Wondering how to get a small business loan in California? To qualify for a traditional lender loan, you need to have a good business or personal credit record.

The entrepreneurial spirit is very much alive in California. In fact, a good majority of industries from San Francisco down to San Diego are made up of small businesses. However, Covid 19 restrictions have impacted many small businesses, including their owners and employees. Recognizing them as the primary drivers of economic development, the local government of California is providing recovery means by expanding their support through federal relief, micro-grants, loan guarantees, and access to capital. In any case, California small business loans are still very much available to those who need them as we discuss your options and more in this article.

California financing law for small business owners
With things gradually returning to the way they should be, the state remains a great place to start and grow an enterprise. And it helps that California business loans promote transparency, all thanks to a senate bill that requires alternative lenders and other financial institutions to furnish disclosures to borrowers of small business loan options. This law under SB 1235 was brought about by the evolving nature of the small business market. Since an increasing number of operators are not well-versed financially, they are not being completely made aware of the true financing costs of securing a business loan. As such, these small business owners end up borrowing more money than they can actually afford to pay back, which can jeopardize the very businesses they’ve worked so hard to get off the ground.

Hence, all non-bank lenders are required to reveal the full financed amount, total financing cost, loan term, total payments to be made, annual interest rate, and prepayment guidelines. It applies to practically all types of business loans in California, including term loans, business lines of credit, merchant cash advances, invoice factoring, and other small business financing based on the asset.

Check your qualifications


California small businesses needing additional working capital or payment for business expenses turn to affordable business loans without giving up equity or company stake. It allows them to grow their enterprise and at the same time remain in charge of their business operations. But before anything, the borrower should look into their credentials, especially if they intend to consider traditional lenders like commercial banks and other major financial institutions with their loan application.

For starters, if you are applying through a loan program, your primary business should be located in California. A minimum of 51 percent of your employees should also hold residence in the state.

A credit score is another important factor for loan approval. Without having established one may limit your financing options. If you’ve just built your business, you must at least have a good personal credit score of around 680, or a minimum of 80 if it’s your business credit score. It is always recommended to check your credit records, a free service, before proceeding with your application.

Lenders also consider your business income and cash flow when granting loans to California-based businesses. They often use your debt-to-income ratio when assessing your risk as a borrower. Aside from income, they would like to know if you have existing debts, which they use as a basis for your ability to pay your loans. Business tenure is an additional factor since lenders would prefer a track record of 2 years or more.

If you plan to get a more substantial loan amount, you must prepare to have collateral which most lenders will require from you under the circumstances. Any tangible asset with considerable value can qualify as collateral, such as real estate, equipment, etc., and loan up to 80 percent of its appraised value.

Small business loan guarantee program

If you can’t present collateral for a loan or fall short in loan qualifications of conventional lenders, this type of assistance from the Small Business Finance Center is extended for California small businesses with 750 employees or fewer and eligible non-profit organizations. The SBFC works with several financial development corporations to provide loans for those whose capital access is restricted,

This government unit is found within certain banks and covered by the business and economic development of the Governor’s Office. It can guarantee up to 95 percent of your loan amount or 2.5 million dollars, whichever is lower, and a maximum of 7 years. Aside from issuing a small business loan guarantee program, the SBFC also provides a jump-start loan program consisting of microloans that aid small businesses in low-income communities and disadvantaged groups.

California Capital Access Program (CalCAP)

Another way to enhance credit for participating lenders is through CalCAP’s loan loss reserve program. It enrolls a portion of its disbursed California business loans into a loss reserve account. In other words, the lender is insuring the amount they can potentially lose from the loan when the borrower defaults completely. This way, more small businesses that would otherwise be deemed ineligible can benefit from their enterprise.

Choose the most suitable type of business loan for your needs


There are different small business loans available for small businesses. Choosing the right one will provide the funds you require and make its repayment easy for you to manage. The following loan options are available in Southern California, the Golden State, and Bay Area counties that are worth considering to fund your business recovery or growth.

Based on its label, microloans are for small business owners who need a relatively small amount, around 50,000 dollars or less. That said, the repayment term would be shorter, ranging from 6 months to 2 years. This loan has more relaxed application requirements and is ideal for covering startup costs and supplemental cash flow.

Sources: non profit lenders, microlenders, peer-to-peer

Term loan
This type of loan is for entrepreneurs who need a significant amount to expand their business, plan to improve their facilities, or use it as working capital. It is often secured by physical assets such as real estate property and vehicles. Term loans offer competitive rates whose repayment period range from 5 to 7 years. Long-term loans, also referred to as business equity loans, which can be repaid in 10 years, require real estate such as one’s primary residence as collateral.

Sources: banks, credit unions, financial institutions, SBA lenders

Small Business Administration SBA loans
SBA loans are similar to traditional lender loans, but with one major difference, it has federal backing. SBA or Small Business Administration does not act as the lender; instead, it guarantees the loan by up to 85 percent if the California business owner defaults in their payments. This way, it helps reduce lender risks and, at the same time, encourages the small business community to be the primary drivers of economic development.

Sources: commercial banks, SBA preferred lenders, microlending institutions, community development organizations

Commercial real estate loan
As a first mortgage, the real estate acquisition, an office building or store, serves as collateral for the loan. The borrower can choose between fixed and variable interest rates that are highly competitive and longer repayment terms. Loan-to-Value or LTV is associated with this loan, which is the loan amount relative to the value of the asset or collateral. Typically, its LTV is up to 80 percent.

Sources: banks, alternative lenders, hard money lenders

Business lines of credit
Sometimes, small businesses do not need a lot; they just want to prepare for that time. It could be for the upcoming low sales season or whenever payment for bulk orders gets delayed and other emergencies. A business line of credit is practically funding on tap. It provides revolving credit access and pays interest based on withdrawn funds only. Your credit line replenishes according to your repayments.

Sources, banks, credit unions, online lenders, non-profit lenders

Invoice financing
Businesses can practically sell their unpaid invoices and purchase orders that clog their cash flow. The lender, in return, gives you up to 90 percent of the invoiced amount and charges a corresponding interest while waiting for the client or contractor to pay the invoice.

Sources: banks, factoring companies, credit unions

Equipment financing
If you are buying a major piece of equipment, you can get a loan for that purpose and pay a reasonable amount of interest within a specified period.

Sources: commercial banks, alternative lenders, credit unions

Covid-19 loans
If your business is one of those impacted by Covid-19 restrictions, you can seek up to 50,000 dollars in loans through CDC Small Business Finance. The SBA Microloan Recovery program is one example of this special type of loan. It has a 5 percent fixed interest rate and a maximum loan term of 5 years.

Sources: CDC Small Business Finance, Accessity

Alternatives to small business loans

Small business grants
With the effects of Covid restrictions sweeping the nation, California has released over 100 Billion dollars in financial assistance to small businesses. These came in the form of PPP and EIDL federal programs. The California Relief Grant program also released up to 25,000 dollars based on an annual revenue tier. 

Small business grants are funding sources that are generally not treated as loans; hence, the recipient has no repayment whatsoever, essentially free money. These small business grants may be provided as cash, training, resource, tax relief, free business counseling, or a soft loan with little to no interest and has the most convenient terms. For their part, the business has to make sure they will carry on with their operations given their assistance. Whatever the amount is issued as a grant is expected to have an economic return many times.

Sources: federal units, banks, philanthropic communities, private foundations

Business credit cards
Credit cards are still considered loans because you need to repay them. The advantage is the ease of securing one and an opportunity not to pay interest when you settle balances in full.

Sources: commercial banks, credit card companies

Merchant cash advances
You can access future sales and repay them according to a certain percentage of your actual credit card sales. It solves issues during the low season because it adjusts to your business income.

Sources: merchant services companies

Choose a lender who has the most optimal terms


Different factors affect your choice of lender of California business loans. One is their requirements. If you don’t have a stellar credit score, the chances are that you will opt for alternative or online lenders. The second thing to consider is their service. Most of the time, when California-based businesses need funding, they want it almost immediately. The processing time is crucial and the reputation of the lending company. Low-interest rates are always preferred but usually reserved for those with stronger credit and higher collateral, which commercial banks can offer. California businesses can also use lender match tools to help them land the right lender.

Here are some of the best California small business loan options:

1. Valley Economic Development Center (VEDC)
This loan provider works only with small businesses in California and New York. From microloans to standard business loans, borrowers can loan up to 500,000 dollars at competitive rates.

2. Accion
Businesses situated in San Bernardino, San Diego, and nearby counties can seek “rapid loans” through Accion, which are these small loans you can get on the fly. The rates are fixed up to 18 percent and require little documentation to get.

Small businesses in Southern California will be glad to have this lender as a viable option for many types of business loans. Eligible borrowers must be their members first and reside in LA or Southern California.

4. LA Community Development Commission/Housing Authority
Their smart funding program can finance loan amounts of up to 1.5 million dollars for manufacturing, medical, and transportation industries.

5. Jewish Free Loan Association
This non-profit organization gives loans up to 36,000 dollars maximum at zero interest to qualified California businesses. While this may be a nice offer, it comes with stricter requirements, such as having two guarantors with a good credit score.

6. Wells Fargo
We know that SBA loans are the top choice for getting the best rates and terms. Wells Fargo is perhaps the best bank you can get them from, having been previously a top California SBA lender and maintaining their outstanding track record.

Organize your documentation

It’s time to gather your documents for submission after deciding on the type of business loan and which lender to get it. Depending on your lender requirements, you may need your personal or business financial statements, detailed business plan, business license, income tax returns, previous loan records, if any, among others. Once you’ve completed them, you are ready to submit your filled-out loan application along with the documents. Loan processing time varies among lenders, longer for an SBA loan.

Final word

There is no better way for small businesses to get back on track than seeking a California business loan now. Each loan type aims to address a specific need for your business, and choosing the right lender with optimal loan terms is highly important. And if you are lucky, you might even get financial assistance for free. Whether located in San Bernardino or the Golden State, you’ll certainly never run out of viable options.

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