How to Apply for a Bank Loan for My Business
Lenders offer a variety of different loan products to business owners in the U.S. Most banks have commercial lending divisions that cater to businesses needing loans in excess of $2.5 million and business lending divisions that handle smaller loans. Banks offer both unsecured loans and loans secured by real estate, equipment, vehicles and cash deposits. The U.S. Small Business Administration (SBA) partners with banks to guarantee loans for start-up businesses and other loans that do not meet banks' underwriting standards.
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Things You'll Need
- Government-issued identification
- Two years of business and personal tax returns
- Business license
- Personal financial statement
- Business cash flow analysis
Instructions
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Go to the bank and meet with a business banker. Tell the banker how much you need to borrow. If you do not have an immediate need for cash or are unsure of the amount, tell the banker you need a line of credit rather than a term loan. Give the banker your personal and business tax returns, personal financial statement and business cash flow analysis. The banker will send your information to the business underwriter for an assessment. Arrange for a second appointment.
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Go to the bank for your follow-up appointment. Based on the underwriter's analysis of your finances, the business banker will provide you with several loan options. Loans using property as collateral have the lowest rates. If you lack equity in your commercial building, you can borrow against your home. You can borrow against vehicles and some equipment, but the bank must inspect the collateral before agreeing to equipment loans.
If you have operated the business for less than two years, you must apply for an SBA loan, because bank loans have a two-year seasoning requirement. The banker will give you the forms to complete an SBA loan file. Decide on a product and sign a loan commitment letter. The underwriting process for most business loans takes several weeks.
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Meet with the banker to close the loan. Make sure the loan documents match the terms you previously discussed. Sign the documents to complete the process.
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Tips & Warnings
Many banks offer business credit cards with interest rates comparable to secured lines of credit. Do not attach a lien to property if you can access unsecured funds at a similar price. Additionally, business credit cards have no setup costs, whereas business loans and lines of credit have significant closing costs.
People who take out business equity lines (BEL) of credit attached to their homes risk losing their house if they ever default on the payments. Because BELs are borrowed under the business name, you cannot write off the interest on your personal returns. A tax professional can help you deduct the interest from your business income.
BELs and unsecured lines of credit have variable rates. Some business loans use the U.S. prime rate as an index, while others use the London Interbank Offered Rate to price loans. Whenever the prime rate or LIBOR changes, your loan interest rate changes.
