Small Business Financing in California Guide
- April 17, 2018
- Posted by: Jeff Gitlen
- Category: Small Business Loans
Nearly all small businesses need financing at some point or another.
Whether it is to cover overhead expenses, pay for an influx of inventory, or expand with a new location, product, or service, small businesses need to tap into affordable capital when the time comes.
There are many strategies for securing small business financing in California, regardless of industry or revenue.
But it’s necessary to know the types of funding available along with their qualification requirements and costs.
Here are several ideas for small business financing for California companies, including loans, grants, and investors.
Small Business Loans in California
California business owners may find the capital they need through small business loans. There are several lenders able to offer affordable financing to businesses of all sizes operating in the state, including the following banks.
California Bank and Trust
Business owners in California may be eligible for a small business loan from California Bank and Trust. The bank offers term loans, commercial real estate financing, and equipment leasing, as well as Small Business Administration (SBA) loans. Businesses can receive a funding decision on up to $100,000 for most term loans as fast as the next business day – so long as they have a strong credit history, and verifiable business financials include cash flow, balance sheet, and tax returns for the previous year.
Silvergate Bank also offers small business loans in California, in the form of a traditional term loan, an express loan, or an SBA loan. Most businesses approved with Silvergate Bank request loan amounts ranging from $10,000 to $100,000 and funding can be completed within five business days. Small business owners must provide business financial documents, revenue and cash flow history, and, in some cases, personal credit score and history.
California Business Bank
Business owners may also find loan options with California Business Bank. Offering term loans through the SBA, industrial and commercial loans, and commercial real estate loans, California Business Bank can serve businesses of just about any size. Most small businesses approved for a business loan with the bank apply for no more than $150,000, and are able to show business financials for the previous year, tax returns, and personal credit history when requested.
Small Business Grants in California
Grants can be a great method of covering smaller funding needs for business in California. The funds awarded to eligible businesses do not need to be repaid, unlike loans, nor is there equity dilution in the company, unlike investor capital. Grants for small business come in a variety of forms and have different qualification requirements. Here’s a list of some of the more notable ones.
The Coca-Cola Foundation
For years, the Coca-Cola Foundation has offered grants to business throughout the United States, as a commitment to specific issues that local businesses are aiming to solve. In California, small businesses can apply for a grant from the foundation if their operations focus in the priority areas of women, water, or well-being. Grant amounts vary based on the needs of the recipient, and there is no deadline for applying. All applications are submitted online, and any business has the opportunity to apply.
Small Business Innovative Research (SBIR)
The Small Business Innovative Research grant program encourages small businesses to engage in federal research and development that has the potential to be commercialized in the future. SBIR grant recipients have the chance to explore their technological possibility in the market in order to stimulate innovation. Grant amounts vary per awardee, but there is a maximum grant amount of $150,000 for the initial phase. Each of the 12 government agencies has its own initiative each year for SBIR applicants, as well as deadlines and eligibility requirements.
Energy Innovations Small Grant Program
Small businesses in California may qualify for a grant up to $150,000 through the Energy Innovations Small Grant Program. Businesses must be involved in the energy industry, registered in the state, and submit a proposed project that benefits electric and natural gas consumers in a PIER area. Deadlines and information about submitting an application can be found online.
Creative Economic Development Fund
Through the Creative Industries Incentive Network (CIIN) program, Los Angeles businesses may qualify for a grant to help launch or expand. Businesses must have five or fewer employees, be entity-independent businesses, artists or cultural producers, or nonprofits with earned income. All awardees must have some degree of social impact within the city. A total of $100,000 is available through this grant.
California Civil Liberties Program
Sponsored by California State Library, the California Civil Liberties Program is a competitive grant for nonprofit businesses focused on preservation, education, public media, and civic or artistic projects about civil liberties. Companies can request up to $100,000 for education, preservation, or public media projects, or up to $30,000 for community projects.
Amber Grant for Women
Business owners in California who are women may apply for the Amber Grant for Women. Each month, a qualifying grant of $1,000 is awarded to one recipient, with a more substantial single grant awarded to one of the previous monthly recipients at the end of the year. Any woman in business in California can submit an application for the Amber Grant online.
Small Business Investors in California
For some business owners, grants may not be an option, and cash flow may not be high or stable enough to support a small business loan. In these cases, reaching out to a network of investors in California can be a good option. Investors in California small businesses may be venture capitalists, angel investors, or seed investors, but each can provide the necessary funding to a company when it is needed for growth, expansion, or covering working capital. Here are a few small business investors in California.
As a group of former entrepreneurs and business executives, Sacramento Angels is a network of venture capitalists and angel investors willing and able to help select small businesses across California through various funding methods. Sacramento Angels primarily focuses on technology companies with the potential to go public. To date, Sacramento Angels has invested in at least 66 companies, totaling over $12 million with an average investment of $750,000.
Seed stage investors, Homebrew, focus on enabling small businesses in California to thrive in their market. The investor group has worked with numerous companies from personal health and wellness to financial services, although its investments are more tailored to technology-infused companies that are committed to making a difference in the world.
Another California venture capitalist firm is Lowercase Capital, led by Chris Sacca, a former Google employee. Lowercase Capital covers a wide range of small businesses, most of which use technology to provide a product or service to the masses. Lowercase Capital requires businesses to have a solid track record of success in the space before pitching for investment.
Getting Your Business Ready for Financing in California
While there are several strategies for acquiring financing in California as a small business, every business owner should take time to prepare for the type of funding they want. For instance, receiving a business grant often requires the submission of a grant proposal, stating why the business needs the funding and what that funding will ultimately be used to accomplish. A healthy business plan is helpful in securing grants.
For California business loans, business owners need to have all their financial ducks in a row. That means precise, and accurate, revenue history, balance and income sheets, cash flow and accounts receivable details, and personal or business assets on hand. Traditional banks that offer small business loans want to ensure the risk they take on in the process is justified, which makes having a clean and organized financial picture of the business a must.
For venture capitalists, seed and angel investors, small businesses need to have a solid proof of concept before pitching an idea that requires funding. Investors also like to see similar organization of financial information on the company before they feel comfortable investing, along with a personal investment from the business owner or partners in the business. With all types of financing, business owners need to gather these details ahead of time, think about the amount of funding they need, and be prepared with a repayment strategy should it be necessary.
What Kind of Financing Do You Need?
With so many types of small business financing, it can be a challenge understanding which category makes the most sense for your business needs. Bank loans are a smart way to borrow for the long-term, as they typically offer a fixed interest rate, a predictable repayment schedule, and a lower cost than other types of lender-based financing options.
Businesses that know precisely how much they need to borrow and have the cash flow to repay may find the most benefit in a business loan. Also, small businesses that do not want or need the guidance or mentorship of an investor, or the requirement to meet specific objectives under a grant are better suited for a small business loan.
Businesses that are in need of more than just financing may find investors to be a better fit. Most angel investors, venture capitalists, and seed investors offer direction on operating and growing a small business over time. They provide access to advisory teams in some cases or add a management team member to the mix to help with day-to-day operations. However, small business owners may also give up a portion of their ownership stake in the company when using investor financing.
Grants are best left for businesses willing and able to meet concrete goals, per the terms of the grant. This is the most beneficial type of financing for some small businesses because it does not need to be repaid over time. However, not many small businesses qualify for grants to help cover expenses or other financial needs. Searching for grants should typically be done before running to borrow money or giving up ownership, but loans and outside investors can help when you need the financing.