Where to borrow
Banks and credit unions: the cheapest money, and the hardest to get
Banks offer the best pricing in small business lending and decline the most applications. Here is how they decide and how to improve your odds.
What banks are optimising for
A bank's cost of funds is deposits, which are cheap, and its regulator cares intensely about loss rates. That combination produces an institution that can offer excellent pricing and has very little appetite for risk. Understanding that explains every frustrating thing about borrowing from one.
| Large national bank | Community bank | Credit union | |
|---|---|---|---|
| Typical minimum loan | $100,000+ | $25,000+ | $10,000+ |
| Decision made by | Centralized credit, often algorithmic below a threshold | A local committee that may meet you | A local committee |
| Relationship weight | Low | High | High |
| SBA volume | Often high | Varies enormously | Usually low |
| Speed | 2 to 6 weeks | 2 to 5 weeks | 2 to 6 weeks |
| Best for | Larger, well-documented, plain-vanilla requests | Anything needing judgment | Members with an established relationship |
The community bank case
For most small businesses the community bank is the underrated option. A loan officer who can walk into a credit committee and say "I have banked this family for nine years and I will vouch for the numbers" carries weight that no application field captures. Community banks also hold loans on their own balance sheet rather than selling them, which gives them more latitude to structure something unusual.
The trade-off is capacity. A community bank may cap out well below what you need, and it may not do SBA lending at all — or may do four a year, which is worse than none for your timeline.
Credit unions, and the member business lending cap
Credit unions are member-owned and not-for-profit, which often shows up as lower rates and fees. The constraint to know about: federally insured credit unions are subject to a statutory cap on aggregate member business lending, historically 12.25% of total assets, with SBA guaranteed portions generally excluded from that calculation. Practically, that means some credit unions have plenty of room and some are effectively closed for business lending. Ask early; they will usually tell you straight.
How to improve your odds materially
Bank there first, borrow there second
Deposit relationships genuinely matter. A bank that has watched your operating account for two years has information no application conveys, and it changes how marginal files are read.
Ask for the business banker, not the branch
Retail branch staff generally cannot help with a commercial credit request and will route you into a generic online application. Ask specifically for a commercial or business lender.
Bring a complete package to the first meeting
Two years of returns, interim financials, a debt schedule, and a one-page summary. This single behavior separates you from most applicants.
Ask what their credit box actually is
Minimum revenue, minimum time in business, minimum score, industries they will not touch. A good banker answers directly and saves you three weeks.
If declined, ask for the referral
Bankers know which local institution lends on your profile, and most will tell you.
Questions people actually ask
What revenue do banks require for a business loan?
It varies, but $250,000 in annual revenue is a common floor at larger institutions and community banks often go lower. More important than the number is consistency: two years of stable or growing revenue matters more than a single strong year.
Is a credit union better than a bank for a business loan?
Often on price and service, if you can get in. Credit unions typically charge less and are more willing to talk, but they are constrained by the member business lending cap and many have limited commercial capability. Worth a call, not worth assuming.
How do I find a community bank that lends to my industry?
The FDIC's BankFind lets you list institutions by location. Then simply call and ask whether they lend in your NAICS code and what their minimum is. Three phone calls will tell you more than a week of research.