If you would like to know how to get a small business loan in Texas please keep in mind that it’s actually going to be easier than if you were to apply for financing in other states. With the state’s encouraging stance and support, there are options even for those with poor credit.

As they say, everything is bigger in the lone star state – the geographical area, the state pride, open-pit BBQs, and even opportunities for small businesses, making it a great place to grow and be successful in your enterprise. This climate is evidenced by their overwhelming presence, more than 2.6 million entities, and a total workforce of nearly 5 million; they comprise more than 99 percent of all businesses operating in the state. Indeed, these small businesses are a vital component of the local economies growing in Texas. It is very important to learn about the choices you have and how to get them.

How loans benefit Texas small businesses

A cash infusion is sometimes just what a small business needs to get off the ground. But bringing in investors may not often appeal to you; that Texas pride of not wanting to give up control of your company. It is why small business loans might work for you – you borrow money and return it within a target period.

If used responsibly, a small business owner has a lot to gain from loans, aside from the obvious. Being able to manage credit will reflect strongly in your business profile. It builds a credit score, helping you qualify for lower interest rates and better loan terms in the future.

Getting funds through loans helps you grab Texas business growth opportunities, whether that may be upgrading your equipment or increasing your inventory to lower acquisition costs. Borrowers can also procure funds as needed through a revolving line of credit on standby, allowing you to get any amount within the set limit.

There are times that small business owners resort to Texas business loans to save their business from going south. While it can be a tricky situation, the truth is you should leverage loans against your viability and potential for success. You don’t borrow the money you can’t repay. Sometimes you just need that little push that a loan can do for your Texas business. It could only be a matter of lifting off your current roadblocks with that extra funding to get that cash flowing in again.

Some types of Texas small business loans to consider

There are many small business loan types, each having features that cater to certain business qualifications and purposes. Hence, you will find loans with lower interest rates but require a high credit score and more documentation. And then, there are business financing options where not much is required in exchange for a higher interest rate.

Small Business Administration SBA loans

The Small Business Administration SBA is known for small business loans with flexible features such as a fixed rate for a longer repayment period and fewer collateral requirements. It guarantees up to 80 percent of the defaulted balance by the SBA federal agency. Texas small and medium businesses can apply for this loan in most commercial banks, credit unions, and accredited SBA lenders.

SBA 7(a)

The SBA 7(a) is one of the most commonly acquired SBA loans. You can repay it for up to 10 years when used as working capital, debt refinancing, or any non-real estate financial assistance.

SBA 504

If SBA 7(a) is ideal for use as additional funds for the business, this SBA loan is targeted for land or property purchase or any major piece of equipment. Since this loan is part of the state’s economic development program, the business securing it is required to have job creation as part of its undertaking.

SBA Express loans

The long processing time of SBA loans can be a letdown because, more often than not, small business owners need funds fast. SBA Express loans are like an expedited SBA 7(a). What would normally take up to 3 months has been shortened to 36 hours. However, this loan applies to smaller financing.

Short term loans

Another way for Texas small businesses to get quick funding that usually does not require collateral is a short-term loan. Most lenders and financing institutions offer it with a repayment period anywhere from 6 to 36 months. Depending on your loan amount, you can get a loan approval as fast as the next business day.

Revolving lines of credit

It is the type of loan where the borrower is given a pool of funds they can draw from any time they need it. Hence, you only pay interest for the actual withdrawal amount and not the entire pool.

Equipment financing

Perfect for equipment purchases such as machinery, computers, and the like, you can pledge the item as collateral for this loan. The lender usually covers up to 90 percent of the item’s purchase value and is repaid in fixed installments.

Covid loans

We all know how Covid-19 restrictions have impacted many small businesses. In this regard, the Texas government has expanded two types of loans. One is the Economic Injury Disaster loan or EIDL, which has a low-interest rate targeted for those who suffered significant economic injury brought about by the changes in the way we conduct businesses during Covid-19.

Certain businesses may qualify for the Paycheck Protection Program or PPP. The loan is guaranteed 100 percent when the borrower defaults after using the funds to cover payroll, rent, mortgage interest, and utilities.

Texas supports small business owners

The Office of Small Business Assistance is one of the resources of the Governor’s Office that supports Texas small business owners. They provide financial assistance through reduced taxes, grants of up to 10,000 dollars, and other forms in kind where entrepreneurs enhance their skills through one-on-one training. At the same time, they also work closely with lenders and community partners to help small businesses get access to working capital. 

With a wide array of offerings, each having its features and qualifications, there will at least be one that suits your needs. Based on this strong support of the local government and a competitive market, you can explore the following loan programs for small businesses in Dallas, Austin, Houston, and San Antonio.

Product Development and Small Business Incubator Fund (PDSBI)

This program is administered by the office of the Texas Governor and his appointed board, along with the Texas Economic Development Banks. It offers secured loans with flexible amortization based on a low variable interest rate and reasonable Loan-To-Value ratio qualifications. Such loans are designed to finance eligible projects, prioritizing industries such as agriculture, biomedicine, biotechnology, aerospace, semiconductors, and renewable energy. 

Fixed assets that match your target loan amount can serve as collateral. You can present individuals or communities to serve as your loan guarantors to bolster your eligibility. Although you will not be required to submit an economic impact study, you need a comprehensive business plan. Furthermore, your Debt Service Coverage Ratio should be at least 1.2.

Texas Capital Access Program

One way to provide financing for small businesses with difficulty with traditional lenders is the Capital Access Program. The state of Texas contributes to the loan loss reserve account while select non-profit lenders take care of the rest of the financing and underwriting. Small and medium businesses with less than 500 employees and plan to use the proceeds in their business, except purchasing real estate that the business is not occupying will qualify for the program. Loan applicants should submit their request to any of the two participating lenders: PeopleFund in Austin and LiftFund in San Antonio.

Texas Leverage Fund (TLF)

TLF is another financing source for specific businesses categorized as economic development corporations using either a Type A or Type B sales tax scheme. There are around 500 Texan communities that have already adopted an economic development sales tax. Qualified businesses can secure low-cost loans up to 5 million dollars using a variable prime rate. 

The loan amount is based on sales tax collections that are pledged as collateral and considers the borrower’s debt service coverage ratio. As defined in the 1979 Development Corporation Act, it should cover eligible project costs, including buildings, manufacturing equipment, sports-related purposes, and others. This economic development bank also provides flexible loan terms to suit specific business needs.

Local Texas lender options

We mentioned earlier how Texas is conducive to small enterprises given the support of the state, communities, and the market. As a business owner, you don’t just sell your product or service; you also create jobs for people. All you need as an entrepreneur is to work hard, grab the opportunities, and success will be within your reach. And it doesn’t hurt that you have these lenders nearby.

Texas Capital Bank Small Business Loans

While they offer loans in different types that small businesses can consider, Texas Capital bank is known for their asset-based financing, which are loans secured by business-related assets. These include accounts receivable financing and equipment financing, helping small business owners manage their cash flow. Since it is a traditional lender, loan applicants should be able to present financial documents and possess a strong credit history to avail any of their business loans.

PeopleFund Small Business Loans

PeopleFund is a nonprofit lender that caters to disadvantaged groups and those in low to moderate-income areas. They have Small Business Administration SBA loans, disaster loans, and term loans with flexible underwriting, low down payment, and no pre-payment penalties.

Business and Community Lenders (BCL) of Texas

This nonprofit organization offers business lending catering to different sectors such as startups, minority entrepreneurs, growing businesses, rural communities, etc. These entrepreneurs might find it challenging to obtain business loans, especially startup funding for newly-opened businesses or because of bad credit.

Texas Trust Credit Union

Credit unions are great Texas business financing sources where small businesses can also procure loans that banks offer, such as term loans, business lines of credit, commercial real estate loans, and business credit cards. Texas Trust Credit Union has a presence in Dallas, Henderson, and other parts of the lone star state. To qualify, you must first apply for credit union membership to take advantage of their high financing percentage for commercial real estate loans.

Business Investment Growth Austin (BiGAustin)

New Texas businesses can turn to microlender BIGAustin with streamlined startup business loans and basic eligibility requirements. Whether you are located in Bastrop, Gillespie, or other nearby counties, your business can avail of secured loans amounting to 50,000 dollars with up to six years payback period provided you have been operating for at least one year.

Steps in getting a small business loan in Texas

Now that we have discussed the various small business loan options, there’s at least one that could be the right loan for you. The following will guide you on Texas small business loans:

1. Determine if you meet the purpose of a Texas small business loan, which could be as working capital, delayed invoice payments, equipment purchase, increased inventory, or anything related to your business operations or its expansion.

2. Shop for potential lenders, and ask about their offerings, requirements, processing times, and loan terms. Compare and decide which one you will pursue your loan application with and the type of loan you will seek based on your qualifications and ability to repay it.

3. Consult a financial advisor if you can, especially if you don’t have enough financial knowledge to help you make an informed decision. You can also use the SCORE resource library, which hosts a treasure trove of free information for entrepreneurs, such as valuable tips in cash flow management and many useful business templates.

4. Gather your documents according to the requirements of the lending team dedicated to checking them. These include your financial statements reflecting annual revenue, business checking account statements, credit records, and a detailed business plan indicating your target loan amount and your loan purpose. If you are pledging collateral, you must submit a clean title or lien-free title (for real estate and vehicle) or a personal guarantee, depending on the loan criteria.

5. Review your documents and submit them along with an accomplished loan application form to your chosen lender or financial institution.

Final word on Texas small business loan financing

Texas provides a highly favorable environment for small businesses to grow and achieve their goals with the help of loans from nonprofit and traditional lenders alike. You have to remember that small business loans and loan guarantees are not the only solutions to business funding. Entrepreneurs can also check their eligibility for federal grants from Texas Department of Agriculture, Texas Enterprise Fund, and Texas Workforce Commission. They can also consider angel investors who would provide equity contribution for growing businesses in exchange for a certain number of shares in your company. The state is teeming with opportunities, and it’s now up to you to grab them while you can.

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