The Pros and Cons of Choosing Bank Business Loans

The Pros and Cons of Choosing Bank Business Loans
Taylor Gordon
on March 23, 2020
Read in 3 min

Your business needs money to launch, grow, and thrive.

Despite the benefits of borrowing from an alternative lender, choosing an “old school” bank product to finance your venture still has its own perks.

In this post, we’ll discuss the pros and cons of using a small business loan from a traditional bank.

We’ll then follow up with the types of financing big banks offer to help small businesses thrive.

Funding OptionsAPRDo you qualify?Time in BusinessAnnual Revenue
Funding Option
Lendio Get Started
APR
Starting at 5%
Estimated Apr
Do you qualify?
500
MIN CREDIT SCORE
Time in Business
At least 6 months
Annual Revenue
At least $100K
Funding Option
Kabbage. Learn More
APR
1.5% - 10%
Monthly Fee Rate
Do you qualify?
N/A
MIN CREDIT SCORE
Time in Business
At least 1 year
Annual Revenue
At least $50,000

Bank Business Loans – Pros & Cons

Here are some of the pros of getting a loan with a bank:

There’s a buffet of choices.

Major banks are equipped to offer many products including SBA loans, term loans, credit cards, bank accounts, and more.

A benefit of being loyal to one bank for all financial needs is the possibility of getting preferential treatment whenever it’s time to borrow.

The brick-and-mortar support.

If you prefer to discuss loan options with someone in person, a major bank can provide you the one-on-one customer service you desire.

Collateral is not always necessary.

You may be able to qualify for a bank business loan or line of credit without collateral.

Of course, this will depend on factors such as how much you need to borrow, your business’ financial standing, and your credit profile.

On the flip side, there are some cons when working with traditional banks:

It can be difficult to qualify.

Banks tend to be more strict with eligibility criteria than alternative lenders, like Lendistry who will consider borrowers with a FICO score as low as 600.Lendistry

There may be a strenuous application and loan funding process.

Not only can it be hard to get approved, but the process of applying for a bank loan can be tiresome as well.

Alternative lenders sometimes have a streamlined application and underwriting process which could potentially get you funding within a few business days.

The turnaround time for a bank loan may be longer.

Business history matters.

Banks are generally more friendly to firms that have proof of longevity.

You may need at least two or more years in business to get a bank loan.

Having established business credit history may also be required to qualify.

A down payment or collateral may be necessary.

If either is required, bringing a large sum of money to the table or having enough assets to pledge can be a challenge especially for startups.

Types of Bank Business Loans

Now, let’s cover the types of lending for small businesses that banks provide.

Term Loans

A term loan is your basic installment loan with a scheduled repayment period.

The repayment period on a term loan can last just a few years or even 20 years or more.

Term loans can have a fixed or variable interest rate.

The following major banks offer secured and unsecured term loans:

Short Term Loans

Short term loans are like the term loans discussed above, but — you guessed it — they have a shorter loan term length.

A short term loan usually has a repayment schedule that’s less than two years.

The loan term can even be just a few months long.

One thing to be mindful of about small bank loans is that they may have a higher interest rate than longer term loans.

This is because the bank has less of an opportunity to profit when you’re borrowing a lesser amount for a shorter timeframe.

Check out these banks for short term loans:

Lines of Credit

A line of credit is a revolving amount of credit your business can use and pay off as needed.

You only pay interest on the amount of the credit line that you’re using.

What makes a line of credit different from a credit card?

Business lines of credit may offer less costly cash advances than credit cards.

Lines of credit for business can be secured or unsecured.

If you’re interested in applying for one, check out these banks:

Business Credit Cards

A huge advantage of business credit cards is the opportunity to earn rewards on everyday purchases.

Some credit cards even offer a 0% introductory interest rate for several months or even an entire year.

A business credit card is just like any other regular revolving consumer card.

You’re given a set credit limit that you use and pay off.

Credit card interest rates can be variable and higher than other financing options.

If you’ll be revolving a large balance from month to month, it may be more affordable to get a line of credit or small bank loan instead.

Looking for a business credit card?

Check out these credit cards from Capital One, Chase, and Wells Fargo:

SBA Loans

SBA loans are government-backed small business loans.

Loan terms can last up to 30 years.

You may be able to borrow as much as $5 million.

There are multiple SBA loan types with the most popular being the SBA 7(a) loan.

The SBA 7(a) loan can be used for general business operational needs.

The SBA 504 Loan Program is geared more toward expansion and can finance real estate and equipment.

SBA Microloans are for anyone looking to borrow $50,000 or less.

The average SBA Microloan is $13,000.

Here are three of the most active SBA lenders:

The Final Word on Bank Business Loans

Alternative lenders have taken the small business loan scene by storm, but traditional banks still have a firm presence in the marketplace.

Try our simple online form to potentially connect with a lender in our network:

See Business Lenders

How to Get a Small Business Loan - LendGenius

Taylor Gordon Finance Journalist

Taylor K. Gordon is a personal finance writer and founder of Tay Talks Money, a frugal lifestyle blog on entrepreneurship and hacking your way to an abundant savings account.

Taylor has contributed to The Huffington Post, GoGirl Finance, Madame Noire, The Write Life, and more.

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Persons facing serious financial difficulties should consider other alternatives or should seek out professional financial advice. This website is not an offer to lend. Lendgenius.com is not a lender or lending partner and does not make loan or credit decisions. Lendgenius.com connects interested persons with a lender or lending partner from its network of approved lenders and lending partners. Lendgenius.com does not control and is not responsible for the actions or inactions of any lender or lending partner, is not an agent, representative or broker of any lender or lending partner, and does not endorse any lender or lending partner. Lendgenius.com receives compensation from its lenders and lending partners, often based on a ping-tree model similar to Google AdWords where the highest available bidder is connected to the consumer. Regardless, Lendgenius.com’s service is always free to you. This service is not available in all states. If you request to connect with a lender or lending partner in a particular state where such loans are prohibited, or in a location where Lendgenius.com does not have an available lender or lending partner, you will not be connected to a lender or lending partner. You are urged to read and understand the terms of any loan offered by any lender or lending partner, and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you. By submitting your information via this website, you are authorizing Lendgenius.com and/or lenders and lending partners in its network or other intermediaries to do a credit check, which may include verifying your social security number, driver license number or other identification, and a review of your creditworthiness. Credit checks are usually performed by one of the major credit bureaus such as Experian, Equifax and Trans Union, but also may include alternative credit bureaus such as Teletrack, DP Bureau or others. You also authorize Lendgenius.com to share your information and credit history with its network of approved lenders and lending partners. For qualified consumers, our lenders offer loans with an Annual Percentage Rate (APR) of 35.99% and below. For qualified consumers, the maximum APR (including the interest rates plus fees and other costs) is 35.99%. All loans are subject to the lender’s approval based on its own unique underwriting criteria. Example: Loan Amount: $4,300.00, Annual Percentage Rate: 35.99%. Number of Monthly Payments: 30. Monthly Payment Amount: $219.36. Total Amount Payable: $6,581.78 Loans include a minimum repayment plan of 12 months and a maximum repayment plan of 30 months. In some cases, you may be given the option of obtaining a loan from a tribal lender. Tribal lenders are subject to tribal and certain federal laws while being immune from state law including usury caps. If you are connected to a tribal lender, please understand that the tribal lender’s rates and fees may be higher than state-licensed lenders. Additionally, tribal lenders may require you to agree to resolve any disputes in a tribal jurisdiction. You are urged to read and understand the terms of any loan offered by any lender, whether tribal or state-licensed, and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you.

Lender’s or Lending Partner’s Disclosure of Terms.

The lenders and lending partners you are connected to will provide documents that contain all fees and rate information pertaining to the loan being offered, including any potential fees for late-payments and the rules under which you may be allowed (if permitted by applicable law) to refinance, renew or rollover your loan. Loan fees and interest rates are determined solely by the lender or lending partner based on the lender’s or lending partner’s internal policies, underwriting criteria and applicable law. Lendgenius.com has no knowledge of or control over the loan terms offered by a lender and lending partner. You are urged to read and understand the terms of any loan offered by any lenders and lending partners and to reject any particular loan offer that you cannot afford to repay or that includes terms that are not acceptable to you.

Late Payments Hurt Your Credit Score

Please be aware that missing a payment or making a late payment can negatively impact your credit score. To protect yourself and your credit history, make sure you only accept loan terms that you can afford to repay. If you cannot make a payment on time, you should contact your lenders and lending partners immediately and discuss how to handle late payments.