Traditional Business Loans

A bank or credit-union business loan is a traditional form of debt financing in which a federally-insured bank or not-for-profit credit union lends a lump-sum of money to a business. In exchange, the business promises to make fixed monthly (or sometimes weekly) payments of principal + interest over a set period, usually 1–10 years, until the balance is paid in full.

Key characteristics

1. Secured or unsecured
   • Secured – backed by collateral (real estate, equipment, inventory, receivables, or a blanket lien on all business assets).
   • Unsecured – issued only to borrowers with strong credit and cash-flow; no specific collateral, but the owner often signs a personal guarantee.
2. Interest rate
   • Fixed or variable APR, currently ranging from roughly 6 % to 13 % for prime borrowers (banks) and 7 % to 17 % for credit unions, depending on term, risk, and whether the loan is SBA-guaranteed.
3. Repayment structure
   • Fully-amortizing: every payment contains both interest and principal.
   • Payments are due on a rigid schedule regardless of how well or poorly sales perform (unlike revenue-based financing).
4. Loan size & term
   • Banks: $25 k – $5 million+; 1–10 years for term loans, up to 25 years for commercial real estate.
   • Credit unions: usually $5 k – $500 k; 1–7 years typical.
5. Qualification requirements
   • 2+ years in business (start-ups can sometimes use SBA 7(a) programs).
   • Strong personal credit (680+ for banks, 650+ for many credit unions).
   • Positive cash-flow and low debt-service-coverage ratio (DSCR > 1.15–1.25).
   • Detailed documentation: tax returns, P&L, balance sheet, business plan, AR/AP aging, debt schedule, personal financial statement, etc.
6. Speed & cost
   • Banks: 2–8 weeks to close; origination fees 0.5 %–3 %; may require appraisals or environmental reports.
   • Credit unions: often 1–4 weeks; lower or no origination fees; member-focused underwriting can be faster.

Common loan products offered

• Term loan – one-time lump sum for expansion, equipment, working capital.
• Business line of credit – revolving credit used as needed; interest-only on drawn amount.
• SBA 7(a) or 504 loan – partially guaranteed by the Small Business Administration, issued by banks/credit unions; lower down-payment and longer terms.
• Equipment financing – loan or lease secured by the asset itself.
• Commercial real estate loan – mortgage on owner-occupied or investment property.

Bottom line
A bank or credit-union business loan is best for established businesses that can meet stringent credit and documentation requirements and want the lowest possible long-term cost of capital in exchange for predictable, fixed payments.