Small Business Loans
Learn All About California Small Business Loans
California is famously a place where big ideas start small, from Silicon Valley startups to outdoor apparel in Ventura to the future global fastfood chain with humble beginnings in San Bernardino.
Turning ideas like these into reality requires one important ingredient: capital. Many entrepreneurs look to small business loans to get them off their feet and help them grow their business. Here’s a look at what small business owners in California need to not to navigate the lending landscape and find the funding that fits their needs.
Key Points
- • California offers loan guarantee programs that could help with up to $5 million to support small businesses.
- • CalCAP for Small Business aids with strong plans but underwriting challenges, providing guarantees.
- • Microloans, up to $50,000, are accessible with less stringent requirements.
- • Equipment financing allows spreading payments over time, improving cash flow.
- • SBA loans feature lower interest rates and longer repayment terms, benefiting small businesses.
Popular Types of Small Business Loans in California
If you’re a small business in California, here are some of the programs to consider.
California Small Business Loan Programs
The State of California offers several lending programs to small businesses in-state.
The California Small Business Loan Guarantee Program is offered through iBank, which doesn’t issue the loans directly, but rather works with Financial Development Corporations and lenders to offer loan guarantees. The program can pay lenders up to 80% of a small business’s outstanding loan should the borrower default on their loan. The maximum guarantee amount is $5 million.
Similarly, CalCAP for Small Business (CalCAP SB), helps incentivize financial institutions to lend to California small businesses who present strong business plans, but may otherwise have underwriting challenges. Loans of up to $5 million are available under the program.
Various non-profit institutions may also offer loans to California businesses. For example, the Accion Opportunity Fund offers loans of $5,000 to $350,000 as well as one-on-one business advice.
Recommended: Small Business Financing Guide
Term Loans
Generally speaking, small business loans are a type of term loan. These loans offer a lump sum that you pay back at regular monthly intervals with a fixed interest. Some loans are “secured” and may require that you put up collateral, a valuable asset used to back the loan, while others may be “unsecured” and require no collateral.
Small business and startup loans may be used to start or expand a business, make large purchases of real estate or equipment, manage daily operations, or consolidate debt.
Business Lines of Credit
A business line of credit is a form of revolving credit that allows you to borrow money up to a fixed credit limit. The money you borrow is subject to interest payments, and once you pay it back, the money is available to borrow again.
Equipment Financing
Equipment financing is a type of loan designed to help you purchase business equipment, such as machinery, vehicles, or new technology. The equipment purchased often serves as collateral for the loan itself.
Financial equipment costs can be useful for a small business because it offers manageable monthly payments rather than requiring owners to cover the full upfront cost. Spreading payments out can help smooth cash flow, preserving capital for other operational needs.
SBA Loans
SBA loans are small business loans that are partially guaranteed by the U.S. Small Business Administration (SBA). The SBA does not offer loans itself. Rather, it partners with traditional lenders, such as banks and credit unions, who provide the loans. SBA guarantees make it easier for lenders to offer loans, as they cover a portion of the remaining loan balance if the borrower can no longer pay. What’s more, SBA loans typically carry lower interest rates than conventional business loans. They may also offer longer repayment terms.
Entrepreneurs can use SBA loans for a variety of purposes, including providing working capital, buying equipment, and purchasing real estate.
There are several types of SBA loans. The most common is the 7(a) loan suitable for most small business purposes. The 504 loan is designed to help business owners purchase real estate or equipment. Disaster loans help small businesses recover in declared disaster areas, and Express loans help businesses that need a quick infusion of cash.
Recommended: SBA Loan Calculator
How to Apply for a Small Business Loan in California
The following steps can help you get organized and increase your chances of qualifying when you apply for a business loan in California.
Define Your Loan Purpose and Amount
Lenders need a clear understanding of why you’re seeking a loan. Get specific about exactly how much you’ll need and what you intend to use the funds for. It is helpful to support your financial request with quotes or estimates from vendors or real estate brokers, for instance.
Know Your Credit Score
Different lenders will have varying credit score requirements for small business loans. For instance, some may require a score of 680 or higher, while others may be willing to work with borrowers with lower scores. Knowing your score helps you understand which lenders are likely to work with you.
Also, keep in mind that lenders will offer their best terms and interest rates to borrowers with higher scores. If you have a relatively low score you may consider improving your credit before you submit an application.
Gather Your Key Documents
Lenders will also want to see business and financial documentation. Be sure you have a detailed business plan, tax returns, and personal and business financial statements. Having these organized and at the ready can help streamline the loan application process.
Compare Lenders and Loan Offers
Shopping around can help you save a significant amount of money. Compare offers from multiple lenders, paying close attention to interest rates, fees, and other costs. Evaluate loan terms carefully to help you pick the loan that best matches your needs and financial situation.
A business loan calculator can help you estimate monthly payments and overall cost of your loan to help you make informed decisions.
Submit Your Application and Await Approval
You can usually submit loan applications directly through banks or online lenders. If your loan is approved, review the loan agreement carefully. Double check the amount of the loan, interest rate, repayment schedule, and other terms before signing.
Tips for Improving Your Loan Approval Chances
There are several concrete steps you can take to improve your chances of qualifying for a loan.
Both your personal and business credit score will play a key role as lenders determine your creditworthiness. Be sure to pay your bills on time and pay down previous debts to help you maintain a healthy credit score.
A thorough business plan is also essential. Be sure yours includes a company overview, market analysis, details on competitors, marketing and sales strategies and a clear explanation of what you plan to do with the loan and how that will help generate revenue.
Other Funding Options for California Small Business
Small businesses may also look into applying for state and local business grants. Grants present a significant advantage to entrepreneurs because, unlike loans, they do not need to be repaid. You can find grant opportunities through the California Grants Portal, which is managed by the California State Library.
Additional Business Resources in California
Sometimes businesses need more than financial support. The SBA, for example, offers SCORE, a business mentoring program dedicated to helping entrepreneurs plan, launch, and grow their small business.
The Takeaway
Access to the right financing can make all the difference for small business owners. Understanding the types of loans available, eligibility requirements, and other resources available to you can help you make strategic choices that set you up for success.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
(without impacting your credit score)†
FAQ
How do I get a small business loan in California?
First, prepare a strong business plan, research federal and state loan options and compare terms and interest rates. Apply for the loan that suits your needs, and review the loan agreement carefully before signing.
Can I get a startup business loan in California with no money?
It is possible to get a startup business loan with no money, but it may be difficult. You may wish to look into programs, such as CalCAP SB, that incentivize lenders to make loans to businesses with little money but strong business plans.
How hard is it to get a small business loan in California?
The ease with which you’ll qualify for a business loan will depend on a variety of factors, including your business plan, your credit score, and your financial standing.
What is the easiest type of business loan to get approved for?
Small businesses may be most likely to get approval for a microloan, which typically offer loan amounts up to $50,000.
What credit score do I need for a small business loan?
The minimum credit score required for an SBA loan and other term loans is typically 680. You may be able to find lenders who work with borrowers with lower scores.
What can I use a small business loan for?
Small business loans may be used for a variety of purposes, such as purchasing real estate and equipment, providing working capital, and consolidating debt.
Are there any small business grants available in California?
There are many small business grants available in California. You can search for opportunities using the California Grants Portal managed by the California State Library.
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOSMB-Q425-003
More Small Business Financing Resources
Business loans don’t have to be complicated. Get clear answers on applications, learn what providers really look for, and understand popular loan options.
Search for small business funding in minutes.
Your time matters. So we’re making business loans as easy as possible by helping you find small business funding fast.
(without impacting your credit score)†