Did you know there is 2.8 million small businesses in Texas? Or that these small businesses employ 4.8 million people? Texas is a fantastic place to start or grow a business, whether you’re in Austin, Dallas, Houston, or one of the hundreds of other cities in the Lone Star State…but not without a little help. Here’s what you need to know about small business loans in Texas.
How a Loan Can Help Your Small Business in Texas
When I say “help,” I’m referring to small business loans, which can help in a variety of ways. They can help you buy what your business needs to run day-to-day and make sure you have enough cash to weather down times in your business.
Taking out a business loan can also help you build and grow your business credit, as long as you pay your monthly installment on time each month.
Commercial Loan Options for Texas Small Businesses
Several options are available to you when it comes to business financing. Some may be useful to you, especially if you have good credit, while others may offer you financing at higher rates.
COVID-19 Pandemic Loans
In addition to two federal loan programs, the Paycheck Protection Program (PPP) and the Economic Disaster Loan Program (EIDL), there have been several COVID-19 Small Business Loan and Grant Programs Available in Texas, including loans from PeopleFund and various municipal governments. Check the links for the most up-to-date information.
If your credit is excellent, you may qualify for a long-term loan with an interest rate from a bank or credit union.
The US Small Business Administration also offers low-interest loans like the 7(a) loan or SBA 504 loans, which can be used for things like business expenses, equipment, and commercial real estate. . Learn more about SBA.gov.
Lines of credit
If you need access to capital, but don’t want to get it all at once (or have to start paying it all off at once), business lines of credit can do the trick. Borrow against what you have been approved for and repay only that amount.
If you use equipment such as computers, heavy machinery, or even company trucks, there are specific equipment loans you may want to explore. The equipment you buy serves as collateral, which can lower interest rates.
Having business credit cards to make purchases for your business can be useful, even if you don’t have cash in the bank. Pay off your balance in full to avoid interest charges, and look for a card with rewards you can earn for your purchases.
Short term loan
But what if you don’t qualify for any of the options above, perhaps because your business is new or because you don’t have good credit? You may still qualify for short-term loans, but be aware that they tend to have higher interest rates.
How to choose the right loan for your business in Texas
Start with your eligibility. What financing options are you eligible for? Ideally, you would apply for the loan with the lowest interest rate to minimize the extra fees you pay.
Also think about how you plan to use the funds. Some loans, especially SBA loans, may have specific requirements for how you can use the loan proceeds, and there are loans like equipment financing that are for certain purchases.
How to Qualify for a Business Loan in Texas
Financial institutions may have slightly different criteria for qualifying for a business loan, but generally you can expect them to look at how long you’ve been in business, your credit scores, and your annual income.
New businesses may have difficulty qualifying for bank or SBA loans, as they tend to approve applications from businesses that have been in business for two or more years. A better option for a startup may be a business credit card or a short-term loan.
The higher your credit scores, both personal and professional, the better offers you will qualify for. More on credit scores in the next section.
What is a good credit score for a business loan in Texas?
Each lender has their own criteria for the credit scores required for small business financing. The SBA, however, has not published a minimum credit score requirement, but many lenders will require a personal credit score of at least 640.
Some lenders may also check to see if you have professional credit scores, which not all companies do. If you don’t have them, learn how to establish business credit to expand your options.
And remember: even if you have bad credit, there are loan options for you, but at a higher cost.
How to Get a Small Business Loan in Texas
Lenders may vary in their application process, but expect to be asked for details about your business, how long it has been in business, your annual income, etc. And because you may personally guarantee the loan, you may need to provide personal information such as your social security number.
Once you’ve been approved for a loan, review the loan terms, which will detail the loan amount, interest rate, and repayment schedule. Sign the agreement and the funds should be deposited into your business checking account in as little as one business day.
Ways to Use a Small Business Loan in Texas
The uses of business financing are as varied as the small business owners applying for financing.
If you have down times in your business, you might just want access to working capital so your bank account never runs dry. If you’re looking to expand, you can use a loan to purchase commercial real estate and renovate new retail space. You can use the funds to purchase larger inventory orders to save on a unit basis.
An equipment loan can be used to purchase updated equipment that helps you serve more customers or speed up your production line. You could use the funds to hire more help to take some of the load off of you.
A small business loan for your business in Texas can and should help take your business to new levels!
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