The golden state might not be the frontier anymore, but it’s brimming with opportunity for small businesses. Both passionate locals and eager-to-spend tourists give small businesses a well deserved home in California. Despite ample opportunity, many entrepreneurs still find themselves searching for the best California business loans.
Even with the potential to thrive, businesses on the West Coast still need California business loans to take things to the next level. Thankfully, state regulations make this a more transparent and regulated process than other states. There are also many small business grants available.
Before settling for the first California business loan you come across, it’s important to know your options, along with some background information.
Aside from some of the best landscapes in the country, California is also home to transparency-focused regulations that help small businesses seeking funding.
Passed in October of 2018, Senate Bill 1235 was a major step forward for small businesses in need of California business loans. As far as loan agreement transparency goes, this bill makes California one of the best states for small businesses.
By passing this law, the California government laid down important ground rules about helping small business owners understand the technicalities of loan agreements before signing. In short, this bill helps entrepreneurs understand what the agreement obligates them to. This helps eliminate situations in which business owners learn new information about their agreement months into the process.
One of the most desirable business loans in California is offered through the California Small Business Loan Guarantee Program. Similar to SBA loans (which we’ll cover later), this state-run program helps lenders provide lower rates by guaranteeing 80-95% of the loan.
The Small Business Finance Center of California’s state government runs this program, in conjunction with seven Financial Development Corporations. These non-profit organizations help drive small businesses by providing commercial loans in California, along with other resources.
Because the various FDCs facilitate these loans, each has different requirements for issuing guaranteed California business loans. Across all lenders, though, you can’t apply with more than 750 employees.
Through this program you can qualify for funding up to $20 million. However, only up to $2.5 million can be guaranteed. Payment terms often start at 7 years, but can be longer. Nonprofits may be eligible to qualify as well.
To learn if your small business qualifies, apply directly through an FDC.
Before getting bogged down by state-specific California business loans, you can also find great options through nationwide lenders.
Banks often offer low interest rates, but attached to this low price tag is a time-consuming process. Even the best small business banks in California will likely take at least 1-2 months to process your application. If your opportunity won’t disappear in that time, though, this may be your best bet.
Alternative lenders specialize in helping small businesses get funding for new opportunities in tight time windows. They also offer a simplified application and approval process. If you qualify, you can sometimes receive funding the same day.
These aren’t technically California business loans, as they’re available in other states too.
Small business loans, which may also be called working capital loans, have a straightforward structure. You receive a set amount of cash based on what you need and qualify for, and pay it back over a certain period of time at a certain rate.
When you borrow through a private lender (as opposed to an SBA loan), there are little to no restrictions about funding usage. You can put your cash toward anything that helps your business, including inventory, marketing, expansion and more. Small business loans can also help you solve challenges.
If you need flexible small business funding in California, then a business line of credit might be the way to go. This financing option (which technically isn’t a loan) gives you the cash you need when you need it, and nothing more.
After receiving an approval for a set limit, you can then draw the amount you need. As you need more, you can draw more cash, up to the full amount you were approved for. You’ll only pay interest on what you take, and as you pay it down, you can draw more cash.
For business owners with potential growth or problems to resolve ahead, this is one of the best options. It’s also a great tool to have on hand when preparing your business for a recession.
Rather than researching California business loans to buy new equipment, you may be able to qualify for equipment financing. This financing option helps you purchase new equipment outright, instead of renting it. It’s available in nearly every industry, and with no up-front fees.
Unlike the equipment financing process of years past, new programs can help you qualify and get funding right away. In addition to purchasing new equipment, you can also write off the entire cost of the equipment in year 1.
The SBA offers programs nationally, but many work well as California business loans. Before applying, though, be sure to confirm your business is eligible based on the requirements. If you’re looking for funding to overcome challenges from a natural disaster, consider SBA disaster loans.
The most popular of the SBA loans in California, the 7(a) program offers low interest rates over long terms. While the SBA isn’t technically providing funding, they’re guaranteeing it. This means that, in the event your business defaults or doesn’t pay back the loan, the SBA will cover the difference.
Applying for an SBA loan can be quite time consuming, with a lengthy application and months-long turnaround time. The standards for qualifying are also quite high—to make the cut, you generally need excellent credit and financials. However, if you can stand to wait, then this is often the best option.
Because of the term length, SBA loans are generally best put toward expenses that don’t directly drive revenue. For example, repaving the parking lot might help improve the customer experience, but it won’t add a new revenue stream. If you’re putting funding toward opening a new location or another revenue-driving expense, then a product with a shorter term length might be more beneficial.
The SBA Microloan is another great California business loan option, though if you’re looking for a substantial amount, it may not be the best choice. At most, you can qualify for $50K, though the average size is around $13K.
There aren’t a tremendous number of restrictions, but the SBA Microloan can’t be put toward real estate, or refinancing other debts.
At National, we specialize in helping small businesses across the country get the funding they deserve.
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Matt Carrigan is the Content Writer at National Business Capital & Services. He loves spending every day creating content to educate business owners across every industry about business growth strategies, and how they can access the funding they need!