The Ultimate Guide to Business Banking

The average entrepreneur doesn’t have a wealthy relative or substantial nest egg to fund their new venture. Most business owners use financing to help turn their dreams into reality.

If you’re getting ready to launch or expand your business, you’ll need some cash. Here are some tips on how to apply for a business loan, what you can do to improve your chances of securing financing, and what kinds of loans you might consider. 

A business loan is a sum of money provided by a lender with the agreement that the loan will be repaid within a set period of time. Loans almost always involve interest charges, which are monthly fees based on the percentage of the outstanding balance of the loan.

Because of the high costs of breaking into a new market, producing and/or selling a product, paying employees, etc., business loans often carry substantial balances. However, with access to the funds you need and quite a bit of elbow grease, you’ll be able to build a thriving business.

When searching for financing, most small business owners choose from two categories: Small Business Administration (SBA) loans and conventional loans. Here’s a basic small business loan guide:

• SBA Loans
  
  The name “SBA loan” can be confusing. The Small Business Administration doesn’t actually provide funding for SBA loans, they guarantee them so that other business loan services and banks can provide funds to small business owners at a lower risk.
  
  This means that if you’re shopping for an SBA loan, you can access lending companies from many different sources, such as local banks, online lenders, and commercial financial institutions.
  
  Benefits of SBA Loans: SBA loans have more flexibility than other loan types in terms of collateral requirements, limits, interest rates, and payment amounts. Because the U.S. government backs SBA loans, banks incur less risk and therefore are able to loosen up on loan terms.
• Conventional Loans
  
  Conventional loans are not guaranteed by the Small Business Administration. These loans are fully funded by the lending entity, which means that the lender assumes 100% of the risk.
  
  Benefits of Conventional Loans: As opposed to the painstaking process of being approved for an SBA loan, conventional loans often move more quickly. If you have excellent credit and collateral, you may find that interest rates and payment terms are more favorable with a conventional loan as well. Additionally, conventional loans are less restrictive in how business owners may use the money.

Whether you're getting a loan to buy a business, start a business, or expand a business, the process of comparing lenders and qualifying for a small business loan can be daunting. Here are some common questions and tips to help you secure business financing: 

1. What are the qualifications for getting a small business loan?
   
   Business loan eligibility criteria varies widely depending on the type of loan, the amount of money you need, and how you plan to use the funds. Here’s what most financial institutions will assess as they determine your eligibility:
   
   Credit: Your personal FICO credit score and your business credit score (if you have one established) will affect how hard it is to get an SBA loan or a conventional loan. You can check your personal score through Experian, TransUnion, and Equifax and your business credit score through Dun & Bradstreet, Experian, and Equifax.
   
   Conventional loans usually look for applicants with credit scores of 700 or higher. SBA loan qualifications don’t specify a minimum credit score, but most lenders will aim for about 640 and above. In addition, lenders will consider the length of your credit history and take a look at your credit report over the course of time.
   
   Proof of Profitability: Lenders will want to know that you will be able to repay the loan promptly. To determine this, they’ll assess your cash flow.
   
   If you’ve already been in business for a length of time, the lender will take a look at your financial statements to make sure there’s room in the budget to make loan payments. Similarly, anyone seeking loans for buying into a business will be asked to provide proof of profitability.
   
   If you’re opening a business for the first time, your business plan will come under scrutiny to assess how long it will take you to begin bringing in cash, and how profitable your business should be. Lenders will also look at your personal bank statement, as business loans are largely dependent on your own ability to manage cash.
   
   Experience: Entrepreneurs with no business ownership experience may find that it is hard to get a small business loan from many major lenders. Conventional loans typically are reserved for those with a few years of business ownership experience under their belts.
   
   Collateral: Whether you’re aiming for a conventional loan or an SBA loan, you’ll likely be asked to provide collateral. Collateral is not required for all SBA loans, but banks still prefer that you provide it (even if it’s equipment or vehicles purchased using the funds from the loan).
   
   Collateral can be existing business assets or your personal property, such as your home and/or vehicles. Lenders prefer collateral that is easy to sell for cash.
   
   Relationship: Your relationship with your banking partner is almost like a “wild card” when it comes to small business loan approval. If you’ve worked with your bank for some time, particularly a community bank or credit union, you’ll hopefully have developed a positive relationship.
   
   Loan officers at your bank may use that relationship as a factor in determining your loan eligibility. For prospective borrowers with bad credit, a good banking relationship can be a lifeline.

2. What documents will I need for my business loan application?
   
   One common question lenders hear is, what do I need to get an SBA loan pre-approval or conventional business loan pre-approval? The answer is: a TON of documents. Grab the largest folder you can find and gather the following for business loan eligibility checks:

   • Business and personal credit reports (the lender will likely pull a fresh copy, but you’ll need to be aware of what’s on your report to avoid surprises)
   • Business and personal bank account statements
   • Business formation documents and partnership agreements
   • Business license details
   • Tax returns and other IRS documents (business and personal)
   • Business plans and business forecasts
   • Growth and marketing strategies
     
     
3. How long should it take to process a business loan?
   
   The expected approval time from start to finish can be anywhere from a few weeks to a few months. New ventures, first-time entrepreneurs, businesses with multiple owners, unsecured loans (loans with no collateral), and higher loan amounts may require extra processing time and more red tape to navigate.

We’ll put it this way. If it were easy to get small business loans, everyone would do it. SMB loans can change the course of your business and your life, and they don’t come to fruition without some considerable effort.

You’ll likely wade through several business finance applications, search high and low for small business loans with online approval, speak with small business loan agents, and jump through hoops to achieve SBA loan approval or conventional loan approval. 

At Vast Bank, we offer growing businesses a range of financing options to help meet a range of unique needs:

Set yourself up for a win as you acquire and spend your business loan:

• Only borrow what you need
• Avoid “fast loans” with exorbitant interest rates
• Come prepared with all documents to make the process fast and smooth
• Consider community banks who invest in your local economy
• Don’t give up! If lenders cite specific actions you can take to improve your ability to qualify for the loan you need, stay positive and keep working toward your dreams. 

Vast Bank is a trusted provider of SBA loans in Tulsa. Our experienced lenders can help you understand how to apply for a business loan and find the best financing to meet your short-term and long-term goals.

Please don’t hesitate to reach out with any questions.