Advantages and Disadvantages of a Business Bank Loan
Bank loans offer low interest rates and competitive terms, but you'll need to meet strict requirements to qualify.
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Updated · 3 min read
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Managing Editor Key takeaways
- Business bank loans offer low interest rates, large loan amounts and long repayment terms.
- Bank loans are harder to qualify for and slower to fund than online business loans.
- Established businesses with strong credit are most likely to benefit from bank financing.
Banks remain the most common source of credit for small businesses — compared with options such as online lenders, community development financial institutions or credit unions, according to the Federal Reserve’s 2025 Small Business Credit Survey .
To qualify for a business bank loan, however, you’ll likely need excellent credit and several years in business.
Before applying for a business loan from a bank, consider the following advantages and disadvantages.
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Pros
Flexible use of funds.
Large loan amounts.
Competitive repayment terms.
Low interest rates.
Relationship with a bank lender.
Cons
Lengthy application process.
Slow to fund.
Strict eligibility requirements.
Advantages of business bank loans
Flexible use of funds
Banks offer a range of business loan products, including term loans, business lines of credit, equipment financing and commercial real estate loans, among other options. Unless you opt for a product that has a specific use case —like a business auto loan — you can generally use a bank loan in a variety of ways to grow and expand your business.
When you submit your loan application, the bank may ask you to identify a purpose for the financing to evaluate the risk of lending to your business. Once you’re approved, however, the bank is unlikely to interfere if you change your intentions, as long as you make your payments. This flexibility is one of the biggest advantages when comparing debt versus equity financing.
Large loan amounts
Bank business loans are often available in amounts up to $1 million or more. Many online lenders, on the other hand, only offer financing in smaller amounts. For example, popular online lenders Fundbox and Bluevine, for example, both have maximum loan limits of $250,000.
Competitive repayment terms
Business loans from banks also tend to have long terms — up to 25 years in some cases. These loans usually follow a monthly repayment schedule, rather than requiring daily or weekly payments.
In comparison, online business loans typically have shorter repayment terms, ranging from a few months to a few years. Many of these loans require daily or weekly repayments.
Low interest rates
Banks typically offer small-business loans with the lowest interest rates. According to the most recent data from the Federal Reserve, average business loan interest rates at banks range from 6.3% to 11.5% .
Although some online lenders can offer competitive rates, their products are generally more expensive than bank loans, with rates that range from 14% to 99%.
The interest rate you receive on a bank loan, or any small-business loan can vary based on a number of factors, such as:
- Loan type.
- Amount borrowed.
- Your business’s qualifications.
- Available collateral.
In general, the stronger your qualifications and the more collateral you can offer, the better rates you’ll be able to receive.
Relationship with a bank lender
Many banks provide ongoing support for their lending customers, such as business credit score tracking or a dedicated relationship manager to work with your business. Most banks also offer other types of financial products, including business checking accounts, business credit cards and merchant services — if you prefer to use one institution for your financial needs.
Although some alternative lenders offer additional support and services, the Federal Reserve’s 2025 Small Business Credit Survey reports that businesses that receive financing are more satisfied with their experience with small banks (70%) and large banks (59%) compared with online lenders (28%) .
🔎 Ready to compare bank lenders? Check out our top picks here.
Disadvantages of business bank loans
Lengthy application process
To apply for a small-business loan from a bank, you’ll need to provide detailed paperwork that may include, but is not limited to:
- Business and personal tax returns,
- Business financial statements,
- A loan purpose statement,
- Business organization documentation,
- A personal financial statement form,
- And collateral information.
You may have to visit a bank branch and work with a lending representative to complete and submit an application — although some banks offer online applications for certain business loan products.
Slow to fund
The entire process, from application to funding, can take anywhere from several days to a few weeks, or even longer, depending on the type of loan and the bank. Some banks will also require you to open a business checking account with them before you can receive funds.
In comparison, alternative lenders typically have streamlined, online application processes that require minimal documentation. Many of these lenders also offer fast business loans — in some cases, providing funding within 24 hours of application.
Strict eligibility requirements
To qualify for a business loan from a bank, you’ll generally need strong personal credit (often a FICO score of over 700), several years in business and a track record of solid business revenue. For example, Bank of America, requires a minimum annual revenue of $100000 for unsecured term loans and a minimum annual revenue of $250000 for secured term loans.
Depending on the bank and the loan type, you may need to provide collateral, such as real estate or equipment, to secure your financing. Most banks will also require you to sign a personal guarantee that holds you personally responsible for the debt in the event that your business can’t pay.
Online lenders, on the other hand, have more flexible qualifications and some will work with startups or businesses with bad credit. To qualify for a business line of credit with Fundbox, for example, you only need 3 months in business, a credit score of 600 or higher and at least $30000 in annual revenue.
Although online lenders may still require a personal guarantee, they’re less likely than banks to require physical collateral.
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Is a bank loan right for my business?
Business bank loans are often a good option for those who can qualify. You might consider a bank loan if:
✅ You have an established business with strong credit.
✅ You’re looking for the lowest possible interest rate.
✅ You want to establish a relationship with a bank.
✅ You already use the bank for financial services.
If you can’t qualify for a bank loan, explore alternative options, such as:
- SBA microloans. For competitive rates and terms.
- Startup loans. For businesses with at least three months in operation.
- Bad credit business loans. For those with less-than-perfect credit scores.
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- 1. Federal Reserve Banks. 2025 Report on Employer Firms: Findings from the 2024 Small Business Credit Survey.
- 2. Federal Reserve Bank of Kansas City. Small Business Lending Survey - Q3 2025 Aggregate Data. Accessed Jan 20, 2026.
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