Bank Loans for Business

Small business lending is an analysis of risk and return on behalf of the bank. By requiring extensive documentation along with collateral coverage of 2:1 or greater and/or personal guarantees for the loan amount, the bank can significantly reduce their risk of loss and therefore the cost associated with making a business loan.

These requirements, which usually include 2-3 years of both business and personal tax returns as well as a business plan and a “use of funds report” in addition to extensive loan applications, often prove frustrating for business owners.

Because of these factors, a traditional bank loan will be the least expensive form of business capital and should be pursued if cost of capital is the most important consideration.