The Best Business Loan & Financing Resources For California Small Businesses
California is the world’s 5th largest economy, making it one of the more exciting states in which to operate a business. The opportunities in the Golden State are vast, but so are the costs of opening and operating a small business. If you need financing in California, your problem won’t be finding prospective lenders — in fact, the problem will be that your choices will be overwhelming, especially in the more urbanized portions of the state.
Not sure where to start? We’ll take a look at some of the financing options available to California-based small businesses, as well as touching on the ways the state’s regulations affect borrowing.
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The Best Online Business Lenders For California Businesses
Online lenders have become an increasingly popular source of financing for businesses that need money quickly. Most offer abbreviated and easy application processes and time-to-funding that can be measured in days rather than weeks or months.
Convenience, of course, comes at a cost; these lenders will often charge a higher rate than a traditional bank lender would. The best of these lenders provide their products transparently, while the more unscrupulous ones will attempt to obfuscate their fees and the terms of their products. Federal regulations protect individuals from these practices, but small business lending isn’t covered by those laws. As of 2018, however, California small businesses are covered by SB 1235, which extends truth-in-lending protections at the state level. It’s a little early to gauge the consequences of the law, but differences in state regulations, interest rate caps, etc. play a role in the states in which online lenders can operate, and what products they offer within those states.
However, because online lenders aren’t physically bound to a region, the online lenders you have access to in California will, for the most part, be the same as those available to small businesses in New York and Kansas (the lender might be based in Utah or Delaware). In most cases, there’s little, if any, advantage to working with an online lender based in your own state.
Some of the better online lenders operating within California include:
If you’re looking for speed and convenience with a touch of customizability, it’s worth taking a look at PayPal’s LoanBuilder service. They offer a short-term loan product with weekly payments, reasonable (for an online lender) rates, and no additional, hidden fees to wade through. You also don’t need to have great credit to qualify.
If you don’t have a lot of time to compare loan offers, you may want to outsource that workload to a company like Lendio. Lendio doesn’t originate its own loans, but rather serves as a matchmaking service for borrowers and lenders. There’s no fee for using the service as a borrower, which puts it a step above many of its competitors.
California has a reputation for being a land of startups, but financing your risky business venture can be extremely challenging. Lending Point offers traditional installment loans in small amounts to individuals with good credit. Great if you need a little more money to get things off the ground.
OnDeck is one of the bigger names in online lending, offering a mix of short-term loans and lines-of-credit to businesses that need money quickly. They’re willing to work with businesses with fair credit, while offering transparent and relatively reasonable terms.
California Banks & Credit Unions
Online lenders may let you apply for much-needed funds from the comfort of your computer chair, but if you’re looking for the best rates, you’re still going to want to talk a bank or a credit union.
Banks, and especially credit unions, usually operate in a regional or local capacity, and your business relationship with them may include not just loans, but checking and savings accounts. In fact, it’s not unusual for banks and credit unions to lend primarily to their existing customer base. If you have a good relationship with your local bank or credit union, you may want to consider them for your lending needs.
You can also consider some of the larger, national and regional banks operating within California. The entities include:
America’s biggest bank has a substantial presence, as you might guess, in America’s most populous state. Despite their size and market share, they’re still pretty traditional when it comes to business loans, so you’ll have to seek out a branch in your area. Luckily, Chase maintains over 1,000 branches in California.
If you can make their requirements and don’t mind dealing with an enormous lender, Chase offers some of the best business loan rates out there.
• Must have excellent credit (high 600s)
• Must have access to a Chase Bank branch
|Read our Chase Bank review|
For the middle of the country, US Bank is often the biggest player around, having a substantial presence in states that are underserved by other large, national banks. They also operate on the West Coast, however, with over 600 branches in California.
While they’re still enormous, US Bank is often cited as being one of the more personable big banks.
• Must be located in a state served by U.S. Bank
• Must have been in business for two years
|Read our U.S. Bank review|
Bank Of America
Another bank that’s easily accessible within major population centers is Bank of America. Like other traditional lenders, Bank of America has very stringent lending standards. They do offer a more modernized application process than many of their competitors, however.
|Line of credit borrower requirements:
• Must have been in business at least 2 years.
• Must have a personal credit score of 670 or above.
• Must have revenue > $200,000 for unsecured products, or greater than $250,00 for secured products.
|Read our Bank of America review|
Credit unions tend to be smaller and more regionally or industry specific than large banks. As a basis of comparison to the banks above, the most prolific credit union in California, Golden 1 Credit Union, has only 74 branches. However, as non-profits, credit unions can often provide perks and rates to their members that banks can’t or won’t. Not every credit union offers business loans and the ones that do may have tight restrictions governing what that money can be used for. Most credit unions do offer personal loans, however.
Some of the more accessible credit unions in California include:
- Golden 1 Credit Union
- UNIFY Financial Credit Union
- SchoolsFirst Federal Credit Union
- San Diego County Credit Union
- First Technology Federal Credit Union
The California Small Business Loan Guarantee Program (SBLGP)
You may have heard of the Small Business Administration (SBA). The SBA is a federal agency that guarantees certain types of loans to help small businesses access better rates and terms than those businesses would otherwise qualify for.
Californians can still take advantage of those programs, but they additionally have the option of using the state’s SBLGP program. Like SBA loans, SBLGP loans are guaranteed, meaning an outside entity (in this case the state of California) is assuring a percentage of the loan will be repaid to the lender.
The state program is a lot smaller than the SBA program, with slightly shorter loan terms and lower maximum borrowing amounts. It does have some advantages over the SBA 7(a) program, however, including a lower guarantee fee, faster application, and less strict qualifications. You will, however, need to demonstrate that the loan will help promote job growth and retention within California, as well as make sure your lender participates in the program.
Bad Credit? Your Best Options
Bad credit can still be a huge impediment in keeping your business running smoothly, but the days where everyone was expected to maintain squeaky clean credit are long gone. If your credit is disqualifying you from traditional lending sources, you still have options.
- Online Lenders: The online lending industry grew in the ashes of the 2008 market crash, with many specializing in lending to businesses with good fundamentals but bad credit. Some of the lenders use predatory practices and should be avoided at all costs, but there are many that have established transparent and reasonable lending practices.
- Credit Cards: This is not a loan per se, but one of the easier ways to build your credit back up is to get a credit card and pay it off every month. Even if you don’t qualify for the sexiest business credit cards are there, many companies are willing to extend small credit lines to risky customers. In the worst case scenario, there’re still secured credit cards.
What To Consider When Choosing A Lender
With all the potential choices out there, choosing a lender who fits your needs can feel like an overwhelming task. Here are some ways to narrow down your options a bit.
- Your Industry: Not every lender offers their product to every type of business. Not only that, but there are advantages to working with lenders who have a lot of experience funding businesses like yours.
- The Amount You Need: Make sure the lender can, at least potentially, provide the amount of money you’re seeking. Subsequently, you’ll want to be certain you can repay what you borrow.
- Rates & Fees: How much is it going to cost you? Are the lenders rates in line with the industry standard? Do they tell you what additional fees they charge, or do they hide them?
- How Quickly You Need The Money: You’ll be looking for a different type of lender and financial product if you need the money this week versus a month or two down the road.
- Term lLengths: You’ll want to know how quickly you have to pay the money you’re borrowing back. Make sure your revenue can keep up with it.
- The Type Of Expense Being Financed: Some financial products (like equipment loans) are limited in what they can be used for. Do you need a lump sum of cash? Or do you need a line of credit that you can draw upon periodically?
- Collateral: Secured loans and lines of credit require some form of collateral, usually in the form of an asset, real estate, or cash deposit. If you don’t have collateral to put it, you’ll want to look at unsecured loans.
As costly as it can be to do business in California, you should have no shortage of funding options to keep your business afloat and growing. This region is well-served by banks and credit unions, and most online lenders are willing and able to fund within the state. Additionally, state-guaranteed business loans and one of the more borrower-friendly regulatory regimes in the nation gives business owners in California advantages that businesses in other states don’t enjoy.