look for bank loans for business is with the bank that already knows you.
If you’ve been a responsible customer with that bank, they’ll be more likely to approve you.
And if you score a bank loan for business, don’t sweat it. Check out some of the top online lenders offering similar products—and use the financing you receive responsibly. That way you can build your credit and qualify for bank loans for business down the line!
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