How to Finance a New Small Business in Texas

From Houston to Austin, Texas is a great place to start your own business. But as the old saying goes, sometimes you need to spend money to make money. So how do you go about financing a small business in the Lone Star State?

Whether this is your first time running your own business or you’ve got several successful ventures under your belt, we’re here to walk you through some of the best options available, from small business loans to commercial credit cards.

What You’ll Need to Start Your Business

Before you open your doors to the public, you’ll need to handle a few administrative tasks first. Decide on the structure that you want your business to take – will you be operating as a sole proprietor (the most informal business structure) or forming an LLC or corporation?

If you choose to go with a more formal option like an LLC, you’ll need to register with the state using a Certificate of Formation and get an Employer Identification Number (EIN) for tax purposes. Depending on the type of business that you’re planning to operate, you may also need a business license or permit from the state.

Once you have all of your business’s operating documents, you’ll be able to open a business checking account and apply for small business loans in Houston, Texas and beyond. Before providing a loan, commercial lenders in Texas will usually need to see:

  • Legal paperwork to prove ownership of the business
  • Personal financial statements for any owners or partners
  • A business plan
  • Several years of tax returns
  • A current financial statement for the business if it’s already operational
  • A list of the company’s assets and current debts

Financing Options for Small Businesses

SBA Loans

When you’re thinking about how to finance a small business in Houston, Austin, or Galveston, a loan from the Small Business Administration, or SBA, is often the best place to start. You can usually take out an amount from $50,000 up to $5 million, with 10-25 year terms and competitive interest rates.

There are several loan options to apply for, with the most popular being:

  • SBA 7(a) loan – This is the most applied for SBA loan type, as any applications for under $25,000 typically won’t need to provide collateral. For business owners who meet all of the qualifications, you can receive up to the full $5 million in funding with an SBA 7(a). But be prepared to provide a significant amount of collateral if you’re looking for anything more than $350,000.
  • SBA 504 loan – Think of this loan as project-based funding to support buying or renovating a new location or heavy machinery. Since the funds are used for a specific purpose, there’s more paperwork, research, and inspection required before being approved. To meet the criteria, your business must have a net worth over $15 million and have an average net income of $5 million or less.
  • SBA Express loan – The clue is in the name with this one! If you need funding quickly, this is the business loan for you. For approved businesses, your application for up to $350,000 in funding could be approved within 36 hours or less – although it’ll still take about a month for you to actually receive the cash.
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Business Lines of Credit

For business owners who want more flexibility with their financing, you may want to apply for a business line of credit. Lines of credit works a little differently to traditional loans and are more like low rate business credit cards, without having a physical card in your hand.

Instead of taking out a lump sum loan and needing to pay back the full amount plus interest, you’ll be able to take out however much money you’d like up to a set limit. You’ll only repay what you’ve borrowed and the interest on that cash, not the full amount that you had been approved for. As you make your repayments, the available credit that you have opens back up for future use.

Most people can be quickly approved for a line of credit at the best banks for small business startup loans, usually within a couple of weeks. If you’ve been in business for at least 6 months, are bringing in more than $50,0000 in annual revenue, and have a good credit score, there’s little reason that you won’t be approved for funding between $1,000 and $500,000.

Equipment Financing

If you’re planning to use a substantial amount of equipment in your business, taking out an equipment loan is your best option. There are many different options for this type of loan, depending on the kind of equipment you’ll need.

Some loans are best for technical gear like computers, laptops, or point-of-sale systems. Others are more specific, like farming or construction equipment loans for tractors and heavy machinery.

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Self-Funding

You don’t have to take out a business loan if you have other means of funding your new business. Many people set up shop by self-funding using their own personal savings, taking early drawings from their retirement funds (although you should always check what penalties this may have), using a personal credit card, or even borrowing some cash from friends and family.

Some types of small business with low overheads may find this the best way to manage their money, but it’s worth considering the risks involved. Using your own personal finances can be a drain on your overall financial wellness, so it’s often best to consider alternative commercial funding where possible.

Crowdfunding

These days, there are thousands of businesses that get started using funds from crowdsourcing sites like Kickstarter, Indiegogo, or Patreon. This allows the general public to donate to your product fund and help provide the financial backing that you need to get your business off the ground.

This is a great option to consider if you’d like to finance your business without a loan, but don’t want to tap into your personal savings. There are pros and cons to each crowdfunding platform, and you’ll usually have to provide some other benefits for your donating customers, so be sure to read all of the terms and conditions carefully before launching a fundraising campaign.

Texas-Specific Business Financing Resources

Throughout Texas, there are a number of state-specific programs and funding sources that you can apply for as a growing business in the state.

  • Texas Workforce Training Grants (TWC) – The Skills for Small Business grant supports businesses with less than 100 employees and helps to fund training for new hires. The grant pays out annual amounts up to $1,800 for new employees who have been at the business for less than a year, or up to $900 for existing employees. Training is available for select courses and programs through affiliate community and technical colleges.
  • Business and Community Leaders (BCL) of Texas – This nonprofit provides lending to small businesses and community development assistance throughout Texas. If you’re looking for the best commercial real estate loans in Houston or Austin, BCL will help you apply for an SBA 504 loan, along with providing lending for diverse small and growing businesses.
  • Capital CDC – The Certified Development Corporation in Texas is another option for SBA 504 funding. It’s the largest and top ranked provider for this type of loan in the state.
  • PeopleFund – Another nonprofit and U.S. Treasury certified Community Development Financial Institution, PeopleFund can provide up to $250,000 to Texas businesses that don’t qualify for traditional commercial bank loans. Their educational and business assistance materials are also an excellent resource for new business owners.
  • ACCION Texas – For Texas businesses over a year old with no current bankruptcies, additional sources of income, and cannot qualify for other commercial loans, ACCION Texas can provide up to $25,000 in business loans.
  • Business Investment Growth Austin (BiG) – A great choice for Austin-based small businesses, this nonprofit provides loans and training for new and growing organizations, particularly minority or women-owned companies. Micro loans up to $15,000 are available for startups, while established businesses can borrow up to $50,000.
  • Alliance of Texas Angel Investors – With groups in most major Texas cities, the alliance helps small business owners to connect with active investor groups throughout the state. If you’re looking for early-stage capital as a business owner, look for the angel group in your nearest city.
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Find Funding for Your Small Business Today

When you’re ready to take your small business to the next level, contact the commercial team at Moody Bank. Our experienced business lenders can provide you with more information about the business loans and commercial real estate financing options that are right for your situation.

We’ll help you get the funding you need by applying for a business credit card or loan, so contact us today.