Business Loans Houston TX: Tips to Qualify: A Step-by-Step Guide

Houston, Texas, is not only the fourth-largest city in the U.S., but also a major hub for economic activity with a business-friendly environment. The city's diversity and creativity can make it an appealing place to start a business. At some point, you might need financing to grow. In this guide, we cover types of business loans in Houston, TX, tips to qualify, and what to consider.

Types of Business Loans in Houston, TX

Whether you have a new startup that you recently launched or are a veteran business owner, you have various financing options. Here's an overview of different types of business loans in Houston, TX.

Term Loans

Term loans are versatile and provide lump-sum financing. If you need a substantial amount upfront, term loans can be a good option. You receive the loan amount and repay what you borrow over a set term. Generally, term loans also have fixed interest rates. Given the predictability of monthly payments, it can be easier to budget and prepare for repayment.

Various lenders offer term loans, including banks, and credit unions. Some Houston-based credit unions that offer term loans include Smart Financial Credit Union and PrimeWay Federal Credit Union. Typically, you must be a credit union member to qualify for its loan products. Eligibility and restrictions can vary.

Working Capital Loans

Working capital loans help business owners pay for costs related to daily operations. For example, making payroll, buying inventory, or covering rent for your brick-and-mortar business.

If you need funds to smooth out your cash flow and stay afloat, look into working capital business loans in Houston, TX. You can check out local lenders like Central Bank or online lenders.

SBA Loans

The U.S. Small Business Administration (SBA) is a federal agency providing a range of services and loan programs to small business owners. If you're looking for small business loans in Houston, the SBA offers the following options:

• SBA 7(a) loan: Borrowers can use SBA 7(a) loan funds for acquiring or improving commercial real estate, working capital, equipment, machinery, and more. There is a maximum loan amount of $5 million.

• SBA 504 loan: The 504 loan has a maximum loan amount of $5 million but has some different loan purposes. To qualify, you must use the funds for major fixed assets intended to promote job creation and help with growing business operations.

• Microloans: If you're an entrepreneur with a new startup in Houston, Texas and need a smaller amount to get things off the ground, SBA microloans may be a good option. As the name suggests, these loan amounts are much smaller, capped at $50,000. However, average loan amounts tend to be even smaller, around $13,000. You can use the funds for equipment, working capital, machinery, inventory, and more. The SBA works with non-profit community lenders as intermediaries to provide funds to business owners. Lenders may require a personal guarantee and collateral to qualify.

To access business loans in Houston, TX, you can use the Lender Match tool. Before you connect with prospective lenders, take some time to prepare. To help you qualify, you'll need:

• A business plan

• Financial projections

• Credit history

• Loan purpose

• Requested loan amount

If you have additional questions or would like support, reach out to the SBA Houston, TX office. You must make an appointment, which you can do online.

Equipment Loans

If you need business loans in Houston, TX, specifically to purchase equipment, there's a financial solution for that: equipment loans.

This type of financing provides funds to buy new or used equipment. Some lenders may provide 100% financing, whereas others may require a down payment of 10% to 20%.

Equipment loans may be easier to qualify for than unsecured loans, as the equipment is a form of collateral backing the loan. This poses a smaller risk for lenders because, in the event of default, they can legally seize the equipment. Some local lenders include PrimeWay Federal Credit Union, Central Bank, Texas First Bank, and Texas Capital Bank.

Business Lines of Credit

Business loans can offer a one-time cash injection to support your growth. On the other hand, Business lines of credit are more flexible and can provide financing on more than one occasion.

Banks approve you for a specific credit line amount. Then, you can use the available credit up to that limit. The benefit of a line of credit is their flexibility. You can draw the amount you need and pay interest only on what you actually use. When you repay the line of credit, it resets your available credit and can be drawn upon again.

You can apply for a business line of credit through various commercial lenders in Houston, as well as national lenders.

Minority and Women-Owned Business Financing Programs

Minority and women-owned enterprises may be able to get business loans in Houston, TX, through certain financing programs. Some options include:

• Business Ecosystem Alliance for Minorities & Women, which may be able to provide microloans and alternative and innovative capital solutions, according to its website.

• PeopleFund, which provides small business loans in Houston. Greater Houston Women's Chamber of Commerce (GHWCC) launch fund offers eligible women business owners $10,000.

If you don't qualify for traditional financing and want to take your business to the next level, these business resources may be a game-changer.

Minimum Requirements for Business Loans in Houston, TX

Eligibility requirements tend to vary by lender. However, to qualify for a business loan, many lenders look at the following:

• Time in business: Many lenders want a minimum of 18 to 24 months of business activity.

• Annual revenue: Generally, you must meet certain annual revenue thresholds to qualify for business financing.

• Credit score: Lenders may check both your personal and business credit scores when determining your eligibility for a loan. Minimum credit score requirements depend on the lender but are generally in the low to mid-600s. You may find lenders who work with borrowers with bad credit, but they may have higher interest rates due to the added risk.

On top of these primary requirements, lenders may also evaluate your cash flow and financial projections. You may need to submit your business bank statements, tax returns, and/or profit and loss statements.

Steps to Apply for Business Loans in Houston, TX

Here's a step-by-step guide on how to apply for business loans in Houston, TX.

Step 1: Review Your Financing and Business Needs

Evaluate your financing and business needs. Consider the loan amount, timeline, and purpose. Based on your answers, you can decide which type of financing best suits your goals.

Step 2: Research Lenders

After determining the type of financing that works best, research different lenders. Look at interest rates, fees, processing and funding timelines, and customer reviews on the Better Business Bureau (BBB).

Step 3: Check Eligibility Requirements

Once you have a list of potential lenders, check the eligibility requirements to see if you qualify. Review your credit score, annual revenue, and time in business. There can be very different requirements when comparing banks, credit unions, the SBA, and online lenders.

Step 4: Improve Your Approval Odds

You can take steps to boost your approval odds to help you qualify for a business loan. For example:

• Improving your credit score

• Lower debt balances

• Stabilize cash flow

• Keep good financial records

• Have a strong business plan

Step 5: Prepare Documentation for a Strong Loan Application

To help you qualify for business loans in Houston, TX, prepare documentation for a strong loan application. You may need to provide recent tax returns, business bank statements, profit and loss statements, and other documents, as requested.

Final Thoughts

Houston's business sector is thriving. If you're a local entrepreneur in need of financing, you have various options to get business loans in Houston, TX. Qualifying depends on a number of factors, including the type of loan and lender. Preparing ahead of time can make a difference, so you're in the best position possible when it's time to submit a loan application.