There are six main steps to getting a business loan in Georgia:
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 the Peach State and how Nav can help.
1. Understanding What Lenders Look ForIf you’re a small business owner in Georgia looking for funding, you need to know what lenders are looking for when evaluating loan applications. Understanding these factors can help you improve your chances of getting approved and help you prepare to meet the criteria lenders require.
Lenders assess the risk of loaning money to small businesses based on several factors, including revenue, time in business, personal credit score, business credit score, collateral, and industry. Let’s take a closer look at each one.
Time in business
Most lenders prefer to work with established businesses with a proven track record of successfully servicing debt and operating a business. Traditional lenders may require a minimum of two years in business, while some online lenders may only require a year or six months. Startups without a revenue history have the most challenging time qualifying for term loans or lines of credit. However, a business credit card or crowdfunding may be a viable option.
Personal credit score
As a small business owner, your personal credit score plays a significant role in determining your creditworthiness. Younger businesses or those without significant revenue are more likely to be evaluated based on the owner’s credit score. Before you apply for financing, it’s essential to understand your credit profile. A higher personal credit score may increase your options for a small business loan.
Business credit score
Lenders may also check business credit reports and scores from the major credit bureaus. They’ll typically look for a positive payment history and avoid lending to businesses with a negative payment history, such as late payments, collection accounts, or judgments. Lenders may also consider the number of UCC filings, with too many being deemed high risk.
Lenders want to ensure that a small business has the financial ability to make payments on a loan. Cash flow is a key indicator of whether a business has the financial ability to meet its loan obligations. Many lenders will review at least three months of bank statements before approving a term loan, line of credit, or business credit card.
Traditional lenders typically require collateral for small business loans, such as real estate, equipment, or other tangible assets. However, most SBA loans cannot be declined solely because the applicant lacks collateral. Loans not secured with a specific asset or collateral are referred to as unsecured loans. However, such loans are rare, and lenders often place a UCC lien or require a personal guarantee.
Certain industries are more challenging to finance than others, based on the SIC or NAICS code. Some lenders have preferences that influence their financing decisions, and some publish a list of their restricted industries online.
Understanding what lenders look for when evaluating small business loans is crucial for any business owner in Georgia seeking financing. By being aware of these factors, you can prepare your business for a loan application and increase your chances of approval.
Decide What Type of Loan or Financing You Need
Once you understand what lenders look for in a small business loan applicant, you can start exploring your options. There are several types of loans and financing options available to Georgia small business owners, and it’s important to choose the one that best fits your needs. Here are some of the most popular options:
Small Business Administration (SBA) Loans
The SBA offers a variety of loan programs to help small businesses. These loans are partially guaranteed by the federal government, which means they often have lower interest rates and longer repayment terms than traditional bank loans. SBA loans are generally used for business expansion, equipment purchases, working capital, and commercial real estate. To qualify for an SBA loan, you must meet certain criteria and have a strong business plan.
Traditional Bank Loans
Traditional bank loans are often the first choice for small business owners because they offer low interest rates and a long repayment period. However, they are also more difficult to qualify for than other types of loans. To apply for a traditional bank loan, you will need to have a strong credit score, collateral, and a well-established business history.
Microloans are small loans typically provided by non-profit organizations, community development financial institutions (CDFIs), and some SBA lenders. These loans are often used for startup costs, working capital, and other small business needs. Microloans typically have shorter repayment terms and lower interest rates than other types of loans.
Online lenders provide small business loans quickly and easily. They typically have less stringent requirements than traditional bank loans and offer a variety of loan options, including term loans, lines of credit, and invoice financing. However, online loans often come with higher interest rates and shorter repayment terms.
Line of Credit
A line of credit is a flexible financing option that allows you to borrow money as needed, up to a predetermined credit limit. This type of financing is ideal for businesses with irregular cash flow or those that need funds to cover unexpected expenses.
Business Cash Advances
A business cash advance is a type of financing that provides you with a lump sum of cash in exchange for a percentage of your future sales. This option is typically used by businesses with a steady stream of revenue, such as restaurants or retailers.
Cash Flow Loans
Cash flow loans are designed to help businesses manage their cash flow by providing short-term financing. These loans are typically used to cover payroll, inventory, and other expenses during slow periods.
Business Credit Cards
Business credit cards can be a convenient financing option for small business owners. They offer a flexible spending limit and often come with rewards programs. However, they also typically have higher interest rates than other types of loans.
Vendor financing is a type of financing that allows you to purchase goods or services from a supplier on credit. This can be a good option for businesses that need to purchase inventory or equipment but don’t have the cash on hand to do so.
Find Out How to Get Approved
Once you’ve decided on the type of financing you need, it’s important to understand the steps you can take to increase your chances of approval.
Review Your Credit Score
One of the first things lenders will check is your personal credit score. Make sure you review your credit report before applying for a loan to ensure it’s accurate and up to date. If there are any errors, contact the credit bureaus to have them corrected.
Improve Your Credit Score
If your credit score is low, take steps to improve it. Pay all bills on time, reduce credit card balances, and avoid opening new credit accounts.
Prepare Your Financial Documents
Lenders will want to see your financial documents, such as tax returns, bank statements, and financial statements. Make sure these are organized and up to date. If you’re not sure what documents are required, ask the lender or consult with a financial advisor.
Build Your Business Credit
If you haven’t already, start building your business credit by opening accounts with vendors and suppliers that report to the business credit bureaus. Make payments on time and keep your credit utilization low.
Develop a Strong Business Plan
Lenders want to see that you have a solid plan for your business and that you’re capable of paying back the loan. Develop a strong business plan that includes financial projections and a detailed strategy for growth.
If you’re having trouble getting approved for a loan, seek assistance from a small business advisor or a financial consultant. They can help you identify areas for improvement and provide guidance on how to increase your chances of getting approved.
When applying for a small business loan, it’s essential to have all your paperwork in order. This will save you time and prevent delays in the approval process. Here are some of the documents you’ll need to provide when applying for a small business loan:
A well-prepared business plan outlines your business structure, objectives, and financial projections. It demonstrates that you have a clear vision of how you plan to operate and grow your business.
You will need to provide government-issued identification such as a driver’s license or passport. Lenders may also require your social security number or other tax identification numbers.
You’ll need to provide proof of business registration, such as your business license or articles of incorporation. If you’re operating as a sole proprietorship, you’ll need to provide a copy of your “Doing Business As” (DBA) certificate.
Lenders will need to review your financial statements, including your balance sheet, income statement, and cash flow statement. Be prepared to provide these statements for at least the past three years.
You’ll need to provide your personal and business tax returns for the past three years. If your business is new and you haven’t filed a tax return yet, provide your projected financial statements.
Lenders will want to see your business bank statements for the past six months to a year. This will give them a clear picture of your cash flow and how you manage your finances.
If you’re applying for a secured loan, you’ll need to provide proof of collateral. This could include property, equipment, or other assets.
Depending on the type of loan, you may need to provide legal documents such as contracts, leases, or purchase agreements.
By gathering all of these documents beforehand, you’ll be prepared to apply for a small business loan. Keep in mind that requirements may vary by lender and loan type, so it’s best to check with your lender beforehand to make sure you have everything you need.
Choosing a Lender
As a small business owner in Georgia, you have several options when it comes to choosing a lender. It’s important to choose a lender that best fits your business’s financial needs, and that you feel comfortable working with. Here are some of the most common types of lenders:
Direct lenders are financial institutions that lend their own money directly to borrowers. These can include traditional banks, credit unions, and online lenders. If you have an existing relationship with a bank or credit union, this may be a good place to start your search for a small business loan. Direct lenders typically have higher standards for creditworthiness and require more documentation, but they often offer lower interest rates and longer repayment terms.
Lending marketplaces are online platforms that connect borrowers with multiple lenders. These platforms make it easy to compare rates and terms from different lenders, and can save you time and effort in finding a loan. Some popular lending marketplaces include LendingTree, Fundera, and Biz2Credit. Keep in mind that lending marketplaces may charge a fee for their services, and not all lenders participate in every platform.
Peer-to-Peer (P2P) Lending
Peer-to-peer lending, also known as marketplace lending, is a type of lending that connects borrowers with individual investors. P2P lenders typically offer smaller loans, with shorter repayment terms and higher interest rates than traditional lenders. However, they may be more flexible in their underwriting criteria, and can offer loans to borrowers with lower credit scores or less established businesses. Some popular P2P lenders include LendingClub, Prosper, and Upstart.
When choosing a lender, it’s important to do your research and compare rates and terms from multiple lenders. Look for a lender that is transparent about their fees and terms, and that has a good reputation in the industry. It’s also a good idea to read reviews and check the lender’s Better Business Bureau rating before applying for a loan.
Fill Out the Application
Filling out the loan application is a crucial step towards securing financing for your small business. It is important to understand the requirements of your lender and prepare your documentation accordingly. In this section, we will provide guidance on how to fill out a loan application for various scenarios.
How to get a business loan from a bank
Getting a loan from a bank can be a complex process, but it can also provide access to larger loan amounts at lower interest rates. When applying for a bank loan, be prepared to provide detailed financial statements, tax returns, and a solid business plan. Banks will also check your personal and business credit scores. To increase your chances of getting approved, ensure that your credit scores are as high as possible and that your financial statements show strong revenue and cash flow.
How to get a loan to buy a business
Buying an existing business can be a smart investment, but it requires a significant amount of capital. If you need financing to buy a business, be prepared to provide a detailed business plan that includes your growth strategy and how you plan to operate the business. Lenders will also want to see financial statements from the existing business and may require a valuation of the business before approving a loan. Additionally, you will need to demonstrate your ability to manage the business successfully.
How to get a business loan with no money
Getting a business loan with no money can be challenging, but it is not impossible. One option is to apply for a microloan or a personal loan that you can use for your business. Another option is to seek out investors who are willing to provide funding in exchange for a share of your business. You can also explore crowdfunding platforms or seek out grants that are available to small businesses.
How to get a business loan without collateral
If you do not have collateral to secure your loan, you can still apply for unsecured loans that do not require collateral. However, these loans typically have higher interest rates and stricter eligibility requirements. You can also look into alternative lending options, such as peer-to-peer lending or crowdfunding, which may not require collateral.
How to get a business loan with bad credit
Having bad credit can make it more difficult to get approved for a business loan. However, it is not impossible. You can explore alternative lending options, such as online lenders or peer-to-peer lending platforms, which may be more lenient with credit requirements. You can also work on improving your credit score by paying off debts and making timely payments. Additionally, you can provide collateral or seek out a co-signer to increase your chances of approval.
Assisting Small Business Owners in Georgia with Loans through Nav
Navigating the complex world of business loans can be challenging for small business owners in Georgia. Fortunately, Nav offers a financial health platform that provides a wide range of resources and tools to help small business owners access funding.
With Nav, small business owners can quickly find the right lenders and loan products that match their specific needs. By providing your business information, Nav can identify which loan options you qualify for, saving you time and effort in your search for lenders.
Nav is a comprehensive resource for small business owners, providing credit monitoring, loan options, educational resources, and business credit reporting. It helps you navigate the loan application process and increases your chances of securing the funding you need to succeed in your business. Nav is an invaluable tool for small business owners in Georgia seeking funding for their businesses.
This article was originally written on May 16, 2023 and updated on June 1, 2023.