Small Business Loans
Learn All About Texas Small Business Loans
If you’re starting or expanding a small business in Texas, the first thing you’ll likely need is capital. Whether you’re opening a shop in Dallas, expanding a landscaping company in Austin, or upgrading the kitchen of your San Antonio catering, a small business loan can provide the money you need to get started.
Fortunately, the state of Texas offers programs designed specifically for residents while nationwide programs can provide plenty of options as well.
Key Points
- • Small business loans in Texas support capital needs for startups and expansions.
- • The Texas Small Business Credit Initiative allocates $472 million through CAP and LGP.
- • Microloans, up to $50,000, may be easier to obtain.
- • SBA loans offer lower interest rates and longer repayment terms.
- • Grants from the Texas Enterprise Fund and Texas Workforce Commission provide additional funding options.
Popular Types of Small Business Loans in Texas
Small business owners in Texas can take advantage of a variety of programs offered through the state and nationally.
Recommended: Small Business Financing Guide
Texas Small Business Loan Programs
In Texas, the Governor’s Office of Small Business Assistance works with various partners to help provide small businesses with capital.
The Texas Small Business Credit Initiative (TSBCI) works with financial institutions to help provide resources for small businesses, especially those that have been traditionally underserved or affected by the COVID-19 pandemic.
The TSBCI allocates $472 million to invest in the state’s small business ecosystem, through two different programs: the Capital Access Program (CAP) and the Loan Guarantee Program (LGP). Loans of $5,000 up to $5 million may be enrolled in the CAP program, while Loans of $5,000 up to $20 million may be enrolled in the LGP.
To be eligible for these loans, small businesses must be for-profit, have 500 or fewer employees, be based in Texas, and a minimum of 51% of their employees must be located in-state.
There are also a variety of non-profit lenders located in Texas who focus on lending to disadvantaged businesses. These include organizations such as BCL of Texas, LiftFund, and PeopleFund. In addition to loans, these lenders offer mentoring, advice, and workshops.
SBA Loans
An SBA loan is a small business loan that is partially guaranteed by the U.S. Small Business Administration (SBA). The SBA partners with traditional lenders, such as banks and credit unions, who provide the loans. The SBA makes it easier for these lenders to offer loans, because they cover a portion of the loan if the borrower defaults.
SBA loans can be used for a wide variety of business purposes, including to buy equipment, provide working capital, purchase real estate, or refinance debt. They also typically offer lower interest rates than other conventional business loans and may offer longer repayment terms.
There are several types of SBA loans. The 7(a) Loan is the most common and suitable for most small business purposes. The 504 Loan, on the other hand, is designed mainly to purchase real estate or equipment. Small businesses may also apply for disaster loans that can aid recovery in declared disaster areas, and Express loans that help businesses that need a cash infusion quickly.
Recommended: SBA Loan Calculator
Term Loans
Small business loans are typically a type of a term loan. These loans offer borrowers a lump sum and are repaid over a set period of time with a fixed interest rate. They are typically used to start or expand a business, make large purchases of real estate or equipment, manage daily operations, or consolidate debt.
Business and startup loans may be secured by collateral, something of value that backs the loan, or they may be unsecured and don’t require collateral.
Equipment Financing
Equipment financing is a type of loan that allows you to purchase business equipment such as vehicles, machinery, or new technology without needing to cover the cost upfront. The purchase equipment itself often serves as collateral for the loan.
Financing equipment can be useful for a small business because it offers manageable payments while preserving capital that can be used for other operational purposes.
Business Lines of Credit
Business lines of credit are alternatives to a term loan. They are a form of revolving credit that functions, in many ways, like a credit card. They allow you to borrow money up to a certain limit, and the amount you borrow accrues interest. Once you pay it back that money is again available to borrow.
How to Apply for a Small Business Loan in Texas
Before applying for a small business loan, the following steps can help you get organized and increase your chances of approval.
Define Your Loan Purpose and Amount
Your lender will want to know exactly what you wish to use your loan for. Clearly define your need and the amount of money it will take to meet it.
Know Your Credit Score
Various lenders will have different requirements for the credit score you’ll need to qualify for a business loan. Some may require a score of 680 or higher, while others may work with borrowers with lower scores. Know your personal and business credit score to get a better understanding of which lenders you can work with.
Note, lenders typically offer their best terms and interest rates to borrowers with higher scores. If you have the time, you may wish to improve your credit score before applying for a loan.
Gather Your Key Documents
To apply for a loan, prepare key documents, including your detailed business plan, tax returns, and your business and personal financial statements.
Compare Lenders and Loan Offers
When it comes to loans, it pays to shop around. Carefully compare lenders and loan offers, looking closely at interest rates, fees, and other costs. Doing so can potentially help you save thousands of dollars over the life of the loan. Compare other terms and well to help ensure you choose the loan that works best for your situation.
A business loan calculator can help you understand your monthly payments and the overall cost of a loan to help you make informed decisions.
Submit Your Application and Await Approval
You can apply for a small business loan directly through banks for online lenders. If approved, carefully review the loan agreement. It will include information on the amount of the loan, the interest rate, and the repayment schedule. Be sure these work for you before you sign.
Tips for Improving Your Loan Approval Chances
There are several steps you can take to improve your chances of business loan approval.
First, both your personal and business credit scores will be important factors in any lender’s decision. So be sure to pay your bills on time and keep your debt low. Paying down debt can decrease your debt-to-income ratio, another important metric lenders use when determining credit worthiness.
Be sure to have a detailed business plan that includes a description of your company, market analysis, your goals, market position, marketing and sales strategies, and how you will use the funds to generate revenue. Be sure to have detailed financial records, including tax returns, bank statements, and profit and loss statements that document your business’ financial health.
Other Funding Options for Texas Small Business
In addition to loans, Texas small businesses may look to small business grants to provide funding. For instance, the Texas Enterprise Fund (TEF) provides performance-based cash grants to companies looking to create jobs and attract capital investment in Texas.
The Texas Workforce Commission offers grants to businesses with fewer than 100 employees to incentivize training for new, full-time employees.
THe SBA also offers a limited number of grants to small businesses for scientific research, community promotion of entrepreneurship, and exporting.
The Takeaway
Access to capital is a critical driver for small businesses in Texas looking to get off the ground or grow. The state offers residents access to a wide variety of programs that provide businesses with the opportunity to meet their funding needs. Understanding what these state and national opportunities are and how to best prepare yourself to qualify for a loan can set your small business up for long-term 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.
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FAQ
How do I get a small business loan in Texas?
First prepare a strong business plan and organize your financial records. Research state and federal loan opportunities and compare loan terms, interest rates, and fees. Apply for the loan that best suits your needs, and be sure to review the loan agreement carefully before you sign.
Can I get a startup business loan in Texas with no money?
It will likely be challenging to get a startup business loan in Texas with no money, but it is possible. You will likely need to present a very strong business plan, and you may need to back the loan with collateral or another personal guarantee.
How hard is it to get a small business loan in Texas?
The ease with which you’ll qualify for a small business loan in Texas will depend on a variety of factors, including your business plan, financial health, and credit score. Borrowers with a strong business plan and strong financial standing will have an easier time qualifying for a loan.
What is the easiest type of business loan to get approved for?
Microloans may be the easiest option for small businesses to get approval for, and typically offer loan amounts up to $50,000.
What credit score do I need for a small business loan?
Generally, the minimum credit score required for SBA and other term loans is 680. That said, it may be possible to find lenders who will work with you if you have a lower credit score.
What can I use a small business loan for?
Small business loans can be used for a variety of purposes including providing working capital, purchasing real estate or equipment, research and development, consolidating debt, and more.
Are there any small business grants available in Texas?
There are small business grants available in Texas, such as those available from the Texas Enterprise Fund and the Texas Workforce Commission.
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