Do big banks approve business loans to our nation’s smallest businesses?
If you’re someone who keeps up with the latest in the small business banking world, then you might be quick to answer, “No.”
You know how the numbers look: 80% of small business owners get shut down on bank loan applications, and bank lending to small businesses has dropped by over 20% in the last decade. In a word, the cold-hard facts look bleak for small business.
So where is this bank capital coming from?
Whose door should you knock on if you want to become a part of the 48% of business owners who fund their businesses with bank loans?
If a bank loan is a viable option for your business, we’ll help point you in the right direction. Here are the 8 best banks for small business loans.
What Small Business Owners Need to Know About Bank Loans
Before we dive deep into the list of the best banks for small business loans, let’s run through what you need to know about bank loans in the first place.
First off, what kind of small business loans are we talking about here?
The Different Types of Small Business Loans Banks Offer
Traditional banks—both commercial and community—offer the business loan “classics.”
Whereas alternative lenders mix it up with different flavors of financing—short-term loans, working capital loans, inventory financing, and much, much more—the banks you know best provide the loans you’re most familiar with: term loans and business lines of credit.
When we talk about the best banks for small business loans, the types of loans these banks are usually offering are term loans.
Term loans are those business loans that, when asked to describe the basic concept of a loan or debt financing, you’d probably be able to describe best. Term loans are lump sum loans that provide businesses a sum of capital. You, the business owner, pay back a term loan over a fixed amount of time with a set payment schedule. Each repayment you send to the lender includes the interest you owe on the loan.
Business lines of credit are similarly desirable business financing products but work a little differently than their term loan counterparts.
Business lines of credit don’t function all that differently than the credit cards you find in your wallet. With a line of credit, a lender approves you for a pool of funds, referred to as your credit line. Those funds are there for you whenever you need capital for your business.
The best part of a business line of credit is this flexibility—you can use it whenever you want or need it, and you pay interest only on what you draw from your credit line once you choose to do so. When you’ve repaid the bank in full, your line of credit gets refilled to its original amount (which is why these financing products are often called “revolving lines of credit”).
While term loans and lines of credit are the most common bank loan products, you might also find an equipment loan thrown in a bank’s loan offering here and there.
Equipment financing is another affordable way to get capital to grow your business. In the specific scenario where you need to purchase new or used equipment for your business, an equipment loan is almost always the perfect fit your financing needs.
With equipment financing, banks help finance 80% to 100% of the cost of your new equipment. And the best part—the equipment you buy acts as collateral for the loan (making it easier to qualify for the financing in some cases).
Why Bank Small Business Loans Are the Gold Standard of Business Financing
If you qualify with one of the following best banks for small business loans, you deserve a slap on the back.
Why? Because bank loans are the hardest financing product to qualify for, but the best loan option on the market if you can score one.
They’re regarded as a small business owner’s best financing option because they’re so low cost.
The average APR on a business loan from a large national bank ranges from 2.24% to 4.77%. And the average APR on business loans from smaller, regional banks doesn’t look too bad either, ranging from 2.86% to 5.43%.
The bottom line is this: If you qualify for a bank loan, you (almost always) know that you’re getting the cheapest financing available to you.
So without further ado, let’s dive into the best banks for small business loans to see if you can find one that’s right for your business.
The 8 Best Banks for Small Business Loans
If you’ve used a few different banks for your personal finances, or have switched your business checking account from bank to bank, then you know that not all banks are created equal.
Some are big, with a national reach, and some are smaller, just focusing on community clients.
Because so many varieties of banks are out there, let’s break the list of the best banks for small business loans down according to bank types.
Starting with the big guys (more than $10 billion in deposits), what are the best big banks for small business loans?
The Best Big Banks for Small Business Loans
1. Wells Fargo
Wells Fargo calls themselves “America’s leading small business lender.”
And if you look at their small business lending performance and commitments in the past three years, that moniker just might be true (at least when compared to other mega-banks).
In the first quarter of 2015, Wells Fargo lent $34.8 billion in small business loans to companies with less than $20 million in revenue.
This sum of small business capital is just a portion of the bank’s progress toward their five-year commitment (pledged in 2014) to lend $100 billion to small businesses—along with broader resources, services, and commitments to aid small business owners.
By their sheer commitment—and their progress toward it—Wells Fargo certainly makes the list of the best banks for small business loans.
If you’re a small business owner, your safest bet is probably Wells Fargo’s Unsecured Business Loan or Unsecured Business Line of Credit.
A Top Option: Wells Fargo Unsecured Business Loan
The Wells Fargo Unsecured Business Loan is most comparable to a short- or medium-term loan you’d find with an online lender.
The unsecured business loan from Wells Fargo offers anywhere from $10,000 to $100,000 in capital. The terms range from one to five years, and interest rates range from 6.50% to 22.99%, depending on your eligibility.
And, of course, this loan is an unsecured business loan—meaning that, unlike most bank loans, you won’t have to put down any collateral to secure the loan.
If you’re like many small business owners looking for fast financing, the Wells Fargo unsecured business loan might be able to meet your timing expectations: Loans can be approved instantly and you can get the funds in your bank account the next day.
A Top Option: Wells Fargo Unsecured Business Line of Credit
The next product for you to consider is the Unsecured Business Line of Credit.
With this financing product, you get a revolving credit line of $5,000 to $100,000 to use for cash flow problems or covering unexpected expenses.
This product might be slightly harder to qualify for when compared to the unsecured term loan, but you get lower rates—typically the prime rate plus 1.75%.
And finally, this line of credit is also an unsecured financing option. Unsecured business lines of credit, like the other Wells Fargo small business loans, don’t require collateral. If you don’t want to risk any of your personal or business assets, this is a great option.
2. Bank of America
If, again, we’re looking at the best banks for small business loans based on the amount lent to small business owners, then Bank of America is up next.
In the first quarter of 2015, Bank of America lent the second largest amount of capital to small businesses: $33 billion.
Again, the best option for small business owners is typically Bank of America’s Unsecured Business Line of Credit.
Your Best Option: Bank of America’s Unsecured Business Line of Credit
Bank of America’s unsecured business line of credit is not unlike Wells Fargo’s version.
These lines of credit range from $10,000 to $100,000 in flexible financing, with no collateral required to be approved for the credit line.
Bank of America doesn’t set a range of interest rates upfront, considering they’ll set your interest rate based on your eligibility and your pre-existing relationship with the bank. Say, for instance, you have a business bank account set up with Bank of America (and manage it responsibly), you could benefit from low, relationship-based rates.
If approved for this unsecured business line of credit, you can receive your funds within a week.
However, Bank of America sets application requirements right up front: Businesses must have been operating for at least two years under the existing ownership to be eligible, and they need to have brought in $100,000 annual gross sales the prior year.
3. JPMorgan Chase
Next on the list of the best banks for small business loans is JPMorgan Chase—better known as just “Chase.”
As a big (really big—we’re talking $2.4 trillion in assets) bank, Chase comes in at number three for the best banks for small business loans. In the first quarter of 2015, Chase lent $19.1 billion to small business owners.
What kind of Chase small business loans are best for the smallest businesses?
Your best bets are either their Business Quick Capital Loan or their business credit cards.
A Top Option: Chase’s Business Quick Capital Loan
The Business Quick Capital Loan comes from a partnership with Chase bank and the online lender, OnDeck Capital.
Under this program, loans are made from Chase’s hefty assets, with the speed and ease of OnDeck’s underwriting and loan processing technology.
The fusion of these two financial power-players makes the Business Quick Capital Loan an ideal financing option for business owners who need affordable financing and fast.
However, the Business Quick Capital Loan is only available to business owners in Chase’s banking network.
If you’re one of the 4 million small business customers in their database, then you can be pre-screened and pre-qualified for the Quick Capital Loan. The most eligible borrowers are then invited to apply for up to $250,000 in financing.
In the end, you won’t really know if you’re eligible for this small business loan until Chase tells you that you are. But if you bank with Chase, this could be a great financing option. The process is fast, entirely online, and loans come in at an interest rate typically lower than what you’d get with an online lender.
A Top Option: Chase’s Business Credit Cards
A business credit card isn’t typically considered a traditional “small business loan,” but bear with us here.
When it comes to scoring a business loan from a bank, sometimes your best option really could be getting a business credit card from a bank.
There are a lot of circumstances in which you can use a business credit card just as you would a loan, and you’ll have a much easier time qualifying for this financing option over traditional bank loans.
Chase business credit cards are particularly great options for business owners on the hunt for this type of financing. From cash back cards to general points rewards, you’re sure to find a Chase business credit card that fits your needs. You can read a full comparison of the best Chase business credit cards here.
The Best Banks for SBA Loans
If we’re talking about the best banks for small business loans, we’d be remiss to not bring up the category of SBA loans.
Unless you’re in the top tier of qualified borrowers for bank loans, we’d suggest that you skip the first three banks for small business loan options (at least their generic options).
Instead, check to see if you qualify for SBA loans. Here’s why.
What Are SBA Loans?
Before we get to the best banks for small business loans from the SBA, let’s cover this financing option.
“SBA loans” is a misleading term. The Small Business Administration doesn’t actually give out these loans themselves.
Instead, the SBA guarantees business loans that are issued by traditional banks.
An SBA guarantee (typically up to 85% of the loan value) has two major benefits: First, it mitigates the bank’s risk of lending to you. With the SBA’s guarantee that the bank gets at least most of their money back in the case you default on your loan, the lender can be much more comfortable extending credit. And this makes SBA loans easier to qualify for as a small business owner.
That’s not to say that qualifying for SBA loans is easy—you’re still getting a loan issued by a bank after all. But the added security by an external guarantee certainly incentivizes these banks to lend to more “riskier” small business owners.
Not only are SBA loans slightly easier to qualify for, they also come with equally affordable interest rates as most bank loans do.
Interest rates on SBA loans from banking institutions range from about 4% to 7%.
The bottom line? SBA loans are one of—if not—the best business funding options for the nation’s smallest businesses.
And here’s the list of the best banks offering them.
1. Wells Fargo – National Association
According to the SBA’s list of the most active SBA lenders, Wells Fargo reigns supreme.
Solidifying its top spot on the list of the best banks for small business loans, Wells Fargo approved 1,554 SBA loans and lent a total of $458,930,900 in 7(a) SBA loans in 2016.
2. Live Oak Banking Company
Coming in second on the list of the best banks for SBA loans, Live Oak Banking Company lent a whopping $362,614,300 via 281 7(a) loans from the SBA.
3. The Huntington National Bank
Huntington Bank has reigned in the top 10 SBA lenders for eight years now, and in 2016, they ranked #3 for the best banks for SBA loans.
In 2016, Huntington Bank lent a lot of SBA loans—837 of them amounting to a total $163,840,500 to small businesses.
Huntington Bank lends SBA loans through the basic 7(a) program, the 405 program, and the SBA Express Loan program (a great option for business owners who need a loan faster than the typical time-to-funding for the SBA).
4. JPMorgan Chase Bank, National Association
Chase bank makes the list for the best banks for small business loans, and it makes the list of the best banks for SBA loans.
Chase offered 735 different SBA loans in 2016, lending a total of $149,339,900 to small business owners.
5. Celtic Bank Corporation
Celtic Bank comes in at #5 for the best banks for small business loans from the SBA, lending a total loan amount just shy of Chase’s approval amount.
In 2016, Celtic Bank approved 360 SBA loans, lending a total of $139,972,100.
If you’re looking for an small business loan from a bank, try the on of the SBA variety from these five best banks for SBA loans.
And these are just five banks out of a long list of 100 most active SBA lenders. If you don’t qualify for one of the five banks above, then you could try applying to the SBA lenders are lending to small business owners like yourself.
How to Qualify With One of These Best Banks for Small Business Loans
As we’ve mentioned a few times now, these banks don’t have their doors open for just any small business owners. If they’re going to lend to you, you need to prove your top-notch qualifications.
What does a bankable business owner look like?
Well, a strong candidate for one of these best banks for small business loans have stellar credit history and strong business financials.
And their business loan application? It’s spotless.
A perfect loan application for a bank is complete, organized, and gives the bank every ounce of information they might need to approve your business loan.
In general, here’s a running list of what you need to show:
- Personal background/résumé
- Business plan
- Personal credit report
- Business credit report
- Personal and business tax returns
- Financial statements
- Bank statements
- Collateral to offer
- Legal documents (licenses, registrations, articles of incorporation, etc.)
- Use of loan
- Debt schedule
… And more. A lot more, oftentimes. What you need to prepare for your application to one of these best banks for small business loans really depends on the bank you’re working with. But in general, you can be confident that you need to prepare some version of the bullet list above.
And if you don’t know what some of the documents you need for your loan application really are, then familiarize yourself with the 25 different business loan requirements you might need to know.
Don’t Qualify for the Best Banks for Small Business Loans? Here Are Your Best Alternatives
If you’re one of the many business owners who aren’t bankable just yet, these days there are many different alternatives to these best banks for small business loans.
Different alternative lenders have stepped in to fill the lending gap for small business owners who aren’t “bankable” borrowers.
These are online lenders that are slightly easier to qualify for but still offer some of the best financing products available to small business owners.
In short, they provide those desirable medium-term loans, business lines of credit, SBA loans, and equipment financing options that pull the best borrowers to the bank—you’ll just get a faster time to funding and a slightly higher interest rate.
If you can stomach a small bump in your interest rate—and would benefit from a much faster time to funding and higher approval rates—then here are the best alternative lenders to work with.
1. Bond Street
Bond Street is a medium-term lender providing a loan product almost identical to what you can find at a bank.
Bond Street offers loans from $50,000 to $1 million—but their medium loan amount is about $175,000. Terms on a Bond Street loans range from one to three years but usually come in at the later end of that range.
And for rates, you could score a 6% interest rate (not too far from what you’d get at a bank), but if you’re not as qualified, rates could go up to 23%. The median Bond Street interest rate is 13%.
What makes this lender a great alternative to the best banks for small business loans? It’s likely the fact that an offer from Bond Street is tough to beat—it’s probably one of the most affordable online business loans. Plus, Bond Street can turn your loan application around in less than 10 days.
2. Lending Club
Another stellar alternative to the best banks for small business loans is online lender Lending Club.
Lending Club offers a fixed-rate term loan ranging from $5,000 (their shorter-term product) to $300,000.
Terms on a Lending Club loan extend a little longer than that of Bond Street’s, ranging from one to five years. And interest rates are set at 5.90% to 25.90%.
Lending Club is a fantastic lender if you’re looking to build business credit to become a bankable borrower in the future. Lending Club reports to the business credit reporting bureau (unlike a lot of lenders), so your good borrowing behavior will be rewarded with increases to your business credit score. And again, Lending Club is a great alternative to bank loans simply because of their affordability in the online lending space.
3. Funding Circle
Another alternative to a medium-term loan from a bank is a loan from Funding Circle.
Funding Circle offers a medium-term loan with monthly repayment (structured almost exactly like a traditional bank loan product).
Loans range from $25,000 to $500,000, with terms of one to five years and rates ranging from 5.49% to 27.79%.
Again, Funding Circle is a fantastic option if you’re looking for an affordable loan product from an online lender. But it’s also a particularly good lender to work with if you need to consolidate any of your currently outstanding business debts. Consider consolidating more expensive short-term or credit card debt and qualifying for better rates with Funding Circle.
4. Credit Junction
Credit Junction offers a medium-term line of credit that is a great alternative to the business lines of credit you can find with one of these best banks for small business loans.
Credit Junction offers a secured line of credit with interest-only monthly payments. Your credit line could range from $500,000 to a whopping $5 million. The median Credit Junction line of credit is $1 million. Rates on a Credit Junction line of credit range from 14% to 19%, with their median falling at 16%.
Credit Junction is a great lender to work with if you need a lot of capital but don’t qualify for a line of credit from a bank. They work particularly well for businesses that are growing rapidly and need funds to keep up with that demand. In order to secure a business line of credit from Credit Junction, you need to have assets to help collateralize that credit line.
Looking for an SBA loan?
You could go to one of the five SBA lenders we listed above.
Or you could work with an online SBA loan marketplace SmartBiz. SmartBiz uses technology to connect you with the SBA lender that is most likely to fund your business loan. You still get the low monthly payments, great rates, and long terms you want to see from an SBA loan—but at a much faster time to funding. If you need working capital in the form of an SBA loan, check out SmartBiz.
There you have it—eight of the best banks for small business loans and five alternative lenders that all small business owners should consider.
When you don’t qualify for a traditional business loan from a bank, those five alternative lenders are your next best option for finding the affordable, quick, and easy capital you need to grow your business.
Good luck, small business owner!
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