Commercial banks have traditionally been the largest single source of loans to small business, outpaced slightly for the first time in 1998 by credit card usage. Perhaps that's because banks seldom lend money for start-ups, but are more interested in offering capital to companies with a history of successful operations. Most small business owners don't need this kind of money, so it pays to ask your bank if they would consider a smaller business loan. Start a relationship early on with a bank by opening checking and savings accounts or purchasing certificates of deposit. It will mean your bank history and personal contacts will be in place when you need to borrow, and it can speed up the process.
Interest charged on the loan depends on the amount of risk involved for the bank.
A low-risk loan, one secured by collateral such as property or CDs, would carry interest at close to the prime rate. As the risk increases, so does the interest rate. The bank establishes risk factors in many ways, but bases its decision primarily on available collateral and the credit rating taken from your credit reports. Credit reports are a critical factor in credit scoring systems that lenders use to issue credit cards, mortgages and other loans. Banks are moving toward refining the business loan to more closely resemble home equity loans that rely heavily on scoring.