Small business loans Alabama

Follow these steps to apply for a business loan in Alabama:

1. Identify what type of loan you want – Calculate how much money you need and determine what you’re going to use the money for. This will tell you what type of loan you want to apply for.  
2. Determine your qualifications – Find your credit scores and business financials to get a handle on how many requirements you’re likely to meet for a small business loan. Compare your qualifications against the requirements of the SBA or financial institution 
3. Find your potential lenders – Make a list of the banks that offer the type of loan you’re looking for. If you have a relationship with a bank or credit union through your business account, this is a good place to start. You may want to look for local banks or financial institutions, although some national lenders may be able to provide better rates or terms. 
4. Collect the needed documentation – Most loan applications will require proof of your qualifications, including financial statements, account statements, tax returns, business plans, business licenses and personal identification. You can cut down on how much time it takes to apply for a loan by gathering these documents in advance. 
5. Fill out and submit the application  – Depending on what type of loan you’re applying for and which lender you’ve chosen, you may have to apply in person or online. You’ll fill out a form that will detail your qualifications, information about your business, creditworthiness, financial health and the reason you’re applying for the loan. If you have an accountant or financial advisor, it’s a good idea to have them look over the application before you submit it to ensure everything is accurate. 
6. Submit any other information as requested – Your lender may need more information to process your loan application. Submit that information as quickly as you can to help the process go as smoothly as possible.
7. Receive approval – The lender will inform you in writing whether or not you’ve been approved. If you have, make sure you go over the information closely so you fully understand the terms and conditions. Again, a financial advisor or accountant can help in this situation, but often banks will provide you with an account manager or representative who can answer any questions. If your loan was denied, you can ask the lender for clarification to help you in future applications. 
8. Get the funding – The funds from the business loan will be deposited into your account and you can spend it as needed, depending on the loan you agreed to. 
9. Repay the loan – Depending on your terms, you’ll start repaying the loan every month, usually at a set rate that will include interest. Some loans may give you a few months before you have to start repaying, but it’s important not to miss any payments. You should also make sure that you understand any penalties for early repayment if you find you can pay the loan off early. 

What credit score do I need for a small business loan in Alabama?

Many factors determine what credit score you’ll need to successfully get a business loan in Alabama. If you’re applying for a traditional term loan or an SBA loan, you’ll have a better chance of success with a higher credit score, usually at least 680 or above. Higher credit scores can lead to more favorable loan terms, including larger loan amounts and lower interest rates. Some SBA loans and alternative lenders will accept lower scores, even in the range of 500-600, but again, they may have higher interest rates or faster repayment terms. 

While credit scores are the number one way a lender will determine your creditworthiness (or ability to pay back a loan), there are other factors that they’ll consider. These include your financial profile, such as your business’s financial health, cash flow and revenue. The way you intend to use the loan will also inform how a lender evaluates you. Some lenders may also factor in a personal guarantee or collateral in their decision. 

If you have a lower credit score, it’s a good idea to work on improving it before applying for a loan. 

Typical interest rates on a business loan in Alabama

Typical interest rates for a business loan in Alabama will depend on what type of loan you apply for, the lender, your qualifications and the market conditions when you apply. For instance, interest rates may be higher across the board during a recession than at other times.

For traditional term loans from banks or credit unions, businesses with higher credit (680 and up) can expect lower interest rates, usually falling between 4-10%. Most traditional term loans will fall at about 6% interest. 

SBA loans have competitive rates that are set by the SBA and may be fixed or variable, depending on the type of loan. These rates are usually tied to the U.S. prime rate plus an additional percentage. For example, for an SBA 7(a) loan in 2023 the maximum interest rate is 15% for a loan of $50,000 or less, while a loan of $350,000 or more can only go as high as 11.5%, based on the U.S. prime rate of 8.5%. For an SBA 504/CDC loan, the rate is tied to the U.S. treasury bond rate. 

Alternative lenders and online platforms can have a wider variation in their interest rates. These rates can go as high as 60%, so it’s important to know what you’re signing up for. 

How long does it take to get funds?

Depending on what type of loan you apply for, it can take anywhere from 48 hours to several months to get your funds. Traditional lenders tend to have more extensive and detailed application processes, which include application review, underwriting and approval. This can take anywhere from a few weeks to several months. SBA loans can take anywhere from 30 days to six months depending on the loan type. 

Alternative lenders, on the other hand, often have simple applications and quicker approval times. Because they tend to have fewer requirements and less complicated approval processes, you can get funds from an online loan in as few as 24 hours after approval in some cases. However, you may be required to pay the loan back much more quickly and with a much higher interest rate than a traditional term loan or SBA loan. 

What alternative business financing options are available?

Not every small business can qualify for a small business loan in Alabama, but there are a number of other financing options available. 

• Invoice financing – Use your outstanding invoices to secure immediate cash from a financing company.
• Merchant cash advance (MCA) – Receive a lump sum in exchange for a percentage of daily credit card sales plus a fee.
• Equipment financing – Buy or lease equipment through a specific loan or financing program. 
• Business credit cards – Use a business credit card to pay for business expenses to free up cash flow and even earn rewards and points. 
• Business lines of credit – Take out a business line of credit to pay for regular business expenses and you may be able to reuse the line of credit as you pay off your balance. 
• Peer-to-peer lending – Find individual investors through an online platform or through your own connections. 
• Crowdfunding – Raise funds from a large number of people, often through online platforms, in exchange for a stake in your business or a gift or product advance. 
• Venture capital/angel investors – Get funding in exchange for equity for your high-growth business or startup. 
• Microloans – Get smaller amounts of funding through nonprofit organizations, community development financial institutions or online lenders that align with your mission or vision. 
• Grants – Get “free money” from government, state or community programs that provide funding to businesses for a variety of reasons, without requiring repayment.