Public enemy number one is, despite popular belief, not big banks. While it can be challenging to acquire a small business loan from a traditional lender, it’s not impossible.
When armed with the right knowledge and materials, you may be able to get much sought after traditional funding, which can help you grow your business.
What are Traditional Loans?
A traditional loan is a bank loan, pure and simple. But often there’s nothing simple about acquiring one of these loans, even if you go through the Small Business Administration. Below you’ll find videos, case studies, links and experts who can guide you to the resources that can help you get a bank loan.
Why choose traditional lending over alternative? There are some benefits to bank loans.
How to Get Started
Many traditional lenders will consider your business’s Dun & Bradstreet business credit report when making decisions about whether or not to approve your loan request or what your terms might be. If you’d like to learn more about your business credit profile, you can sign up for CreditSignal*.
Beyond business credit, which you can learn more about below, you’ll want to get started early with a lender. Building a relationship with a lender can be key to getting a loan, and the earlier you start (i.e. BEFORE you really need the money), the more your lender can help you along the way. By the time you are actually in need of the funding, hopefully your lender will feel confident giving you a loan. Bryan Moeller with Wells Fargo explains the importance of planning ahead and working with a lender in the video below.
Types of Traditional Lending
There’s only one type of traditional lending and it comes from a bank. However, there are different types of bank loans and working with a lender can help you determine which one may be best for your business. You’ll want to consider two major things when deciding between loan options:
- The terms of the loan
- The collateral required to obtain the loan
You’ll need to think long-term with a bank loan, since banks usually only give business loans for more than $250,000, you’ll likely be paying back what you borrow for a lengthy time period. Learn about the different types of bank financing below.
- Working capital/Lines of credit
- Business credit cards
- Short-term commercial loans
- Longer-term commercial loans
- Equipment leasing
- Letters of credit
While you can go to almost any bank for a business loan, there are some banks in particular that enjoy working with small businesses. To get started, research the banks below that work with small businesses and review the list of most active SBA 7(a) Lenders for more options.
Traditional Small Business Lenders*
View the 100 Most Active SBA 7(a) Lenders.
Learn more about different types of banks and the loans they offer in the videos below.
|National Banks||Community Banks||Credit Unions|
Wondering what challenges you may face when applying for a bank loan? Learn about the challenging state of traditional funding.
How to Prepare for Your Lender Appointment
Ideally, you’re starting to work with a lender early on in your loan process, but even thought it’s early, there are still things you’ll need to know and come prepared with when you meet your lender. A few things you may need to have/know for your appointment are:
In the Google+ Hangout below, traditional lenders talk about what you need to know to set yourself up for success with bank loans. Listen to their tips on how to get a bank loan in one session:
Don’t forget to go through this checklist before your appointment to make sure you have what you need.
Real Life Loan Success
Each of these business owners grew their business primarily with bank loans. Now, they’re passing along their tips and strategies to you. You may want to take notes!
Piecing Together the Right Capital
The Importance of a Lender Relationship
You’ve learned from these real-life success, now find out who you should be learning from online.
Traditional Lending vs. Alternative Lending
You may be wondering, if traditional loans can be difficult to get, why you should try to get one, especially since there is an abundance of alternative types of funding. For some reasons, traditional funding may be a better option for your business.
Bank loans usually:
- Have lower interest rates
- Offer tax benefits
- Allow you full ownership (as opposed to venture capital)
If your business is in a good position to apply for a bank loan, it could be more beneficial than alternative funding. If not, other options such as online lenders or crowdfunding may be right for you.
The Challenging State of Traditional Lending
Year after year, bank loans remain illusive to small business owners, at least to those surveyed quarterly by Dun & Bradstreet and Pepperdine Graziadio School of Business and Management. Since 2012, small business owners surveyed had a hard time getting bank loans. Less than half of small business owners who applied for a loan in the first quarter of 2016 actually received one. Even though optimism was up among many SMBs, getting a bank loan wasn’t much easier than in years prior. Despite plans to grow and hire, business owners just aren’t getting the funding they need through traditional methods, and many rely on personal assets to fund their business goals.
What’s Being Done to Help
Not much is being done to improve the state of traditional lending, but the burden isn’t totally on banks. Many small businesses are denied bank loans simply because they aren’t prepared, or because their business credit isn’t strong. Banks have actually increased their small business lending since 2012, especially community banks, which upped lending across the country to $3.5 billion after the 2010 Small Business Jobs Act went into affect.
While banks are likely still feeling wary about small business lending because of the 2008 recession, their trepidation isn’t always the cause for a lack of loans. If business owners do their research, build their business credit and develop a relationship with a lender, they may be able to acquire a bank loan.
Help from the SBA
Some organizations work with lenders to help small businesses get loans. One of these organizations is the Small Business Administration (SBA). The SBA works with lenders and small businesses through their 7(a) loan program, where they guarantee part of a small business loan in the result the business owner defaults. This helps mitigate risk for the lender and can help small businesses get loans. Learn more about the SBA and their loan program in the video below.
Build Your Business Credit Now
Traditional lenders might not approve many small business loans, but when they do, the terms and conditions tend to be more favorable. Because of this, most businesses might want to consider building their business credit while they are relying on alternative lending so that down the line they can try to qualify for a bank or SBA loan.
The first step is to get your paperwork in order, or you may be stuck relying on personal credit cards for business expenses. You can start building your business credit by using your company’s Tax ID Number or Employer Identification Number to get registered with business and credit bureaus. Make sure all your corporate records, state filings and business licenses are up to date — as well as your contact information for faster credit checks.
Once you have everything ready, it’s time to start building credit. While alternative lending is an important asset for business owners, it’s important to remember that any credit history takes time and planning. Entreprenuer.com recommends the following steps to help build and grow your business credit:
- Maintain your personal credit. New businesses do not yet have their own credit history, and evening existing businesses will experience personal credit checks—especially if you own more than a 20% stake in the business.
- Obtain credit early. Don’t wait until the last minute when you are desperate to make a repair or pay a bill. Apply for credit before you need it during start up to help build your credit history.
- Cultivate your credit. Use your credit to help establish good payment histories, and remember to keep those balances low. The length of your credit history is important, as is your history to meet your commitments and pay off your debts.
- Use multiple lenders. Every lender has different policies, and these policies can change with very short notice. By having credit lines through multiple lenders you will be better prepared in the case of sudden emergencies or short-notice account closures.
Learn more about business credit and how it can help your business with funding, contracts and more.
Funding Influencers to Watch
Jim Seitz (@jimseitzwf)
“I’m a Wells Fargo spokesperson for Small Business and Business Banking. Also a Minnesotan from Chicago, Tommie, Stagecoach Speaker, hockey family Dad.”
— Jim Seitz (@JimSeitzWF) May 23, 2016
Aleis Stokes (@aleisstokes)
— Aleis Stokes (@AleisStokes) April 14, 2016
John Barlow (@johnrbarlow)
“President of Barlow Research specializing in middle market, small business and business internet banking research for the financial services industry.”
86% of bankers say their business customers are not prepared for a fraud attack. Find out what they DON’T know. http://t.co/BM0bFTf9Rw
— John Barlow (@JohnRBarlow) June 5, 2013
Erick E. Pereda (@erickpereda)
“…entrepreneur, investor, financial services strategist and M&A advisor, community banking and small business advocate”
Small Banks Are Doing Well, So Why Aren’t They in Better Shape? https://t.co/GiPGX4USH2
— Erick E. Pereda (@erickpereda) May 31, 2016
*Dun & Bradstreet does not endorse any of the lenders on this site [http://accesstocapital.com] and is not responsible for the outcome of any loans or contracts.