To get a business loan from a bank, you match your need to the right loan product, meet the bank’s credit and revenue thresholds, submit a full documentation package, clear underwriting, and satisfy the conditions in the commitment letter before closing. A straightforward deal takes two to eight weeks. Bank interest rates ran roughly 6% to 12% through late 2025, cheaper than most online lenders, and the tradeoff is stricter eligibility and heavier paperwork. Most denials and delays trace back to preventable documentation problems, so the work you do before you walk into the branch matters more than anything that happens after.
Match the Loan Product to What You Actually Need
Banks offer several distinct products. Asking for the wrong one wastes time and can get you turned down when a different product would have worked.
A term loan is a lump sum repaid on a fixed schedule over one to ten years, sometimes longer for real estate. It fits large one-time investments: buying a building, funding an expansion, acquiring another business.
A line of credit is a revolving pool you draw from as needed and repay over time, with interest charged only on what you’ve borrowed. It fits cash flow gaps, seasonal inventory, and payroll during slow months.
An SBA 7(a) loan is originated by the bank but partially guaranteed by the Small Business Administration. The guarantee reduces the bank’s risk and often produces better terms than a conventional loan. Rates are capped by loan size; for loans above $350,000, the cap is the prime rate plus 3%.
An SBA 504 loan is a specialized program for major fixed assets like real estate, heavy equipment, or long-lived machinery. It combines a conventional bank loan with a second loan from a Certified Development Company, with terms of 10, 20, or 25 years. You cannot use a 504 loan for working capital or inventory.1U.S. Small Business Administration. 504 Loans
Equipment financing is a loan secured by the equipment you’re buying; you own it outright once the loan is paid off. Banks sometimes offer equipment leases instead, which require no down payment but leave you without ownership at the end of the term.
The application process below applies to all of these. SBA-guaranteed loans add federal forms, but the core steps are the same.
Whether You’ll Qualify
Banks screen applicants against several benchmarks before they’ll look at your documents. Falling short on one doesn’t automatically disqualify you, but the conversation gets harder.
Personal credit score. Traditional banks generally want a personal FICO score of at least 670. Some institutions accept lower scores, but the best rates go to borrowers in the 700+ range. Blemishes usually mean the bank asks for more collateral or a larger down payment.
Business credit score. Many lenders pull your FICO Small Business Scoring Service (SBSS) score, which runs 0 to 300. For SBA-backed loans, the practical minimum sits around 155 to 160; applications below that rarely survive the pre-screen.
Time in business. Two years is the standard minimum. Banks treat the first two years as the highest-risk period and mostly won’t lend to businesses that haven’t cleared it. Younger companies are usually steered to SBA microloans or alternative lenders.
Annual revenue. Floors vary, but many banks set a minimum between $100,000 and $250,000. The bank wants confidence that revenue can absorb monthly payments without straining operations.
Debt service coverage ratio. This is the number underwriters care about most. Your DSCR measures whether net operating income can cover total debt payments. A ratio of 1.25 or higher is a common benchmark: for every dollar of debt payments, you generate $1.25 in operating income. A DSCR below 1.0 is almost always a dealbreaker.
Assembling the Documentation
The documentation package is where most applicants either shine or stall. Underwriters are building a detailed financial model of your business, and every gap creates a delay. Having everything ready before your first meeting can shave weeks off the process.
Tax Returns and Financial Statements
Expect to provide three years of federal income tax returns for both the business and every owner with a significant stake. Banks verify these against IRS records by submitting Form 4506-C, which authorizes the IRS to release your transcripts directly to the lender. If your filed returns and the IRS transcripts don’t match, the application stops cold.
You’ll also need year-to-date profit and loss statements and a current balance sheet from your accountant. Underwriters use Schedule C (sole proprietors) or Form 1120-S (S corporations) to identify depreciation and interest expenses that get added back into cash flow calculations. Those add-backs can significantly improve how your finances look on paper, so make sure your accountant prepares them correctly.
Business Plan and Loan Purpose
A formal business plan isn’t a formality. The bank needs to see exactly what you’re doing with the money and how the investment generates enough return to repay the loan. A plan that says “growth and expansion” gets pushed back with questions. Specific projections tied to specific expenditures, such as “purchasing a $400,000 CNC machine that increases production capacity by 30%,” give the credit committee something concrete to evaluate.
Personal Financial Statement and Debt Schedule
Every listed owner submits a personal financial statement detailing personal assets and liabilities. For SBA loans, this is SBA Form 413; conventional bank loans use a similar bank-specific form.2U.S. Small Business Administration. Personal Financial Statement SBA Form 413 Underwriters cross-reference these figures against your tax returns and credit reports, so discrepancies raise flags fast.
You’ll also need a debt schedule listing every current loan, lease, and credit line, with original amounts, outstanding balances, and monthly payments. This lets the bank calculate your total debt load and see whether the new loan tips the balance too far.
Accounts Receivable and Payable Aging
An aging report breaks outstanding invoices into buckets (current, 30 days, 60 days, 90+ days) so the lender can judge the quality of your receivables. A business where 40% of receivables are past 90 days looks much riskier than one collecting most invoices within 30 days. The same report on your payables shows whether you’re staying current with suppliers.
Beneficial Ownership Information
Banks are required to collect the identities of everyone who owns 25% or more of the business and the individual who controls daily operations. This is a federal anti-money-laundering requirement and applies regardless of loan product. Existing bank customers can sometimes rely on ownership information already on file.3FinCEN. Exceptive Relief From Requirement to Identify and Verify Beneficial Owners at Each Account Opening
Submit everything in searchable digital format (PDFs rather than scanned images) so the bank’s systems can process the file faster.
Collateral, Guarantees, and What You’re Really Pledging
Banks lend against assets. If you stop paying, they need something to sell, and the collateral you offer directly affects both how much you can borrow and the terms.
Commercial real estate is the preferred collateral because it holds value and can be sold in a foreclosure. Federal guidelines cap loan-to-value ratios at 75% to 80% depending on the property type: 75% for land development, 80% for commercial construction and multifamily projects.4eCFR. Appendix A to Part 628 – Loan-to-Value Limits for High Volatility Commercial Real Estate Exposures A property appraised at $1 million might support a loan of $750,000 to $800,000.
Equipment and machinery can secure a loan, but banks discount for depreciation and resale difficulty. Inventory and accounts receivable are accepted too, with the steepest discounts because their value fluctuates.
If you’re pledging commercial or industrial property, the bank will almost certainly require a Phase I Environmental Site Assessment before closing. It checks for contamination issues that could destroy the property’s value or expose the bank to cleanup liability. Typical cost runs $1,600 to $2,300, follows the ASTM E1527-21 standard, and is paid by the borrower.
Personal guarantees usually come with the deal. For SBA loans, every owner with 20% or more equity must sign an unlimited personal guarantee, meaning personal assets including your home and savings are on the hook if the business defaults. Conventional bank loans follow a similar pattern; some banks negotiate the terms.
Banks also file a UCC-1 financing statement with the Secretary of State, creating a public record of their claim against your business assets. This is standard practice and functions as a blanket lien covering all business assets, not just the specific collateral you discussed. Filing fees range from about $10 to $100 depending on the state.
What Happens During Underwriting
Once your documentation is assembled, you submit through the bank’s secure portal or in person with a commercial loan officer. Some banks still prefer an in-person kickoff even when they accept digital submissions, so the loan officer can gauge how well you understand the business and the loan purpose.
Underwriters verify your financial statements against bank records, credit reports, and the IRS transcripts pulled through Form 4506-C. They don’t just confirm accuracy; they stress-test the numbers. A common approach models what happens to your cash flow if revenue drops 10% to 20% or if interest rates rise. If the business can’t survive those scenarios on paper, the loan gets declined or restructured with tighter terms.
The file often goes to a credit committee, a panel of senior bank officers who review the full package against the bank’s internal risk policies. They may ask about specific transactions, industry changes, or unusual items on your statements. These aren’t trick questions. Clear, prompt answers keep the application moving. The single most effective habit during underwriting is responding to every bank inquiry within 24 hours. Underwriters juggle multiple files, and the ones that go quiet drift to the bottom of the pile.
Straightforward deals with strong financials can clear underwriting in two to three weeks. Complex transactions involving large amounts, multiple collateral types, or SBA guarantees can take two months or longer.
A successful review ends with a commitment letter: a formal offer stating the approved loan amount, interest rate, repayment period, and any conditions you must satisfy before closing. Conditions might include paying off a smaller existing debt, providing an updated appraisal, or securing additional insurance. These are requirements, not suggestions.
Read the Covenants Before You Sign
The commitment letter and final loan agreement contain covenants: ongoing rules you agree to follow for the life of the loan. Borrowers who skip past these pages sometimes get an unpleasant surprise two years later when the bank calls about a violation.
Financial covenants set minimum performance standards. The most common is a minimum DSCR the bank expects you to hold throughout the loan term, often 1.20 or 1.25, not just at approval. Others may cap your total leverage or require a minimum cash balance. These get tested annually, sometimes quarterly for larger loans.
Negative covenants restrict what you can do without the bank’s permission: taking on additional debt, selling major business assets, or making ownership changes above a threshold. Some agreements also restrict dividend distributions or large capital expenditures. The bank approved the loan based on a specific financial picture, and negative covenants prevent you from changing that picture in ways that increase its risk.
If you violate a covenant, the bank can declare a technical default even if you’re current on every payment. Consequences range from renegotiated terms to penalty interest rates to acceleration, meaning the entire balance is due immediately. In practice, banks usually start with a conversation, especially for a minor breach when you’ve been transparent. The legal right to accelerate is real, though, and it gives the bank enormous leverage in any renegotiation.
Closing Costs and Receiving Funds
Once every commitment-letter condition is satisfied, the bank’s legal department prepares closing documents. You’ll sign a promissory note, security agreements covering pledged collateral, and the loan agreement itself. SBA loans may use standardized forms, including SBA Form 147 for the note and SBA Form 148 for the unconditional guarantee, though lenders can use their own versions.5U.S. Small Business Administration. Loan Closing Most closings require a notary; real estate transactions may also need a title company.
Origination fees typically run 0.5% to 2% of the loan amount and are often deducted from the loan proceeds at closing. On a $500,000 loan, that’s $2,500 to $10,000 off the top. Commercial real estate deals add an appraisal, averaging around $2,500 nationally and running considerably higher for complex or high-value properties. Add the Phase I environmental assessment, UCC filing fees, and legal costs, and closing expenses stack up. Ask the bank for a complete fee estimate early so nothing catches you off guard.
SBA-guaranteed loans carry an additional guarantee fee paid to the SBA. The amount varies by loan size and maturity, and it’s typically financed into the loan rather than paid out of pocket.
Origination fees on a business loan are generally treated as prepaid interest under IRS rules, so you can’t deduct the full amount in the year you pay them. The deduction is spread over the life of the loan. For loans secured by business real estate, origination fees get added to the property’s cost basis and recovered through depreciation.6Internal Revenue Service. Publication 535 – Business Expenses
Watch for prepayment penalties. Two common structures are yield maintenance, where you compensate the bank for interest income it would have earned through the original maturity, and defeasance, where you replace the loan collateral with government securities generating the same cash flow. Both can be expensive. If there’s any chance you’ll refinance or sell the business before maturity, negotiate the prepayment terms before you sign, not after.
After signatures are verified, the bank wires funds directly into your business operating account. Term loans arrive as a lump sum (minus deducted fees). Lines of credit become available to draw against as needed. Repayment begins on the schedule in your signed promissory note.
After the Loan Closes
Getting the money starts an ongoing relationship. Banks review commercial loan relationships at least annually, and your agreement likely requires updated financial information on a set schedule.7NCUA. Commercial Loan Policy Expect to provide annual tax returns and financial statements so the bank can confirm you’re meeting your covenants. If real estate or equipment serves as collateral, you must maintain insurance with the bank named as loss payee. Letting a policy lapse is a covenant violation. Some agreements also require periodic site visits, particularly for real estate or construction loans.
Clean annual reviews and proactive communication make future credit requests much easier, whether that’s increasing a line of credit or refinancing at better terms.
If Your Application Is Denied
Denial is common and not the end of the road. Under the Equal Credit Opportunity Act, the bank must tell you why. For businesses with gross revenue of $1 million or less, the bank is required to provide a written adverse action notice with the specific reasons.8Consumer Financial Protection Bureau. Regulation B – 1002.9 Notifications Larger businesses are entitled to notification and a statement of reasons, with less strict format requirements.
Read the notice carefully. The reasons listed tell you what to fix. Common denial triggers are thin credit history, a DSCR below the bank’s threshold, insufficient collateral, or too much existing debt. Some problems, like a high debt load from a loan you could pay off, are fixable in weeks. Others, like insufficient time in business, take patience.
If the denial stemmed from errors on your credit report, dispute them with the credit bureaus before reapplying. Pull reports from all three major bureaus and look for inaccuracies, duplicate accounts, or debts that should have been removed. Cleaning up credit report errors is one of the fastest ways to change an underwriting outcome.
When conventional bank financing doesn’t work, SBA-guaranteed loans are worth exploring, because the guarantee reduces the bank’s risk and often means lower credit and collateral requirements. SBA 504 loans are available to businesses with a tangible net worth under $20 million and average net income under $6.5 million.1U.S. Small Business Administration. 504 Loans Credit unions, Community Development Financial Institutions, and online lenders offer additional paths, though interest rates climb as you move away from traditional banks. The prime rate sat at 6.75% as of early 2026, and bank loans are priced off that benchmark. Any lender quoting rates well above prime plus 5% is charging a premium for easier approval.9Federal Reserve Bank of St. Louis. Bank Prime Loan Rate