Getting a Small Business Loan in Alabama is a huge challenge, facing many business people, because of the stringent lending terms set by financial institutions. Small business enterprises are essential drivers of Alabama’s economy. According to the Small Business Administration, there are approximately 388,850 small enterprises, representing 99.5% of Alabama-based businesses. Therefore, seeking external financial assistance to grow them leads to a further boost in the economy. To individual businesses the loans help in running daily expenses, inventory, and payrolls effectively. While applying for and getting approved for a small business loan can be a daunting task, it’s vital to make thorough preparations. In this post, we share five strategies to discover, apply, and get your small business loan approved.
1. Establish Why you Need a Loan
Any financial lender will ask this question, and how you answer it determines whether they’ll grant or deny the loan. Probably, you may consider taking out a loan to start a business, manage daily expenses, expand your business, or as a safety cushion. All of these are essential aspects a small business loan can help address.
2. Find Out the Type of Loan that Suits You
As mentioned above, a financial lender can ask you reasons why you require a specific loan, and how you answer determines if it’ll be granted or denied. Likewise, the same logic will determine the type of small business loan they offer you. For instance, it’s almost impossible to get a loan if you’re starting a business. Lenders love working with companies with continuous cash flow to encourage loan repayment.
If not, you’ll need to depend on crowdfunding, business credit cards, borrowing from friends, personal loans, or taking mini-loans from non-profit lenders. But if your small business is more than a year old, with a steady revenue history, then you have a wide range of financing options. These may include term loans, invoice factoring, SBA loans, and lines of credit.
3. Find Dependable Small Business Lenders
You can get your micro-business loans from various sources, such as non-profit microlenders, banking institutions, and online lenders. They can offer different financing options ranging from receivable financing, lines of credit, and term loans. When shopping around, approach this as though you are shopping for your ideal dream vehicle. After finding a reputable lender, make a thorough comparison with a couple or more similar lenders as per their annual percentage rate (APR) and terms. For small business loans you are eligible, settle for the one with the least APR or the one you can comfortably manage to reconcile with regular payments.
According to NerdWallet, you can use a business loan calculator to determine your monthly installments, and whether you qualify for the loan. Other factors that may hinder the approval rate are cash reserves, low sales volumes, and negative collateral. Also, getting a loan approval can take up to six months, but banking institutions may offer you the least APR option. It’s recommended to use microlenders when: You can’t access or get traditional loan approval because your business is quite small or the small business loan by itself is considered “micro.” On the other hand, you can use online lenders in cases where:Your business lacks collateral, it is a newly established business. or you require urgent financing Online lenders can offer your small business lines of credit or loans starting from $500 – $500,000, with an average APR from 7-108% depending on the lending company. Other factors that may affect this include loan size, credit history, repayment term, and whether you’ll require collateral or not. Compared to traditional banks, online lenders have higher approval rates and quicker funding (as fast as 24 hours).
4. Determine Whether You Qualify
To find out whether you qualify, ask yourself the following questions:
What is Your Credit Score?
Your position on the credit spectrum plays a significant role in determining the types of loans you stand to qualify. Credit bureaus such as TransUnion, Equifax, and Experian can offer you a free credit report annually. Besides, you can get it from credit card providers or commercial websites. Most banks offering the cheapest micro-business loans require borrowers to have at least a credit score higher than 680. If your score is lower than this mark, it’ll be better to consider poor credit lenders such as non-profit microlenders or online loaning companies.
What’s Your Age in the Business?
Another factor apart from the credit score a lender may consider is how long your business has been around. It’s vital to have been in the industry for at least twelve months to be eligible for online micro-business loans. Also, some traditional banks will require at least two years in the industry to approve your bank loan.
How Much Money Does Your Business Generate?
Most online lenders will require your business to have at least $50,000 – $150,000 annual revenue. Therefore, it’s wise to understand yours, and the minimum/maximum limit required by your lender.
Are You Able to Make Payments?
Assess your small-business financial reports (mostly cash flow), and determine what you can manage to pay monthly towards your loan. Other lenders have a bi-monthly or daily loan repayment program, hence consider this too. For comfortable repayment, ensure your income is at least 1.25 times more than your expenses + repayment amount.
5. Gather the Relevant Documents
After thorough research and comparing your options, you now must apply for the small business loan that you qualify for and fits your financial situation. You can do this is by applying for several small business loans on a shorter time-frame (2 weeks) that do not impact your credit score negatively. According to the Minority Business Development Agency’s checklist, you’ll require to submit some or all of the following documents during application:
- i) Business and personal tax returns
- ii) Business and personal financial statements
- iii) Business Bank statements
- iv) Legal business documents (commercial lease, letter of incorporation, or franchise agreement)
Getting a Small Business Loan in Alabama doesn’t have to be a big challenge today. By following these five steps, you can have your small business loan approved even if you have a poor credit rating or lack the financial muscle. Consider doing your research well before working with any commercial lender.
You can also read:
- How to Apply For a Small Business Loan in Arkansas
- How to Apply for a Small Business Loan in Arizona
- How to Apply for a Small Business Loan in Alaska
- How to Apply For Unemployment in Alabama