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Traditional Bank Business Loans: Conventional Small Business Lending

Traditional Business Financing Options

When it comes to financing a business, traditional bank business loans are by far the most common type of business loan available to small and midsize companies. In 2016, loans provided by banks and traditional commercial lenders account for $117,000,000,000 of total value of commercial and industrial loans. Among domestic traditional lenders, the total commercial and industrial loan amount outstanding is roughly $86,000,000,000, with the average maturity being between 2-3 years. The average loan size for traditional financing was roughly $815,000 among all commercial and industrial lenders, with domestic banks having an average loan size of $614,000 – although this varies greatly among risk.

What is Traditional Bank Financing?

Traditional Business loans are financing provided by traditional banks and lenders. This type of financing is the most common form of debt financing used small and mid-sized companies. Traditional financing generally offer the lowest rates and best terms of all commercial lending options. In fact, traditional financing is the benchmark used to compare all other lending options, being that we call the rates offered by traditional banks as “bank-rate”.

What Lenders Offer Bank-Rate Financing?

Bank-rate business loans is commercial financing provided by traditional banks (both big and small) community banks, credit unions and SBA lenders. Bank-rate lenders are the most common types of commercial lending companies offering debt financing to small and mid-sized companies. Bank-rate financing is offered on both a secured (collateralized) and unsecured basis, with nearly two-thirds all business loans made by traditional lenders is being backed by some form of business collateral.

Types of Traditional Business Lenders
Rates Terms Funding
Big Bank 6-13% 3-25 years 10-60 days
Small Bank 6-10% 5-30 years 10-60 days
Credit Union 5-8% 3 – 30 years 30-60 days
Community Bank 5-8% 1-30 years 10-60 days
 SBA Lender 5-8.25 3-25 months 7-60 days

What are Traditional Loans Used For?

  • Startup
  • Business acquisition
  • Construction
  • Franchise financing
  • Purchasing Property
  • Inventory
  • Refinancing Debt
  • Debt Consolidation
  • Working capital
  • Cash flow
  • Commercial mortgage
  • Build outs
  • Expansion
  • Payroll
  • Paying vendors
  • Capital improvements
  • Equipment and/or machinery purchase
  • Upgrades

Traditional Term Loans

Traditional bank term loans are the most common form of financing for small companies. A traditional term loan is financing provided a bank that provides financing that is paid back incrementally over a fixed period of term. The term associated with a bank loan is generally set between 1-25 years (depending upon use) with repayments made monthly. Term loans can be offered as a secured business loan and also on an unsecured basis (although an unsecured business funding requires better credit and cash-flow than secured financing). Traditional lenders that offer term loans include large and small banks, community banks, credit unions and SBA lenders.

Documents needed for Term Loans

  • Business tax returns
  • Income statements
  • Balance sheets
  • A/R and A/P aging schedules
  • Debt schedule
  • Main operating bank account statements

Traditional Lines of Credit

A traditional bank line of credit is a type of financing where a company is provided pre-approved access to a set amount of funding that a company can draw-on at any time. A business line-of-credit is different than a term loan in that a company only needs to draw-on what it needs at one time, and therefore only pays interest on the amount the company has used. The size of a  traditional line-of-credit offered by a bank is usually determined by the company’s accounts receivables, but can also be secured against other business and even personal assets. Traditional lines of credit are offered by big banks, small banks, community banks, credit unions and SBA-approved lending institutions.

Documents needed a Line of Credit

  • Business tax returns
  • Financial statements
  • AR and AP aging schedules
  • Debt schedule
  • List of collateral

SBA Lending

SBA Loans are bank-rate business loans offered by traditional lending companies (banks, credit unions, community banks, community development companies, non-profit lenders) that is administered by the U.S. Small Business Administration. The purpose of the SBA loan program is to help encourage the small business lending markets to provide affordable bank-rate financing to small businesses by covering a large percentage of the lenders’ losses should the borrower fail to fully-repay the loan.

Documents needed for SBA financing:

  • Business tax returns
  • Financial statements
  • AR and AP aging schedules
  • Debt schedule
  • Personal tax returns
  • Personal financial statement
  • Various other SBA forms

Equipment Leasing

Equipment Leasing is a form of financing where a lender purchases equipment for a company and then leases that equipment to a company for a fixed term. Traditional lenders that offer equipment leasing are mostly done by larger banks, but some smaller banks do offer equipment leasing options. Terms associated with traditional equipment leasing are usually between 1-7 years, with 5 years being the most common term period.

Documents needed for Equipment Leasing:

  • Business tax returns
  • Financial statements
  • Purchase order

Get a Traditional Business Loan

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GUD Capital is a nationally recognized leader in the financing industry for providing the best business lending solutions available to small and mid-sized businesses. We leverage our network of 4,000 competing commercial lenders to provide your business the largest selection of commercial financing options.

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