Starting a business in Alabama can be an exciting and fulfilling experience, but it can also be challenging. One of the biggest challenges small business owners in Alabama face is securing funding to get their business off the ground or to grow it. Fortunately, there are many lenders in Alabama that offer small business loans.
Before applying for a small business loan in Alabama, it’s important to understand how lenders evaluate loan applications. Lender profits depend on whether or not borrowers pay back loans, so they consider a range of factors when reviewing loan applications.
There are six main steps to getting a business loan in Alabama:
1. Learn what lenders look for.
2. Decide what type of financing you need.
3. Find out how to get approved.
4. Gather documentation.
5. Find a lender.
6. Fill out the application.
This article explores what it takes to get a business loan in Alabama and how Nav can help.
What Lenders Look for in a Small Business
Here are some of the factors that lenders may consider when evaluating your small business loan application:
Time in business: Traditional lenders often require businesses to be in operation for at least two years before they are eligible for a loan. However, some online lenders may only require a year in business. Startups without revenues have the most difficult time qualifying for term loans or lines of credit, but a business credit card or crowdfunding could be a good option.
Personal credit scores: Your personal credit score will often be a part of the evaluation of your creditworthiness, especially for younger businesses or those without significant revenues. Before applying for small business financing, it’s critical that you understand your credit profile. The better your personal credit, the more options you may have when looking for a small business loan.
Business credit scores: Some lenders will check your business credit reports and/or business credit scores from the major business credit bureaus. In many cases, they want to see a positive payment history as well as avoid lending to businesses with a negative payment history, including late payments, collection accounts or judgments. They may also check business credit to determine the number of UCC filings.
Cash flow: Lenders want to confirm that you have the ability to make periodic payments. Your cash flow is a good indication of whether or not your business has the financial ability to make payments on a small business loan. Many business lenders now will also want to review at least three months worth of your business bank statements before they will approve a term loan, a line of credit, or even a business credit card.
Collateral: Traditional lenders, including banks, credit unions, as well as those that make SBA loans, will likely require collateral for most small business loans. You’ll have more choices if you can guarantee your loan with real, tangible items such as real estate, equipment or other collateral.
Industry: Some industries are more difficult to finance than others. Some small business lenders have preferences that influence their financing decisions. Some lenders publish a list of their restricted industries you can review online before you apply.
When applying for a small business loan in Alabama, it’s important to research lenders thoroughly to find the best loan for your specific needs. Some lenders may have specific requirements or preferences for lending to certain industries or business types. Understanding what lenders look for when evaluating loan applications can increase your chances of securing the funding you need to grow your business.
Decide What Type of Loan or Financing You Need
When it comes to securing financing for your small business in Alabama, it’s important to understand the different types of loans and financing options available to you. Here are some common options to consider:
Small Business Administration (SBA) loans
The Small Business Administration (SBA) offers several loan programs designed to help small businesses access funding. These loans are partially guaranteed by the government, which makes them less risky for lenders. SBA loans typically have lower interest rates and longer repayment terms than traditional bank loans.
Traditional Bank Loans
Traditional bank loans are a common option for small businesses. They typically have lower interest rates than other types of loans, but also have more stringent requirements. Traditional bank loans often require collateral and a strong credit score to qualify.
Microloans are small loans, typically under $50,000, designed for startups and small businesses that may not qualify for traditional bank loans. Microloans are often offered by non-profit organizations and community development financial institutions (CDFIs).
Online lenders offer a variety of loan options for small businesses, including term loans, lines of credit, and merchant cash advances. Online loans can be a good option for businesses that need quick access to funding, but they may have higher interest rates than traditional bank loans.
Line of Credit
A line of credit is a flexible financing option that allows businesses to draw funds as needed, up to a certain credit limit. This type of financing can be used for a variety of purposes, including working capital, inventory, and equipment purchases.
Business Cash Advances
Business cash advances provide funding in exchange for a percentage of future sales. This type of financing can be a good option for businesses with inconsistent cash flow or a need for quick funding.
Cash Flow Loans
Cash flow loans are designed to help businesses manage their cash flow by providing funds to cover expenses during slow periods. These loans are typically short-term and require repayment once cash flow improves.
Business Credit Cards
Business credit cards can provide businesses with access to funding for purchases and expenses. They often come with rewards and perks, such as cash back and travel points. However, they may have higher interest rates than other types of financing.
Vendor financing allows businesses to obtain financing directly from their suppliers. This can be a good option for businesses that need to purchase inventory or equipment. Vendor financing often has lower interest rates than other types of financing and may be easier to obtain.
Before deciding on a specific type of financing, it’s important to evaluate your business’s needs and determine which option is best suited for your situation. Consider factors such as interest rates, repayment terms, and eligibility requirements when making your decision.
Find Out How to Get Approved
Once you have determined the type of financing you need, the next step is to understand how to increase your chances of getting approved for that financing. Here are some tips to help you prepare for the application process:
Check your credit score and credit report:
Lenders will typically review both your personal and business credit scores as part of the loan approval process. Make sure your credit reports are accurate and up-to-date before you apply.
Prepare a solid business plan:
Many lenders will want to see a detailed business plan that outlines your business’s financial projections, marketing strategy, and overall goals. A well-prepared business plan can demonstrate to lenders that you have a clear vision for your business and a plan for how to achieve your goals.
Gather your financial statements:
Be prepared to provide lenders with your business’s financial statements, including profit and loss statements, cash flow statements, and balance sheets. You may also need to provide your personal tax returns if you are applying for a loan as a sole proprietor.
Consider working with a loan broker:
A loan broker can help match you with the right lender and loan product for your needs, and can also help you prepare your loan application materials.
Research lenders before applying:
Each lender has its own requirements and preferences for borrowers. Research the lender’s criteria before you apply to make sure you meet their qualifications. Applying to multiple lenders at once can hurt your credit score, so be strategic in your applications.
Be prepared to provide collateral:
If you are applying for a secured loan, you may need to provide collateral, such as equipment or real estate, to secure the loan. Make sure you have a clear understanding of the collateral requirements before you apply.
Keep all your loan application materials in one place and track your progress with each lender. Respond to lender requests in a timely manner and be prepared to answer questions about your business.
By following these tips, you can increase your chances of getting approved for the financing you need to grow your small business in Alabama.
Once you have identified the type of loan or financing you need, it’s time to gather the necessary documents. The specific documents required will vary based on the lender and type of loan you are applying for, but here are some documents you should prepare to provide:
A well-written business plan is essential to show lenders that you have a clear vision for your business and a plan to achieve success.
Personal and business tax returns:
Lenders want to see a history of responsible tax payments.
This includes balance sheets, income statements, and cash flow statements. These documents give lenders a clear picture of your business’s financial health.
Lenders want to see your business’s cash flow, so they will typically require several months’ worth of bank statements.
This includes any relevant legal documents, such as business licenses, articles of incorporation, or partnership agreements.
If you are applying for a loan that requires collateral, you will need to provide documentation of the collateral’s value.
You will need to provide a government-issued ID, such as a driver’s license or passport.
Business credit report:
Some lenders may require a business credit report to evaluate your creditworthiness.
It’s important to keep in mind that the documentation requirements will vary based on the lender and the loan program. Be sure to ask your lender for a complete list of required documents and submit them in a timely manner to avoid any delays in the approval process.
Choose a Lender
Once you’ve decided on the type of financing you need and have gathered all the necessary documents, it’s time to choose a lender. Here are some options to consider when choosing a lender:
Direct lenders are institutions that provide loans directly to small businesses. These include traditional banks, credit unions, and online lenders. Direct lenders often have specific requirements for borrowers, such as a minimum credit score or a certain amount of time in business. They may also offer better interest rates and terms than other types of lenders.
Lending marketplaces are online platforms that connect borrowers with multiple lenders. Borrowers fill out an application, and lenders review the application and compete to offer the best terms. Lending marketplaces can be a good option for small businesses that want to compare multiple loan offers quickly and easily.
Peer-to-peer lending platforms connect borrowers with individual investors who provide funding. P2P lenders can be a good option for small businesses that may not qualify for traditional bank loans but have a strong credit history. P2P loans may also have more flexible terms than traditional loans.
When choosing a lender, it’s important to consider the lender’s reputation, interest rates and fees, loan terms, and customer service. Don’t be afraid to ask questions and compare offers from multiple lenders to find the best fit for your small business.
How to Fill Out a Small Business Loan Application
Once you’ve determined the type of loan you need and have chosen a lender, the next step is to fill out the application. The application process can vary depending on the lender, but most will require similar information. Here are some general tips to keep in mind when filling out a small business loan application.
How to Get a Business Loan from a Bank
If you’re applying for a traditional bank loan, you’ll typically need to provide the following:
Business Plan: A well-written business plan that outlines your goals and objectives, how you plan to achieve them, and how you intend to use the loan funds.
Financial Statements: Your lender will want to review your financial statements, including your balance sheet, income statement, and cash flow statement, to evaluate your financial health and ability to repay the loan.
Tax Returns: You may need to provide personal and business tax returns for the past few years to demonstrate your financial history and stability.
Personal Financial Statement: The bank may ask for a personal financial statement that outlines your personal assets and liabilities.
Collateral: If you’re applying for a secured loan, you’ll need to provide details about the collateral you’re offering to secure the loan.
How to Get a Loan to Buy a Business
If you’re buying an existing business, you’ll typically need to provide the following:
Business Plan: A business plan that outlines your goals and objectives for the acquired business, how you plan to achieve them, and how you intend to use the loan funds.
Financial Statements: The lender will want to review the financial statements of the business you’re purchasing to evaluate its financial health and ability to repay the loan.
Purchase Agreement: You’ll need to provide a copy of the purchase agreement that outlines the terms of the sale.
Personal Financial Statement: The lender may ask for a personal financial statement that outlines your personal assets and liabilities.
Collateral: If you’re applying for a secured loan, you’ll need to provide details about the collateral you’re offering to secure the loan.
How to Get a Business Loan with No Money
It’s difficult to get a business loan with no money, as lenders typically want to see that you have some skin in the game. However, there are a few options:
Friends and Family: You could try to raise money from friends and family to get your business off the ground.
Crowdfunding: Crowdfunding platforms like Kickstarter or GoFundMe can help you raise money from a large number of people.
Microloans: Some lenders offer microloans, which are small loans that are easier to qualify for and require less collateral.
How to Get a Business Loan Without Collateral
If you don’t have collateral to offer, you may still be able to qualify for an unsecured loan. However, unsecured loans typically come with higher interest rates and stricter qualifications. To increase your chances of approval:
Improve Your Credit Score: A higher credit score can improve your chances of getting approved for an unsecured loan.
Provide Detailed Financials: Detailed financial statements can help demonstrate your ability to repay the loan.
Consider Alternative Lenders: Some lenders offer unsecured loans that are specifically designed for small businesses.
How to Get a Business Loan with Bad Credit
If you have bad credit, you may still be able to qualify for a loan. However, you may need to provide additional documentation and have a co-signer. To increase your chances of approval:
Offer Collateral: If you have collateral to offer, you may be able to secure a loan despite your bad credit.
Improve Your Credit Score: Work on improving your credit score by paying off outstanding debts and making
Assisting Small Business Owners with Loan Acquisition through Nav
If you’re an Alabama-based small business owner seeking to acquire a loan, the process can be overwhelming and complicated. Fortunately, Nav is here to help. Nav is a financial health platform that offers a range of resources and tools designed to help small business owners obtain funding.
With Nav, small business owners can find the right lenders and loan products that meet their specific requirements. By providing your business details, you’ll have access to loan options that you’re eligible for before you start the application process, saving you time and effort during your search for lenders.
For small business owners in Alabama, Nav is an indispensable resource for securing the funding needed to grow your business. Nav offers credit monitoring, educational resources, loan options, and business credit reporting to help you navigate the loan application process and improve your chances of obtaining the financing you need to propel your business forward.
This article was originally written on April 23, 2023 and updated on May 17, 2023.