Traditional Bank Loan

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Definition

Traditional Bank Loans, as the name implies, are loans given directly from a bank. Unlike Lines of Credit (LOC), they are given in lump-sum amounts which means the borrower is required to pay interest on the entire amount, regardless of whether the funds are used for purchases.

Bank loans typically fund larger amounts than those offered through SBA loans. They are most often used by mature companies because they are document intensive, requiring good credit and an operating history of at least 3 years; additionally, the loan must be secured with collateral such as property or equipment which is why typically only more mature companies qualify. Traditional bank loans also often have restrictions on how the funds can be used.

The advantage of traditional bank loans, if one can qualify, is how the low interest rate is when bank risks are mitigated by collateral and thorough credit history requirements. However, rates can be more variable than government back loans as they vary based on personal credit history, financial analysis of the company, and the current economic climate.