Apart from seeking funds from investors, companies can also choose to take out a bank loan. Usually, though, this option is only viable if you do not have an immediate need for money. Mainly, that is because it can take months to get approval.
According to the Biz2Credit Small Business Lending Index, the loan approval rate of big banks is 14.5% as of January 2022. On the other hand, small banks have a 20.3% approval rate.
Based on the cited figures, it appears that there might be challenges when seeking a bank loan.
At any rate, choosing a bank may seem daunting. Hence, we list some of the best banks for small business startup loans to cut the choices down.
Table of Contents
Best Banks Offering Startup Business Loans in the U.S.
All the banks listed here have more than enough funds to finance your business. They are also the market leaders in commercial and industrial lending volume.
These are the best banks you can consider for a small business loan in no particular order.
1. Bank of America – Best Overall Business Loan Lender
- Loan Amount: $10,000 to $100,000
- APR: Starting at 4.75%
- Loan Terms: 12 to 60 months
- Requirements: At least two years in business with ownership; good credit rating; $100,000+ in annual revenue
In September 2020, S&P Global Market Intelligence cited the banks with the most commercial and industrial loans. Bank of America was the largest, eclipsing the next closest institution by almost $100 billion.
You can choose between a fixed-rate secured or unsecured loan. And more than that, you may also receive extra perks. For example, you could qualify for lower interest rates depending on some requirements. They may also waive wire transfer fees.
For secured term loans, Bank of America requires a higher annual revenue of $250,000. In comparison, borrowers only need $100,000 for unsecured term loans. Plus, the borrowing limit is higher at up to $250,000. Depending on market conditions, the interest rate may also be lower.
Another condition is that the borrower needs to have at least two years in business. While the repayment terms for business loans are up to five years, it is less than other banks.
Business Lines of Credit
Bank of America also offers business lines of credit – both secured and unsecured. The annual revenue requirements are the same as term loans for these loans.
For the secured line of credit, the borrowing power starts at $25,000. As for the unsecured line of credit, it is lower at $10,000. At any rate, there is no limit to how much you can borrow. Also, these two options have revolving terms. In other words, you can use the money as needed. But you do have to renew the line of credit annually.
- The cost of unsecured loans is lower than many other banks
- Available in all 50 U.S. states
- Their financing program is advantageous if you are a healthcare provider
- Not a preferred SBA lender
- Not easy for small businesses to qualify for loans
2. Live Oak Bank – Best for SBA Loans
- Loan Amount:
- APR: Starting at 5.5% to 8.25%
- Loan Terms: Up to 300 months
- Requirements: Strong financial history that meets the conditions of standard SBA loans; at least 650 personal credit score
As of 2020, Live Oak is the most active SBA 7(a) lender in the U.S, lending $369,181,900 to small businesses.
Unlike conventional banks, they do not have physical branches. They also do not have consumer loan products. But they do specialize in small business loans, especially SBA loans.
Live Oak started only in 2008, loaning only to veterinary practices. Since then, they have expanded to other industries and have already provided more than $2 billion to small businesses to date.
Because they do not have physical branches, all applications are electronic. You would need to upload all the documents required. Also, you can check a loan application through your online account at any given time. Because of this streamlined process, they process applications faster than most other banks. Even so, it can still take months.
- SBA-preferred lender
- Access to SBA loan specialist
- Not the most suitable for small businesses
- Does not offer working capital
3. U.S. Bank – Best for Ease of Application
- Loan Amount: $5,000 to $250,000
- APR: Starting at 5.99%
- Loan Terms: 84 to 300 months
- Requirements: At least two years in business with ownership; good to excellent personal credit rating
U.S. Bank does not have as many physical branches as larger banks such as Bank of America and Wells Fargo. Nonetheless, it is one of the best banks for small business startup loans. Hence, if there is a branch near you, do inquire. Even if your business is less than a year old, you may still qualify for an SBA loan.
U.S. Bank offers fixed-rate loans of up to $1 million, but you need to put up collateral. Unfortunately, they do not provide unsecured business loans.
If you have a pressing need for working capital, U.S. Bank can offer you Quick Loan. This loan term provides only up to $250,000. But the application process is not only easy but also faster.
Business Lines of Credit
U.S. Bank provides up to a $1 million line of credit with an interest-only payment option. Companies that have been in business for two years or more can also avail of CashFlow Manager. The bank’s revolving line of credit can go up to $250,000. If the amount is less than $50,000, though, you would have to pay an annual fee of $150.
For SBA loans, U.S. Bank is tough to beat. In the 2020 fiscal year, they have approved the second most number of SBA 7(a) loans.
- Prefills loan applications for current customers
- SBA loans are available
- Can avail of as low as $5,000
- Application for loans over $250,000 is more complicated
- Current rates and fees are not disclosed on their website
- Requires collateral
Other Banks to Consider for Small Business Loans
These banks are also good options you may consider for business loans.
1. JPMorgan Chase
Small business owners can check the term loan packages of JPMorgan Chase. These include fixed rates and adjustable rates that last up to seven years. Best of all, some of them start at $5,000.
For business lines of credit, JPMorgan can provide $10,000 to $500,000 with a renewable five-year revolving term. Commercial lines of credit start at $500,000 with renewable one- or two-year revolving terms.
You would be pleased to know that JPMorgan Chase is an SBA-preferred lender for SBA loans. As such, they can provide different types of SBA loans. Some of these include SBA Express loans and credit lines of up to $350,000.
Citibank is well-known for its small business credit cards. But they also offer business loans, although limited. On the plus side, choosing a package is not confusing. But you may need to consider another bank if they do not have a suitable loan type.
Citibank offers loan terms with fixed interest rates and up to seven years loan term. They do require a personal guarantee. At any rate, you can request from $5,000 up to $3 million.
For business lines of credit, Citibank can offer you two types. Both can provide $10,000 up to $3 million, with variable interest rates and revolving terms. Like loan terms, they would also need a personal guarantee to qualify.
3. PNC Bank
PNC caters to companies that have been in business for at least three years. If you cannot meet this requirement, it is best to look elsewhere.
For loan terms, they provide unsecured business loans from $20,000 to $100,000 with fixed interest rates and up to five years terms. As for secured loans, the amount ranges from $100,001 to $3m with fixed or variable rates and up to seven years terms.
If you seek business lines of credit, PNC offers an unsecured option from $20,000 to $100,000. And for a secured line of credit, the amount ranges from $100,001 to $3 million. Both these loan types have variable interest rates and revolving terms. Note that you would have to pay $175 annually for unsecured lines. For a secured line, the bank will charge you 0.25% of the committed amount.
How to Qualify for Business Loans
Small companies can get business loans from banks. Usually, the interest rates are reasonable. Loan tenure can be years, and the monthly repayments are manageable. But to qualify, you have to meet some criteria. Some of these are:
Personal Credit History
Banks do not only look at the financial status of companies. They are also particular about the credit history of the borrower. One reason why they do that is to determine your sense of financial responsibility. And the best way they could do that is to look into your credit score.
Although some banks accept a FICO score of 650, the top lenders prefer at least 700. For new and small businesses, some banks may even only consider a score of 750.
All banks have a minimum requirement for the number of years a company has been in business. In some cases, it could be six months. Others may require 1 to 2 years or even more. The rationale behind this condition is that businesses that operate for longer years are less likely to default on payments. Apart from that, banks will also look at other indicators of your financial capability to repay the loan.
Your application should show that your company is earning a solid revenue annually. That means you would need to submit documents that indicate your income.
Generally, most loan providers will require at least $100,000 annual revenue. But that amount varies as each bank has its conditions. Remember that they want assurance that you can pay back the loan. And you can do that by meeting their revenue and profitability requirements.
Business Loan Application Form and Documents
Some banks may require you to submit physical documents. Others, like Live Oak, let you do it online. Be sure to provide a complete and accurate business loan application with all the required information.
For most banks, you would need these documents:
- Personal background or resume of every person who owns at least 20% of the company
- Business plan
- Personal and business tax returns
- Financial statements
- Bank statements
- Use of loan statement
- Debt schedule
- Statement of collateral
- Legal documents, such as licenses, registrations, and articles of incorporation
Final Words on Small Business Bank Loans
Although we have listed six banks here that offer the best business loans for startups, there are many other options. There may even be regional financial institutions that could provide attractive packages. But generally, you should find an excellent deal from any of the banks in this article.