Business bank loans are a popular choice among companies but can be difficult to obtain. Learn the pros and cons of business bank loans.
It’s no secret that banks offer businesses a range of helpful products, such as business savings, checking and money market accounts, business certificates of deposit (CD), and treasury services. Banks also afford business owners the convenience of tools such as online banking and mobile apps.
An estimated 94% of business owners have bank deposit accounts1, so it is no surprise that owners look to banks for loans. However, many business owners find it challenging to secure the funding they need. The Small Business Credit Survey report published by Fed Small Business in March 2024 reveals that 34% of business loan applications were denied by large banks in 2023, and small banks denied 25%2.
In this Regents Capital blog article, we discuss the pros and cons of business bank loans and explain nonbank lending alternatives that offer easier loan qualification requirements and quicker funding.
Pros of business bank loans
Existing relationship with bank
Business bank loans are a common source of financing for small business owners who have their personal and business banking accounts at the same bank. Since the owners already have a relationship with their bank, it is often the first option they consider for business loans. So, an existing relationship with a bank is one of the obvious pros of business bank loans.
Low interest rates
Banks typically offer lower interest rates on business loans than other funding resources. However, they have strict underwriting criteria and procedures for assessing borrowers’ creditworthiness. This helps them mitigate potential risks and provide favorable interest rates to business owners with good credit scores.
SBA loans
Most banks offer Small Business Administration (SBA) loans, which include SBA 7(a) loans and SBA CDC/504 loans. These government-backed loans are designed to provide financial support to small businesses. It is worth noting that SBA loans have a lengthy application process (a multitude of business documents are required), and business owners will need strong financials and a solid credit profile to qualify. Lastly, the entire SBA loan process—from application to approval to funding—can take up to a few months.
Cons of business bank loans
Lengthy application process
Applying for a bank loan can often be a time-consuming and challenging process. Each bank is different, but commonly required documentation when applying for a business bank loan includes personal information (contact information, personal financial statements), business license, incorporation documents, business plan, financial documents (e.g., business bank statements, business tax returns, balance sheets, income statement), and legal documents.
Rigorous eligibility requirements
Qualifying for a business bank loan can be difficult for any business owner who doesn’t have a high credit score, robust revenue, strong cash flow, and several years in business. In addition, banks might require collateral (more on that below) and a signed personal guarantee when making approval decisions.
Collateral requirements
When business owners seek loans from banks, they may be required to provide collateral as security for the loan. Collateral can take various forms, such as equipment, inventory, or personal assets like homes or vehicles. While this requirement gives banks a sense of security, it also poses a risk to business owners as their assets may be at stake if they fail to repay the loan.
Slow turnaround times
Because banks require extensive personal and business documentation when a business loan application is submitted, they need more time to review it and make an approval decision. Depending on the bank, decisions can take multiple days or even weeks, and this does not include the time to deliver funding. Therefore, business owners needing immediate access to funding might opt for a working capital loan from a nonbank lender like Regents Capital.
Possible need to visit a bank branch
Most large banks have online business loan applications for their business customers. However, owners who are not customers usually need to open a business bank account and schedule an in-person appointment to facilitate the business loan application process. This takes time away from owners’ daily responsibilities of running their companies.
Pros of getting a business loan from Regents Capital
Now that we’ve discussed the pros and cons of business bank loans, we wanted to share some of the pros of getting a business loan from Regents Capital. For starters, we are a leading nonbank lender that has delivered working capital loans to small businesses in countless industries across the United States, many of which could not secure loans from their bank.
By offering less stringent borrowing requirements and tailored working capital loan solutions, Regents Capital can provide the necessary funding for any business need. Your loan can cover the cost of inventory, supplies, employee payroll, office rent, marketing, and more.
Unlike banks, Regents Capital affords you the benefits of a quick loan application process that only asks for basic information about you and your business, along with a faster approval process and funding. We offer working capital loans up to specific amounts with same-day funding during regular business hours. All with the competitive rates and flexible repayment terms you want. Finally, we pride ourselves on providing informative, unhurried, and responsive customer service at every step.
We welcome the opportunity to serve you, so contact us today to get started!
Disclaimer.
This Regents Capital blog post is purely educational and features general information and opinions. Nothing contained herein is intended to constitute advice or recommendations and should not be treated as such. Regents Capital is not affiliated with nor endorses Fed Small Business.
Sources:
1,2 htttps://www.fedsmallbusiness.org/reports/survey/2024/2024-report-on-employer-firms