--- title: What is Considered a Traditional Loan? And How Do They Work? description: Discover more about traditional loans, including what they are, how they work, and how SmartBiz Bank® may be able to help your business get the funds it needs. image: https://smartbizbank.com/hubfs/Imported_Blog_Media/traditional-loans-2-1-2.jpg --- [Skip to content](https://smartbizbank.com/blog/what-is-considered-a-traditional-loan-and-how-do-they-work#main-content) [![logo-simple 4-1](https://smartbizbank.com/hs-fs/hubfs/Logos%20%E2%80%93%20SmartBiz/logo-simple%204-1.png?width=150&name=logo-simple%204-1.png) ](https://www.smartbizbank.com/) [![logo-simple 4-1](https://smartbizbank.com/hs-fs/hubfs/Logos%20%E2%80%93%20SmartBiz/logo-simple%204-1.png?width=150&name=logo-simple%204-1.png) ](https://www.smartbizbank.com/) - Financing solutions ## Connecting small business owners with financing solutions ### SBA Loans Grow efficiently with low-interest SBA loans - tailored for small businesses. 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And How Do They Work? - [Small Business Blog](https://smartbizbank.com/blog/) - [Business Loans](https://smartbizbank.com/blog/tag/business-loans) - What is Considered a Traditional Loan? And How Do They Work? April 27, 2026 By [Liz Hunt ](https://smartbizbank.com/blog/author/liz-hunt) Traditional loans are among the most popular choices for small business owners. However, when you consider the number of loan options available, it may be hard to determine what a traditional loan is and if it's the right choice for your business. Understanding the basics about traditional loans, including their potential pros and cons, allows you to make the right choice for your company. [![Apply for an SBA Loan](https://no-cache.hubspot.com/cta/default/21458256/5e044285-671c-49e1-956e-7b71ba93d17a.png)](https://cta-redirect.hubspot.com/cta/redirect/21458256/5e044285-671c-49e1-956e-7b71ba93d17a) Depending on the purpose of your loan, your business’s credit history, as well as your personal financial history, SmartBiz Bank® may be able to help your business get the funding that it needs. ## What is considered a traditional loan? Traditional loans are any loan that the borrower repays in installments. Small Business Administration (SBA) and bank term loans fall under this umbrella. Generally, traditional loans may be broken up into certain subcategories, including: - Bank term loans: Bank term loans are small business funding options that the borrower repays in monthly installments. You may obtain them from big-name national banks, local credit unions, and other types of financial institutions. They may require less paperwork and [collateral](https://smartbizbank.com/blog/collateral-requirements-for-sba-loans) than SBA loans, and they can be used for a wide range of business needs. Bank term loans have fixed interest rates, which means that borrowers don’t have to worry about monthly repayment amounts increasing. - **SBA loans: **Unlike bank loans, SBA loans may have repayment periods of up to 25 years. SBA loans are partially guaranteed by the Small Business Administration, and this mitigates some of the risk that lenders face. The three most common types of SBA loans are: ### Lower interest rates Traditional loan interest rates are typically lower than other funding options. SBA loans, for example, have lower interest rates and more [borrower-friendly terms](https://smartbizbank.com/blog/your-guide-to-small-business-term-loans) because the government guarantees a significant portion of them. That reduces the lender’s risk, so they don’t have to charge as much for their loans. ### Higher loan amounts Traditional loan amounts are generally higher than those of other types of loans. This is primarily because of the type of borrower who seeks these loans. Traditional lenders are typically risk-averse, so borrowers with high debt-to-income ratios don’t qualify. This means that lenders may provide larger loans with less risk. Another reason is that traditional lenders often cater to business owners with higher financing needs. For example, traditional loans are the go-to for commercial real estate purchases, which often involve millions of dollars, while SBA 7(a) loan amounts range from $30,000 to $5 million. ### Longer repayment terms Traditional loans often offer longer repayment periods than other types of loans. [Short-term loans usually carry repayment terms of 6 to 18 months](https://www.uschamber.com/co/run/business-financing/short-term-loans). Some traditional loans may have repayment terms of up to 25 years. ### Often requires collateral Traditional loans often require collateral to minimize the lender’s risk. Collateral is an asset that a lender can seize in the event you can’t make the payments on your loan. If you fail to repay your loan, the lender can sell the collateral to pay off the balance of the loan. Acceptable collateral depends on your loan amount and type. Financial institutions usually accept easily liquidated assets such as stocks, bonds, real estate, company vehicles, and inventory for small business loans. The value of all your collateral assets must be equal to or greater than your loan amount. ### Strict application criteria While the SBA guarantees a portion of these loans, lenders are stricter than ever in 2026. Loan applicants typically need [credit scores](https://smartbizbank.com/blog/test-business-credit-score-iq) of 680 or higher to qualify for most types of small business loans. However, that figure may vary between lenders. SmartBiz Bank® generally requires a credit score of 660 or higher. Higher scores let lenders know that you’re more likely to repay the loan. Lenders may also require businesses to have been in operation for at least two years. This proves that the applicant has invested in the business. ### Longer application process Since the eligibility criteria are so strict, the application process is often longer. Not only do lenders require applicants to provide a great deal of paperwork, including financial reports and detailed plans for the use of funds, but they may also take longer to review these applications. Nowadays, much of this paperwork can be completed digitally, which speeds up the process. However, applicants should still expect a lengthy review process. Fortunately, once the application is approved, funds may appear in your account in as [few as seven days.](https://smartbizbank.com/sba-loan-approval) ## Who offers traditional loans? Banks and similar lending institutions typically offer traditional loans. Banks fund term loans and SBA loans, though the government guarantees part of SBA loans to try to ensure that high-value financing is more accessible to the average applicant and that lenders can confidently make more loans. ## How do traditional loans work? Digital applications have made the application process quicker, but it can still be time consuming. However, knowing what to expect may simplify the process. Take a look at the steps that you should expect when applying for a traditional loan. 1. Determine your loan amount and find a lender The maximum loan amount that traditional institutions will offer a borrower differs among lenders. To determine which financial institution best meets your needs, identify the exact need you seek to fulfill and how much it costs. 2. Gather the required documents You’ll need several documents to confirm your identity and help lenders determine your eligibility. These are some documents you’ll likely need: - Personal tax returns. These help the lender ascertain whether you’re fiscally responsible. - Professional resume. These verify your professional background, which can help banks mitigate any perceived financial risk. - Personal background statement. This document provides a snapshot of your background. It includes your criminal record, previous names, previous residences, educational experience, and more. 3. Complete an application After you determine how much capital you need and which lender may be able to provide it, it’s time to complete the application. Proofread your work because mistakes may cause the lender to send the application back to you, prolonging this part of the process. 4. If approved, review the terms Once your application has been approved, the lender will provide an overview of the exact loan terms, including your loan amount, repayment term, interest rates, and other relevant conditions. 5. Await, obtain, and use your funds Processing traditional loan funds often takes time. [A standard bank loan term can take 2 to 3 weeks to fund, while an SBA loan can take up to 3 months.](https://som.yale.edu/sites/default/files/2025-04) Once you receive your loan, you can use it for business expenses within the parameters set for the type of loan. For example, you can use an SBA 7(a) loan only for working capital, debt refinancing, or commercial real estate purchases. ## Who can get a traditional loan? Traditional loans are generally for borrowers with an established business or prior business experience, as well as good credit. [The SBA works to open traditional loans to small business owners who wouldn’t usually qualify or applicants who want to fund a start up.](https://www.sba.gov/funding-programs/loans) ## Is a traditional loan right for your business? Traditional business loans are typically a strong fit for established companies with predictable cash flow and a clear plan for using the funds. Businesses seeking larger, long-term investments, such as expanding operations, purchasing equipment, or refinancing existing debt, tend to benefit most from these loans. They typically offer lower interest rates than many alternative financing options, along with predictable repayment schedules and the ability to plan ahead financially. However, traditional loans may not be ideal for every situation. New businesses or those facing urgent cash needs might find the application process too slow, and lenders often require strong financial histories or collateral for approval. Compared with alternative financing options like lines of credit or SBA microloans, traditional loans usually provide more favorable rates and longer terms but are less flexible and take more time to secure. Evaluating your business’s needs, timing, and risk tolerance can help you determine whether a traditional loan aligns with your growth strategy. ## Apply for an SBA loan with SmartBiz Bank® SBA loans may be a valuable funding source if you qualify. Their higher loan amounts and longer repayment terms may help you affordably achieve your business goals. [See if you pre-qualify](https://smartbizbank.com/apply) with SmartBiz Bank® today. ## FAQs ### How do traditional bank loans work for small businesses? Traditional bank loans provide a lump sum that businesses repay over a fixed period with interest. These loans are typically offered by banks and credit unions and are used for purposes like expansion, equipment purchases, or working capital. Repayment terms, interest rates, and structures are agreed upon upfront, which helps with financial planning. Lenders evaluate creditworthiness, financial history, and business performance before approving the loan. ### What is the difference between a traditional loan and an SBA loan? A traditional loan is funded and fully backed by a bank or lender, while an SBA loan is partially guaranteed by the U.S. Small Business Administration. This guarantee reduces the risk for lenders, which may make SBA loans more accessible to businesses that may not qualify for traditional financing. SBA loans often offer longer repayment terms and more flexible requirements. However, they may involve a more detailed application and review process. ### What are the requirements to qualify for a traditional loan? To qualify for a traditional loan, businesses typically need strong credit, consistent revenue, and a solid financial history. Lenders often review financial statements, tax returns, and cash flow to assess the ability to repay the loan. Time in business and industry experience can also play a role in approval decisions. Having organized documentation and a clear business plan may strengthen your application. ### How long does it take to get approved for a traditional business loan? Approval timelines for traditional business loans can vary depending on the lender and the complexity of the application. In general, the process may take several weeks, as lenders conduct a thorough review of financials, credit, and supporting documents. Well-prepared applications with complete documentation can help speed up the process. More complex loans or larger amounts may require additional time for underwriting and approval.   ![Q3 Promo E1](https://smartbizbank.com/hubfs/Q3%20Promo%20Email%20Images/Q3%20Promo%20E1.png) ### Access Funds Quickly Apply for a Bank Term Loan from a bank in our trusted network [![See if you pre-qualify](https://no-cache.hubspot.com/cta/default/21458256/08df270b-4561-4437-a5aa-11d47ef08efb.png)](https://cta-redirect.hubspot.com/cta/redirect/21458256/08df270b-4561-4437-a5aa-11d47ef08efb) - [Follow SmartBiz](https://smartbizbank.com/blog/what-is-considered-a-traditional-loan-and-how-do-they-work#) - - - - - ### Access to the right loan for right now We’re connecting small businesses with SBA, bank term loans, lines of credit, and flexible financing options. [![See if you pre-qualify](https://no-cache.hubspot.com/cta/default/21458256/08df270b-4561-4437-a5aa-11d47ef08efb.png)](https://cta-redirect.hubspot.com/cta/redirect/21458256/08df270b-4561-4437-a5aa-11d47ef08efb) ##### Topic - [Business Loans](https://smartbizloans.com/blog/tag/business-loans) - [Business Stories](https://smartbizloans.com/blog/tag/business-stories) - [Marketing](https://smartbizloans.com/blog/tag/marketing) - [Money Management](https://smartbizloans.com/blog/tag/money-management) - [Operations](https://smartbizloans.com/blog/tag/operations) ## Related Posts [ See all blog posts ](https://smartbizbank.com/blog) [Business Loans July 17, 2026 ## Cash Flow Forecast: What It Is and Why It's Important As a small business owner, you need a deep understanding of your business finances. You need to understand your profit and loss statement; you need a rock-solid plan to pay... Read More ](https://smartbizbank.com/blog/understanding-cash-flow-forecasting-smartbiz-bank) [Business Loans July 15, 2026 ## The Hidden Cost of Waiting Too Long to Secure Funding Many business owners assume that they need to wait until they’re in the middle of a cash crunch to apply for funding. While this approach may seem practical, it has the... Read More ](https://smartbizbank.com/blog/hidden-cost-of-waiting-too-long-for-funding-smartbiz-bank) [Business Loans July 13, 2026 ## 4 Common Reasons to Consider Taking Out a Small Business Loan There are several steps involved in launching and maintaining a successful small business. From choosing the initial product or service to putting systems and... Read More ](https://smartbizbank.com/blog/common-reasons-to-consider-taking-out-a-small-business-loan) ### Smart growth is smart business ## Access to the right loan for right now See if you pre-qualify, without impacting your credit score. 1 [ Apply Now ](https://smartbizbank.com/apply) 1. We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, SmartBiz Bank and the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may impact your credit score. The SmartBiz® Small Business Blog and other related communications from SmartBiz BankSM are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial professionals for further information. - Small business financing - [SBA loans](https://www.smartbizbank.com/sba-loans) - [SBA loans overview](https://www.smartbizbank.com/sba-overview) - [SBA loan approval](https://www.smartbizbank.com/sba-loan-approval) - [SBA requirements and eligibility](https://www.smartbizbank.com/sba-requirements-eligibility) - [SBA rates and fees](https://www.smartbizbank.com/sba-rates-fees) - [Term loans](https://www.smartbizbank.com/bank-term-loans) - [Line of credit](https://www.smartbizbank.com/line-of-credit) - How it works - [Loan process](https://www.smartbizbank.com/loan-process) - [SBA loan calculator](https://www.smartbizbank.com/sba-loan-calculator) - [Small business blog](https://smartbizbank.com/blog) - [FAQ](https://www.smartbizbank.com/faq) - [Business stories](https://www.smartbizbank.com/business-stories) - About - [Our company](https://www.smartbizbank.com/our-company) - [Careers](https://www.smartbizbank.com/careers) - [News](https://www.smartbizbank.com/news) - [Customer reviews](https://www.smartbizbank.com/customer-reviews) - [Privacy policy](https://www.smartbizbank.com/apply/privacy-policy) - Partners - [Become a partner](https://www.smartbizbank.com/partners) - [Our platform](https://www.smartbizbank.com/our-platform) - [Partner resources](https://www.smartbizbank.com/partner-resources) - [Log in to partner assist](https://smartbizbank.com/assist/session/new) - Contact us - [support@smartbizbank.com](mailto:support@smartbizbank.com) - [ 1.866.283.8726](tel:+01-866-283-8726) - 385 Waukegan Road - Northbrook, IL 60062 - [Help Center](https://info.smartbizbank.com/help-center) [![logo-header](https://smartbizbank.com/hubfs/Logos%20%E2%80%93%20SmartBiz/header-logo.svg) ](https://www.smartbizbank.com/) ![Member FDIC](https://smartbizbank.com/hs-fs/hubfs/Member%20FDIC.png?width=100&height=50&name=Member%20FDIC.png) [Privacy Policy](https://smartbizbank.com/apply/privacy-policy)|[Terms of Use](https://smartbizbank.com/apply/terms-of-service) ©2026 SmartBiz Bank, N.A.. 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