To get small business loan in California, especially for the first time may be quite tasking and energy-draining because you are just new to the process, but the truth is, if you know exactly what to do, the documents to put in place and the type of loan you want, it wouldn’t be much of a big task for you.
At some point in our businesses, we will need a loan to keep things stable before the business crashes. Getting a loan doesn’t mean you have failed as an entrepreneur, No! At some point, we will all need more money to run our business and to implement new ideas, even for big business.
In California, there are millions of small businesses, with about 7.2 million workers according to the 2020 small business profile compiled by the Student Business Administration, United States.
This means a lot of people own a small business or work for a small business Enterprise to keep the economy growing.
To encourage small businesses, the California government passed Senate Bill 1235, which was a major step forward for small businesses to get a loan in California.
To get a loan in California, your business must be located in California and about 51% of your income or employees must be in California.
There are a number of steps you must follow, but not to worry, in this article I have compiled the information needed on how to get a small business loan in California.
Table of Contents
What Is Small Business Loan?
Small business loan is a certain amount of money borrowed by a small enterprise or business from another individual, business or organization with the main aim of paying back with interest at a stipulated time.
The aim is to help improve or run an already existing business, buy or purchase new equipment, finance innovation, work on present or future business plans with the loan collected.
How To Get A Small Business Loan In California
To get a business loan in California, there are a lot of things to set aside and put into consideration. Like I said earlier, it may look like a difficult task, but with the right information on what to do, it is obviously less tasking.
To get a small business loan, below are the following thing you need.
- Good Credit Score
- Qualification and Requirements Of The Lender
- Functional and Legal documents
- Collateral
- Good Business Plan
1. Good Credit Score
This is one of the most important requirements to get a loan in California. A credit score is needed for your assessment to know how creditworthy you are, that is, to ascertain how reliable you are when it comes to payment of debt and how you manage your debt. Learn how to get your credit score report.
The higher your credit score, the more chance you have of getting a loan for your small business. In case you do not have a good credit score, it is important you start building a good one. Learn how to improve your credit score.
2. Qualification and Requirements Of The Lender
Another important thing to take note of is the requirements and qualifications of the lender. The requirements and qualifications needed may vary depending on the lender and type of loan you are getting for your small business.
There may be some personal requirements and qualifications needed, it is important you ensure you are eligible for the loan before you apply. If you meet the qualifications and requirements needed, you are closer to securing your loan.
3. Legal and Required Documents
This isn’t new, to get a loan or anything of value there are always some documents needed of you to tender. This document is proof that you genuinely qualify for the loan.
If you are applying for a loan for the first time, or you are applying to a more corporate organization for your loan, you may be required to provide more documents.
Although, the documents needed may vary based on the type of loan you are applying for, but here are some documents you may need:
Documents Needed For Business Loan Application
- Basic personal and business information
- Business plan for funding
- Statement of purpose
- Business bank statements
- Personal and business tax returns
- Personal and business credit scores
- Balance sheet
- Income statements
- Business licenses, permits, contracts, and other legal documents
- Resume with relevant management and business experience
- Proof of collateral
4. Business Collateral
Business collateral is any valuable asset, that can be used to back up the loan. This collateral is needed so that they can be seized, or and sold by the lender if the loan is not paid.
Business Collateral includes equipment, real estate, or any most valuable thing. Failure to provide collateral means no loan.
5. Good Business Plan
It is not possible to get a loan without showing or having a laid down business plan to execute. Every lender wants to rest assured you are putting their money into something productive which will in turn yield profit that will enable you to pay back their loan.
It is important you have a solid and good business plan to stand a chance to get a loan. If you meet the above criteria, then you stand a 100 percent chance to get a loan from any organization or individuals.
Also See: Top 20 Best Businesses To Start In California
Types of Small Business Loan
Your business type, or the business idea you want to implement depends on the type of loan you should get.
Below are some types of loans, so you can choose the one that best suits your business.
- Bank Loans
- Medium Loans
- Short Loans
- SBA loans
1. Bank loans
You can secure a loan from one of your traditional local banks, and it is actually one of the easiest means to get a loan.
To qualify for a bank loan you need the following.
- Personal credit score
- Collateral
- A solid business plan
- Annual revenue
The typical bank rate is usually 3%-5% and usually up to a term of 5-10 years. The loan granted varies and depends on the amount requested.
2. SBA loans
SBA loans are one of the best options for small businesses. It operates just like banks, but it is much simpler to apply.
SBA loan offers a low interest rate and longer terms(5-25 years). SBA loans are guaranteed by the Small Business Administration and issued by SBA lending partners. SBA loan can be up to $5 million.
To qualify for SBA loans, you must:
- Have a credit score
- Have business experience and business finances.
3. Medium-term loans
You can also apply for medium-term loans if you have difficulty getting SBA loans and traditional bank loans, or you need a faster way of funding.
You need a credit score and a strong business financial to qualify for this loan. You can take a loan up to $600,000 for about 1-5 years with a typical rate of 7%-30%.
4. Short-term loans
Just like the name implies, short-term loans offer loans for shorter terms (3-8 months) and they also offer smaller amounts up to $250,000, starting at a 10% rate.
It is also a good type of loan for small businesses, whiners funding for smaller financing needs.
Conclusion
Now you are familiar with how to get a small business loan in California, all you have to do is to follow the steps and make sure you meet or have all that is listed above and choose a good loan.
The Requirements and loan application method depend on the type of loan, the form, organization, or individual that is lending.
That is all on how to get small business loan in California.
I hope this helps?
