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Guide to Getting a Small Business Loan in Texas

Small businesses account for 98.6% of all employers in the State of Texas. Since 2010 Small businesses in the state have enjoyed greater access to lending and have cultivated a growing share of the Texas workforce. While the coronavirus pandemic slowed growth, business closing and new business openings balanced out rather than declined in peak pandemic years.

The post-pandemic future is within reach in Texas. And small business owners have plenty of options for growing with the local economies as they expand. Here is everything you need to know about getting small business funding in Texas.

Your Texas State and Local Small Business Funding Guide

As Texas shifts toward a post-pandemic future, this state is showing why it is among the fastest to bounce back from the impact of COVID-19. Now the state’s recovery effort outpaces the national average in new job creation. Texas has become a great place for small businesses to start or reopen, and thrive.

Texas was not immune to the economic impact of the COIVD 19 Pandemic. As health and safety restrictions threatened small businesses in Texas, a downturn in Texas oil added stress to local economies that were already stretched thin.

The Lone Star State’s economic position in combination with state and federal grants as well as guaranteed disaster loans, like the Paycheck Protection Program (PPP), helped small businesses rebound stronger than ever. Texas hosts over 3 million small businesses and that number is growing through programs that support local entrepreneurship.

Today the largest industries for small and midsize Texas businesses are Professional, Scientific and Technical Services, Construction and Administrative Support, and Waste Management. Small businesses account for 45% of all employment in Texas. While the effects of COVID-19 put a pause on Texas’s economic growth, it is clear that the small business community is returning to its typical, rapid growth.

Here is our guide on where small business borrowers can get funding and how to use those funds once they’re received.

What information is covered in this guide?

Our guide to getting a business loan in Texas covers the best place to get business loans, common types of small business funding, local resources, and tips for success. Here is what you can expect section by section.

How to be successful with business funding

Using business funding successfully is often the product of good planning. Get your business prepared to take outside funding by answering four quick questions.

  • How much money is owed to your business (accounts receivable)?

  • How much money does your business owe (Accounts payable)?

  • How and when does your business recognize its costs and revenue?

  • What are your short-term and long-term financial goals for your business?

Once you have confirmed your business needs, financial capacity, and goals, you can easily decide what type of funding will best suit your business. In general, there are two types of business funding – short-term and long-term business loans.

Short Term Funding

Short-term funding is used to help businesses meet their short-term financial obligations or to take advantage of immediate financial opportunities. Typically, the time allowed to repay a short-term loan is 12 months or less but may extend as long as three years.

Examples of short-term business funding include commercial bridge loans, working capital, commercial real estate, invoice and inventory financing, among others.

Short-term business funding options differ most from longer-term financing in that they are often dedicated to a specific use or may be tied to strict repayment terms. In general, the narrow application of funds allows lenders to more effectively evaluate the business’s ability to repay the requested loan. In turn, these specialized short-term products can meet the needs of more businesses.

Short-term business funding is most often provided by alternative and online small business lenders. These lenders typically are not depository institutions. Rather than function as a bank that gives loans, they operate as small business loan specialists. Specialized evaluation criteria used by these lenders mean the funding solutions can be more flexible and easier to access for businesses with less than perfect financial history.

Short-term lending can be a good fit if your business needs to increase cash flow quickly. Alternative and online small business lenders often have shorter applications and can be more efficient with their evaluation and underwriting processes.

Borrowers should consider all their financial options and financial capacity before seeking outside funding. Short-term funding solutions often come with more strict repayment plans, collateral, or higher interest rates. To successfully use short-term funding options businesses should be prepared to make relatively larger payments in a shorter amount of time.

In the end, this practice can get your business the funding it needs when it needs it while progressing faster toward decreasing business debt.

Long Term Funding

Long-term business loan options can help a business meet its long-term financial goals. In general, these loans have repayment terms between 3 and 10 years. Long-term financial products are often associated with more traditional banking options, and include bank loans, term loans, and line-of-credit loans.

Typical long-term small business loans have similar characteristics including predetermined repayment periods (loan term), use of interest rates, and more strict lending criteria. SBA guaranteed loans and bank loans used to start a business, to pay for fixed assets, or ongoing operational costs are all examples of long-term funding and how it can be used.

With the repayment period for some long-term business loans lasting up to 25 years, businesses should evaluate their longer-term financial goals and strategy before seeking this type of business funding.

Fixed assets that may be worth taking out a long-term loan include property or equipment used to perform business functions. Additionally, operational costs might include the costs associated with the production or transportation of goods provided by your business. While operational costs are often met with short-term loans, they may also be provided for by line-of-credit loans.

Longer-term business loans are often provided by depository lenders or banks. These loans generally have longer application processes, are intended for larger sums of money, and may be harder to qualify for.

To make traditional business funding available to a larger group of small businesses, digital lenders have begun lending term loans and other more traditional financial products. These offerings balanced with a more detailed evaluation of business performance is giving many small businesses greater options when it comes to funding.

Documentation Needed to get a Small Business Loan

What documentation is required to apply for a small business loan?

The exact documentation needed to apply for a business loan will depend on the lender, their criteria, and the type of loan being applied for. However, in general terms, business owners can expect to complete loan application documentation, provide credit history, and show proof of the business’s financial performance.

Small business loan general documents list:

  • Completed loan application

  • Background information of borrower(s)

  • Value of property or asset (if applicable)

  • Business credit report

  • Personal credit score

  • Financial statements including annual revenue

  • Sources and uses of funds

  • Business liabilities or expenses

  • Business bank account statement

  • Business tax information

  • Proof of insurance

Find more information on how to get small business funding with our complete guide to small business loans.

Texas Top Business Funding Options in 2022

Small businesses in the lone star state can count on a combination of federal programs, state policies, and local nonprofit organizations to help them meet their goals.

An example of community-based support is SCORE, a network of experienced business mentors. The volunteers at score help small businesses meet their goals by providing mentorships and educational services that touch on everything from how to create cash-flow spreadsheets to preparing your business to take outside funding.

In addition to community-based educational opportunities Texas hosts plenty of local funding options. Here are the best ways to get external funding in Texas.

Top Small Business Funding options in Texas

Texas Community Development Financial Institutions (CDFIs)

CDFIs are nonprofit financial services providers that are committed to delivering financial opportunities to underserved populations or neighborhoods. CDFIs can be one of four types of lending institutions. CD banks, CD credit unions, CD loan funds, and CD venture capital funds are all forms of CDFI.

CDFIs offer loan programs that are built to meet the specific needs of the communities that they serve. However, they may also help with educating business managers or may provide consultative advice. Whether looking for new funding, refinancing existing business debt, or best practices for running your business finances, CDFIs are a great place to start.

Venture Capital and Angel Investors:

Venture capital and angel investors are other options for startups or other Texas businesses that are ready to scale but need financial assistance to make that next move. Venture capital firms are investment companies that fund and mentor young or small businesses to prepare them for growth.

There are many angel investor networks in Texas. The Alliance of Texas Angel Networks site can show you which networks are near you. Angel investors are private individuals who typically provide equity funding for start-ups, entrepreneurs, and fast-growing young businesses. They provide their own money in return for shares in the company.

Are you a small business manager operating a brick-and-mortar business? Biz2Credit has specialized in supporting Main Street businesses since 2007. Discover our tips on running and funding your physical business in our guide to business loans for brick-and-mortar stores.

Top Grant Programs

Texas Enterprise Fund

Businesses looking to start a project in Texas versus other out-of-state options may be eligible to receive a “deal-closing” grant from the Texas Enterprise Fund (TEF). TEF has several eligibility requirements. Eligible projects must generate at least 75 full-time jobs in urban areas (or at least 25 full-time jobs in rural areas). Wages must meet or exceed the average county wage where the project will be located. The project must also be supported by the local county government where the project takes place.

Awards are calculated based on whether the project is likely to see a return on investment. Awards will also be dependent on the number of jobs created, average wages, and hiring timeframe.

To apply to TEF, applicants must undergo a lengthy due diligence process. You will be required to fill out a 20-page application and pay a $1,000 application fee. If your application is approved, you will receive an offer letter detailing your grant contract.

Young Farmer Grant Program

The Young Farmer Grant Program offers Texas’ agricultural businesses up to $20,000 in grant money.

The program runs during both the Fall and Spring seasons. To qualify, applicants should be between the ages of 18 and 45. The farmer must also be willing to match whatever funds are provided by the program. The Young Farmer Program has a one-to-one match requirement. For example, if a potential project costs $10,000, the farmer must raise $5,000 that the grant will match. Together the farmer and the grant funds would meet the total project costs as required.

Skills for Small Business

The Skills for Small Business Grant program offers small businesses with fewer than 100 employees up to $1,800 for each new employee that receives training. The Skills for Small Business program is offered by the Texas Workforce Commission (TWC)

To qualify the small business must have no more than 100 employees. The employees for training can be new or existing, but they must be working full-time.

The training is provided at community and technical colleges, or the Texas Engineering Extension Service (TEEX) at Texas A&M. The program pays up to $1,800 for each new employee and $900 for existing employees per 12-month period. Eligible training includes for-credit, continuing education, and online courses.

To learn more visit the Skills for Small Business website

The State of Texas Trade Expansion Program

The State of Texas Trade Expansion Program is a grant fund dedicated to small businesses that provide select goods or services for export. Grants of up to $10,000 are offered to qualifying businesses.

The State of Texas Trade Expansion Program is provided by the SBA and locally administered by the state government. As an SBA program, the qualifying standards are significant.

Participating companies must have been in business for at least one year. Qualifying activities include small businesses that need compliance testing or to prove the viability of their product in a foreign market. Other approved export activities include translating a website, attending trade shows, or investing in search engine optimization.

The recipient business must match 25% of the grant money awarded.

Grants are awarded on a first-come, first-served basis. For more information on applying to the STEP program, learn more at the Texas state trade and export webpage.

Small Business Administration Resources in Texas

The U.S. Small Business Administration is a national government agency that is built to support entrepreneurs and their new or existing businesses. SBA services are free to use and are often provided through community small business development centers or banking and lending partners.

In the state of Texas, the SBA can help small business owners with business management, financial planning, and find access to SBA loans and SBA microloans. Find a full list of SBA resources on the Texas district SBA websites for Dallas/Fort Worth, El Paso, Harlingen, Houston, Lubbock, and San Antonio.

Online Lenders

Online small business lenders can help established businesses meet their funding needs through a variety of funding products. Alternative lenders specialized in providing small business resources and funding can be a good fit for those concerned with qualifying for a traditional bank loan.Online small business lenders can help established businesses meet their funding needs through a variety of funding products. Alternative lenders specialized in providing small business resources and funding can be a good fit for those concerned with qualifying for a traditional bank loan.

Lenders like Biz2Credit can offer small businesses faster application and underwriting processes, decreasing the time it takes to receive funding.

Founded in 2007, Biz2Credit has grown to help small businesses of all sizes get the funding they need to maintain operations and grow. By the end of the Paycheck Protection Program in 2021 Biz2credit was the 7th largest lender, by loan amounts provided, and the largest fintech provider of those loans.

Biz2Credit’s funding platform matches small businesses to the best sources of capital based on each company’s unique profile. Completed in just a few minutes, the process is built to be secure, efficient, and transparent. Funding options provided give a range of loan payment terms based on eligibility. Biz2Credit funding products include working capital, commercial real estate, and term loans.

Getting Started

You’ve made it through the 2022 guide to Texas small business funding. Reaching your goals and attaining the funding you need is just a matter of getting started.

Small businesses in Texas have a number of funding options available to them, ranging from traditional bank loans to specific bridge loans that may help your business meet particular short-term financing needs. In all cases, the best strategy for funding your small business is to be prepared with a plan for both your short-term and long-term financial goals. Business owners can expect application processes and underwriting to become longer or stricter as their financial ambitions grow larger.

Online lenders dedicated to business funding are a good way for small businesses to access the funding they need when facing financial challenges or time constraints. However, business owners should consider all their options before choosing this next step toward financial growth.

Evaluate options specific to your state, region, and trade to find the best business financing option for you.