Small business loans are one of the financial foundations for entrepreneurship in America. Business owners use small business loans to invest in growth, develop new products, expand to bigger facilities, buy equipment and more. There are various types of small business loans that your business might need for different purposes and business goals.
Figuring out how to get a small business loan is especially important during the events of the last year, as many businesses have sought federal relief in the form of Paycheck Protection Program (PPP) loans, Economic Injury Disaster Loans (EIDL) and more.
One of the largest small business lenders in the U.S. is Bank of America. According to Bank of America statistics, at of the end of the second quarter of 2020, the bank was the nation’s top small business lender, with $51.3 billion in small business loans (in loan amounts of $1 million and under). Bank of America has also been the largest provider of PPP loans, issuing more than $26 billion in PPP funds to more than 345,000 small businesses.
Whatever type of loan or line of credit you might need, here are a few high-level insights and tips for getting a small business loan with Bank of America. Although every bank and credit union has some of its own unique processes and loan programs, Bank of America is a good overall example of what the loan process is like and what types of small business loans to expect.
How to Get a Small Business Loan
If you want to apply for a small business loan with Bank of America, there are a few documents and pieces of information that you will need to provide to the bank as part of your loan application:
Business name and street address (no P.O. Boxes)
How long your business has been located at the current address
Business phone number
Business Tax ID (Employer ID Number)
What kind of business your company does
The date was your business established and how long have you owned the business (To qualify for Bank of America financing, your company needs to have been in business for at least two years, and/or you need to have owned the business for at least two years.)
Number of employees
Financial data: annual gross sales and net profit
Any other small business loans or lines of credit currently owed by the business, including the lender, current balance or credit limit, monthly payments, etc.
Bank of America also requires some personal information from the business owner(s), controlling managers or guarantors, such as their personal names, addresses, Social Security numbers (for U.S. citizens), personal income, monthly housing payments and more.
Even though your business is taking out the loan, banks will typically want to get a sense of your personal financial stability and creditworthiness. Some small business loans require the business owner to personally guarantee the loan; meaning that if your business fails to repay the money, the bank has a right to demand repayment from your personal assets.
Types of Small Business Loans at Bank of America
Bank of America offers a few of the most common types of small business loans, including:
Paycheck Protection Program (PPP) Loans
The PPP is a program from the Small Business Administration to help small businesses make payroll and keep people employed through the pandemic. Two rounds of PPP funding have been approved by Congress; there are different eligibility requirements for both rounds. Some PPP loan funds are forgivable if the business is able to maintain its employment levels and compensation levels and spends at least 60 percent of the money on payroll costs.
Bank of America offers a Business Advantage Term Loan, which is an unsecured loan (no collateral required) that your business repays with fixed payments during a specific term of time. With this type of loan, your business receives the loan money as a one-time lump sum. Bank of America’s term loans require your company to have at least two years in business under current ownership and $100,000 in annual revenue. Loan amounts range from $10,000 to $100,000, and loan terms go from 12–60 months. The APR (interest rate) on your loan will depend upon several factors on your loan application, but the rates start as low as 4.75 percent.
Small Business Line of Credit
What if you want a more flexible way to borrow for your business? Instead of getting a term loan, you can apply for a small business line of credit, like Bank of America’s Business Advantage Credit Line. A line of credit works in a similar way as a credit card: you get approved for a certain amount that your business can borrow, and you can borrow as much or as little as you want, up to that credit limit. A small business line of credit is a good financial tool for business owners because it lets you take care of a variety of financial goals, such as covering payroll, making up for slow-paying customers and other short-term business needs.
Bank of America’s business line of credit starts at a line amount of $10,000 and has revolving loan terms. You don’t have to make fixed payments each month like with a term loan; instead, it’s more like a credit card where you can make minimum payments and repay your borrowed amount in a more flexible way. Interest rates start at as little as 4.50 percent APR, and you won’t be charged any interest until you actually draw from your line of credit and start using the funds.
Small Business Administration (SBA) Loans
What if your business is new? What if you haven’t been in business for two years yet? There is a special type of small business loan, called an SBA loan, that is issued by banks but backed by the Small Business Administration.
Bank of America offers SBA loans, which are described as being ideal for businesses that might not qualify for conventional credit. Your business can qualify for an SBA loan if the business is a corporation, LLC, partnership or sole proprietorship.
Bank of America offers several types of SBA loans in different amounts depending on the purpose of the loan. For example, some loans can be used for general working capital and inventory, while some loans can only be used for buying business equipment, expanding a business or doing construction or improvements to a business.
SBA loan amounts range from $25,000 to $350,000, $350,000 and up or $200,000 to $5 million for business equipment and commercial real estate loans.
SBA loans are backed by the federal government, so banks are able to make loans to a wider variety of small businesses, with more flexible terms and lower interest rates than they might have offered for conventional business loans. If your business is just getting started and you need to borrow money to grow, talk to your bank or credit union about SBA loans.
If you're ready to take the next steps and want to apply for a small business loan or SBA loan with Bank of America, you can start the process online or set up an appointment.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.