Small Business Loan Programs for Companies in Texas
September 22, 2022 | Last Updated on: January 31, 2023
September 22, 2022 | Last Updated on: January 31, 2023
When it comes to financing, entrepreneurs and small business owners in Texas have many options available to them.
There are many different types of small business financing, from business lines of credit to short-term loans to invoice factoring to merchant cash advances. Each comes with its pros and cons. The right one for your business will depend on:
Here are the most popular loan types in Texas, an overview of each, what they can be used for, and their pros and cons.
Many Texas small business owners became familiar with the SBA because it managed the popular Paycheck Protection Program (PPP) loans during the coronavirus pandemic. The reality is that the SBA offers many more forms of financing.
SBA loans are popular with Texas small business owners because the Small Business Administration guarantees a portion of them. This means they usually come with the lowest interest rates and most favorable terms of any form of small business financing. The SBA backs the loans to encourage business growth in the United States.
The SBA offers many different small business loan programs, including SBA 504 loans, 7(a) loans, and microloans, which can be used for different purposes. The issue: Your company must be well established, and you must have good credit scores, to qualify for this type of financing.
Bottom line: SBA loans are best for strong-credit borrowers who can wait a while to get approved for funding.
A term loan is a common form of business financing. You receive a lump sum of cash upfront. Then you repay it with interest over a predetermined period, referred to as the term.
A short-term loan can be used for financial emergencies, to purchase inventory, for working capital and other things, or to cover smaller business repairs and improvements. Short-term loans are typically paid back in one year or less. Long-term loans are usually used for larger things, such as expanding a business, buying a vehicle, or purchasing a business property. Terms for long-term loans can be several years to decades. Some, like loans used to purchase commercial real estate, can have terms of up to 30 years.
You can apply for term loans through traditional banks and for-profit small business financing companies, lenders approved by the U.S. Small Business Administration (SBA), and online and alternative lenders. The application and approval process through SBA-approved and traditional lenders can be weeks or months. An online or alternative lender could approve you in a single business day or less because they often have more flexible underwriting standards.
Bottom line: Term loans are ideal for established small businesses with good credit that need significant financing.
A business line of credit provides access to funds up to a pre-approved limit. You only pay interest on the money you borrow. It offers more flexibility than a term loan, and you always have access to cash when you need it.
Bottom line: Business lines of credit are ideal for short-term financing needs, handling cash flow, or dealing with unexpected expenses.
Equipment financing helps small business owners purchase equipment, including things like manufacturing machines, computers, and communication systems. Equipment loans typically come with low interest rates because the equipment backs the loan. The loan’s term typically is roughly equal to the expected life of the equipment.
Equipment loans are usually the most affordable way to finance equipment purchases.
Bottom line: Equipment loans are typically the best way for Texas businesses to finance equipment purchases.
Much like business lines of credit, business credit cards are revolving lines of credit. You can draw from and repay the card as needed, as long as you make minimum monthly payments and don’t exceed your credit limit. Business credit cards are typically best used for regular business expenses like travel, office supplies, and utilities. They are a great way to separate business expenses from personal ones, which is particularly important at tax time. Using them to borrow for major purchases doesn’t make sense because interest rates are relatively high for this form of financing.
Bottom line: Business credit cards are a smart way to pay business expenses, especially if you pay them back immediately and take advantage of perks.
Microloans are precisely what the name suggests. They’re small loans, typically $50,000 or less, offered by nonprofit organizations, nonprofit lenders, small business community development centers, and community development lenders. Peoplefund and BigAustin are examples of microloan providers for local businesses.
These loans are generally made available to startups, newer businesses, companies with minority owners, and businesses operating in disadvantaged communities in cities like Dallas and Houston.
Bottom line: Many community lenders offer microloans in Texas. They could be worth seeking out for startups that meet their qualifications for funding.
Tip: While technically not loans, many startups that qualify for microloans may be able to get small business grants. This is free money given out by community organizations and foundations to encourage business growth. The Texas Enterprise Fund is known for providing grants to businesses in the state.
Did you know: The Texas Small Business Development Center (SBDC) is a great source of information for Texas startups and small businesses.
You can use a personal loan for business purposes. It’s often an option for startups because traditional banks and many online lenders won’t approve financing for businesses with no operating history. Approval for these loans is based exclusively on your personal credit score, so you’ll need good credit to qualify. You can get personal loans from your bank (for example, Texas Capital Bank) or credit union.
Bottom line: In many cases, a personal loan could be the only financing option for startups and other new businesses.
Invoice factoring is a possible solution for Texas businesses experiencing cash flow issues because of unpaid customer invoices. You can get money for those outstanding invoices through invoice factoring. You sell your outstanding receivables to a factoring company at a discount (often a significant one). The factoring company is responsible for collecting those overdue invoices.
Bottom line: Invoice factoring could be a solution for Texas small business owners facing a cash crisis because of unpaid invoices. Just be aware of the high costs and the impact collections could have on customer relationships.
Invoice financing is often confused with invoice factoring, but they’re different things. Instead of selling your unpaid invoices to a factoring company, you use them as collateral to get a cash advance. You pay the money back when you collect on the invoices.
Bottom line: Invoice financing could be a more sensible borrowing option for Texas businesses experiencing cash flow problems due to unpaid receivables than invoice factoring.
With a merchant cash advance, you receive a lump sum of money that you can use as business financing. Instead of making a single fixed payment each month from your business bank account (like you would with a term loan), you make payments on a merchant cash advance either by withholding a percentage of your daily credit and debit card sales or through fixed daily or weekly withdrawals from a bank account.
Bottom line: Merchant cash advances are often the borrowing option of last resort for desperate Texas small business owners.
There is no one-size-fits-all loan option for smaller organizations in Texas. What’s important is that you use the information in this guide — and do your homework — to find the right choice for the loan amount, your creditworthiness, and your business needs.