When we talk about traditional lenders, we’re referring to banks and credit unions. They’re “traditional” since they’ve been around basically forever (while you might think of founding fathers as making a nation, they also founded banks), and for much of that time, they were one of the only sources for business loans and lines of credit.
That kind of exclusivity has allowed traditional lenders to be choosy about who they lend to. So traditional bank loans tend to have relatively high application requirements for businesses. For example, a typical traditional lender might look for the following in an applicant:
- A business that’s a few years old
- A very good or exceptional personal credit score (740 or above)
- An annual revenue of at least $250,000
Sure, you’ll find traditional lenders that go soft on one or more of those requirements (for example, some Bank of America business loans require only $100,000 in annual revenue). But generally speaking, you’ll need a healthy, well-established business to qualify for traditional funding options.
So what do you get from bank lending? Well, a low annual percentage rate (APR), for starters. Most traditional loans and lines of credit offer APR starting in the single digits (think 3% to 8%)—often much better than you’d find from alternative lenders.
That means that traditional lenders can save you lots of money on your loan (depending on the loan term).
As an added bonus, banks and credit unions often have other offerings for businesses, like bank accounts, merchant services, and business credit cards. That makes things convenient for you. Plus, some traditional lenders give you discounts when you bundle products (Bank of America, for example, has a Preferred Rewards program).
Just keep in mind that traditional lenders (in addition to their high application requirements) tend to move slower than alternative lenders do. In many cases, you’ll have to apply in person at your lender’s local branch. And funding times will range from weeks to months, rather than hours to days.
Still, if you want low rates on your loans, and you can meet the stricter application requirements, traditional lenders can offer you great deals on business financing.