California's $3.7 trillion economy makes it the fifth-largest in the world, housing 4.24 million small businesses and growing. Running a small business is difficult enough, but with the recent economic turmoil, many businesses are desperate for capital to keep their doors open.
The good news is that California small businesses have access to a lot of government grants and programs, as well as funding options from the state's 454 credit unions and 130 banks with thousands of branch locations.
Here's information about how to navigate those options and find the capital your business needs.
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Where to get business loans in California
Comparing your local and national options can ensure you have access to the right financing for your business.
If your credit and financial history is good, you may consider shopping for loans at your local banks and credit unions first. Community banks often have specialty loans and programs to uplift local small businesses. The following are just a few examples of what you may find.
- Working solutions. This community development financial institution (CDFI) offers funding from $5,000 to $50,000 with three- to five-year terms and fixed-rate APRs of 9% to 11%.
- California Bank & Trust. CB&T offers business access loans and lines of credit, some with next-day funding, as well as loans specifically designed for minority-owned businesses.
- Bank of Southern California. This locally owned bank offers term loans and lines of credit as well as Small Business Administration (SBA) loans.
- California Business Bank. While this bank offers some personal banking services, the lender is focused on providing SBA loans, business and commercial loans.
- California Credit Union. For 90 years, this credit union has served Southern California companies with SBA and business vehicle loans, as well as lines of credit.
- Los Angeles Federal Credit Union. As a member of LAFCU, your business can borrow up to $5 million for any business-related expense.
If your local options don’t pan out or you want to compare to make sure you get the best deal, consider more widely available options.
- Small Business Administration (SBA). Similar to FHA- and VA-backed home loans, the US Small Business Administration sets guidelines and backs loans for businesses. These SBA loans come with competitive terms and more flexible requirements but can take more time to fund than some online lending programs.
- Traditional Banks. National and international banks may have more options and more available funds, but most require excellent credit and a great track record to apply.
- Online lenders. The rise of fintech lenders has not only sped up the application process but also allows businesses to rely on requirements other than a credit score to qualify for funding. And in some cases, you may have access to low or no-doc business loan options.
- Peer to peer (P2P) lending. These P2P funding options range from microloans to startup investments and beyond, connecting investors with small businesses looking for financing.
California small business programs and grants
California’s grants and investment programs provide a lot of opportunities, many specifically designed to help women, startups, minorities or veterans.
- Amber Grant for Women. WomensNet disperses up to $30,000 a month to woman-owned businesses and also provides marketing and business category grants, as well as $25,000 year-end grants.
- California Capital Access Program (CalCAP) for Small Business. These programs offer incentives to lenders that provide funds for business expenses like retrofitting buildings to meet disability or seismic requirements and for buying environmentally friendly equipment and vehicles.
- California Dream Fund. Provides $10,000 grants to new businesses after completion of training and consultation.
- EmployABILITY Business grants. Small or medium-sized businesses can get a grant between $20,000 and $200,000 to help with hiring and retaining employees with disabilities.
- IBank Small Business Loan Guarantee Program. California’s Infrastructure and Economic Development Bank (IBank) backs loans to help small businesses qualify for funds to start or expand their businesses, retain employees and more.
- Social Entrepreneurs for Economic Development (SEED) grants. This annual grant program was initiated by the California Legislature and is awarded to businesses in the state who address community needs surrounding immigrants and limited English proficient (LEP) individuals facing employment barriers.
- SoGal Black Founder Startup grant. Black women and Black nonbinary entrepreneurs can apply for $5,000 or $10,000 grants to help found or scale up their small businesses. Winners are also counseled on navigating the business financing world and are given access to the SoGal Foundation network.
- The California Rebuilding Fund. This program vets and then matches lenders with businesses that had income gaps during the Covid-19 pandemic.
Business loan eligibility requirements in California
Every lender and loan program has its own set of eligibility requirements, but the general qualifications include:
- US resident
- 18 years of age
- Minimum 2 years in business
- Minimum credit score of 640
- Specific revenue requirements
Meeting general requirements like these can give you the most options in the loans market, but they don’t apply to all loans and lenders. Online lenders often are more flexible with credit requirements, and some loan programs are designed for newer small businesses or higher-risk borrowers.
Business loan rates and fees in California
The APRs for small business financing in California depend on the type of financing you choose, your lender and your financial standing when you apply for the funding. But each type has a general APR range.
|Financing type||APR or fee range|
|Term loans||6% to 45%|
|Lines of credit||8% to 60%|
|SBA loans||10.50% to 16.25%|
|Merchant cash advances||1.09 to 1.50 factor rate|
|Bad-credit business loans||25.00% to 75.00%+|
Loan fees vary as widely as the loans and lenders, but there are some common fees you can expect to pay. For example, term loans may come with an origination fee, and lines of credit may come with an annual fee. Be sure to check your loan agreement for the fees you’ll be expected to pay before you sign on the dotted line.
How to get a business loan in California
Follow these steps to get the small business funding you need in California.
Step 1: Determine the type of loan or financing you need
Once you know the amount of funding you need, determining the right type of financing can help you get the best rates and terms. The most common forms of financing include:
- Business term loan. Term loans are best for a large one-time purchase or debt refinancing, since you can pay them off over several years.
- Business line of credit. Business lines of credit are generally used as a source of working capital or for ongoing projects and emergency expenses.
- Equipment loan. This type of financing is secured with equipment you purchase, offering a better rate than other loans.
- Vehicle loan. Get special financing for your business vehicles.
- Merchant cash advances. If you have bad credit or are new in business, merchant cash advances offer an advance on future sales — but fees can run high.
- Invoice factoring and financing. If you run a B2B business, invoice financing and factoring offer an advance on your unpaid invoices to help cover cash flow gaps.
Step 2: Check your eligibility
Business requirements for a loan vary widely by lender and financing type. But you can improve your chance of getting approved for the financing you want by making sure you qualify before you apply.
Lenders typically look for:
- Credit score. Banks and other traditional institutions can require a credit score of 680 to 700 or more, while online lenders may accept as low as 500 on certain types of loans.
- Annual revenue. Banks may require you to have at least $100,000 in annual sales, but credit unions and online lenders may be more lenient.
- Time in business. Banks and credit unions want to see at least two years in business, but online lenders may consider less than one year or even offer startup funding.
Step 3: Find the right lender
Comparing lenders is vital to find the best financing for your business. You can do the work on your own, reading reviews and comparing programs. You can also use lending marketplaces like Lendio, which allow you to fill out one application and compare offers from the lending partners connected to the service.
California business loan laws and regulations
California boasts of a higher standard for lending practices, which mostly surrounds its Small Business Truth in Lending (SBTL) Act. In 2018, California introduced SBTL to institute transparency regulations on small business lenders. The act provides legal protections for secured loans, lines of credit, merchant cash advances and other financing over $5,000 but under $500,000. But its requirements only apply to private and online lenders, not traditional banking institutions.
Transparency disclosures include:
- Amount of funding
- Total cost of the financing
- Estimated or actual term length
- Prepayment policies
- Full repayment information, including amount, method and frequency
Other California resources for small businesses
Check these state resources for additional small business lending resources and information:
- California Small Business Development Center
- California Office of the Small Business Advocate
- CalVet Business Ownership Resources
- California Small Business Assistance Centers
- Score Association
- SoCal Veterans Business Outreach Center (VBOC)