Raising Money

Getting Business Loans From Banks

Bank loans are a great source of small business financing. We discuss how banks work and what you need to know about banks before you start looking for a business loan.

Banks are financial institutions that accept deposits and make loans.

They fall into several categories, such as savings and loans, thrift institutions and commercial banks.

Knowing the category in which they include themselves can tell you a lot about the kinds of loans these banks are interested in making.

Savings banks are more experienced in dealing with consumer loans, such as home mortgages and automobile loans. Commercial banks have more experience and interest in business loans.

This doesn't mean that you can't go to a savings bank for a business loan. It may be a good choice. Just be sure to consider that bank's primary focus and level of experience with your type of request.

Probably the most important point to keep in mind when dealing with a bank is that bankers don't like risk. Their primary concern is always the safety of their funds.

Banks may be one of the first sources that come to mind when you begin searching for additional business capital.

Certainly, they will meet your most basic condition: they have money available to lend...or at least they do when times are good.

However, it may be difficult for a new business to borrow from a bank since lenders usually prefer to lend to established businesses. Keep in mind, the first responsibility of a bank is to protect its depositors. As a result, bankers tend to be very cautious about lending money.

Banks come in all shapes and sizes and there are some real differences among them. Small community banks with two or three branches may operate quite differently from large commercial banks with hundreds of loan offices. You will want to carefully review the differences among banks before you select a particular one.

Each type offers certain advantages. A commercial bank may be more experienced and familiar with a business loan request, but a community bank may know you personally and have more confidence in your ability to repay your debt.

How to Get a Bank Loan for a Business

Chances are you're already familiar with several banks in your area. It's extremely helpful to approach a bank with which you already have a savings or checking account or a personal loan.

For banks outside your area, you may want to consult a banking directory, such as Rand McNally's Bankers Directory or Polk's World Bank Directory. Most libraries have copies. Directories list the name, location, assets, liabilities and officers of banks.

On this site, we also have a Banks Database that showcases banks that lend to small businesses. In our directory, you can see what banks have issued SBA loans, a valued source of small business funding.

Good luck in raising money for your business! Where there is a will, there is a way.