A Comprehensive Guide to Securing a Business Loan in Texas

October 18, 2022

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The state of Texas reports that if its economy were that of a nation, it’d be the 10th-largest on Earth. On top of that, a 2021 report from the United States Small Business Administration (SBA) reported that three million small businesses operate in the state, employing nearly five million people, or more than 45% of all employed Texans. In addition, the state’s small business employment rate is rising faster than the national average, meaning that more and more Texans are working for small businesses every year.

Texas is also a state made up of a wide variety of industries and opportunities. The USDA reports that Texas farms earn the third-most of any state in the country, and Texas leads the U.S. in oil production by a wide margin. There are also dozens of cities comprising more than 100,000 citizens, including four (Austin, Dallas, Fort Worth, and Houston) with over 900,000 citizens.

All of this is to say that there are a ton of opportunities for small businesses in Texas. There are giant industries, tons of people able to work for your company, and no state personal or corporate income tax. But starting or maintaining a company even in a business-friendly state like Texas can require some degree of financing. Which loan options are going to work best for your company in the Lone Star State?

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The state government itself offers several programs and incentives for securing a business loan in Texas.

First, the state offers access to the Alliance of Texas Angel Networks, particularly helpful if you’re interested in acquiring funding through venture capital. This is a way of receiving equity financing, not debt financing. You’re selling a percentage of your company, not taking on a debt you’ll need to repay.

Texas also features a network of Community Development Financial Institutions, or CDFIs. CDFIs are nonprofits that receive investment on the federal level and work to bring economic development to distressed communities. If you’re operating your business in a qualifying region or are a member of a historically disadvantaged population, there may be a CDFI looking to work with you. Check out the list of CDFIs in Texas here.

Finally, the state government helps sponsor the Texas Economic Development Corporation, a nonprofit organization dedicated specifically to encouraging growth and encouraging entrepreneurs to move into Texas. On top of their site, which extolls the virtues of business in Texas, they also offer resources like this handbook on getting a business started. It includes sections on everything from writing a business plan to insurance to financing.

Texas Small Business Loans through the SBA

The U.S. Small Business Administration offers support to small business owners through its six Texas offices found in Dallas/Fort Worth, El Paso, Houston, Harlingen, Lubbock, and San Antonio.

These field offices serve several important purposes for the Small Business Administration. For one, they carry out the local functions of the SBA: they facilitate the underwriting of SBA loans, deliver disaster relief, and otherwise provide locally-specific services to the immediate area. Business borrowers in New York City, rural Ohio, and San Antonio are each navigating unique and particular environments, and the SBA’s field office system ensures that those entrepreneurs are working with an appropriate team.

Those field offices are also resource hubs for business owners. That means if you’ve got questions about your business plan, your taxes, your credit score, or even how to structure your business’s leadership group, you can work with specialists in the office to get on the right track. On top of that, SBA field offices provide webinars and other forms of training to help with specific issues facing business owners, from explaining the different types of business loans to how to negotiate a contract with the federal government.

Grants

On top of lending opportunities, there are also numerous grants available to small businesses depending on where they’re situated, the industries they work within, and the companies’ larger goals. Grants have similar application processes to loans (more on that later) but can take weeks or even months. If you’re in need of cash very quickly, a bank loan will likely be a much better option than a grant.

Grants come with stipulations and eligibility criteria. Some grants will only be available for startups, while others might be available only to companies that have been operating for years at a particular level of annual revenue. Government grants also exist for specific populations: there are numerous grants available to help women-owned businesses or businesses led by veterans. If your company has a greater mission but bad credit, you may find that a grant is a better and more realistic funding option than a regular loan.

The biggest benefit to grants is obvious: it’s effectively free money. Most grants will not require the receiver to repay them. USGrants.org is a great way to sort through the various grants available to Texans through both the US government and private organizations.

Some localities also offer grants to small businesses. Alamo, Texas, for example, offers a signage grant through their Economic Development Corporation. Eligible businesses can receive up to $2,500 for renovations, signage, and storefront upgrades (though they do have to pay half of the grant back).

City-Specific Lending and Resources

With several huge cities in the state, many small business owners turn to resources within their cities to seek out small business funds. Many large cities have nonprofits able to offer low-interest loans with loan amounts ranging from a few thousand dollars up to six digits. Listed below are just a few possible sources of these loans in Texas.

Dallas/Fort Worth

In Dallas/Fort Worth, for example, there’s the DEC Network. The DEC Network is a fully non-profit organization that has several offices in the region fully staffed with a team looking to help business owners start a new business, grow within their established business, and otherwise provide training, mentorship, and education.

Helpfully, they also help facilitate small business loans. Many companies and organizations like TruFund Financial Services, BCL of Texas, Microsoft, and Bank of America partner with the DEC network to provide loans, resources, and organizational funding. So if you’ve got questions about operating your company, finding a loan, or need to bounce ideas off the brain of a local, the DEC Network can be helpful.

El Paso

In El Paso, there’s El Paso Business Strong. As a branch of the Better Business Bureau, El Paso Business Strong helps bring uniquely El Paso funding and resources to local entrepreneurs. Their website includes many resources, from a hub for all of the licensing your company might need to operate in the city, to links to employment incubators to help you find the right team. On the financial side, El Paso Business Strong makes it easy to find local grants and loans along with training and assistance with your business finance.

Houston

In a city as large as Houston, there are several organizations available to help businesses receive necessary finance. The nonprofit Houston Business Development, Inc., for example, offers business loans from microloans of $5,000 all the way up to $500,000. There are eligibility criteria: certain industries (adult entertainment, alcohol) are excluded, and you must show sufficient credit. On top of that, you should be able to demonstrate that your loan will go toward creating jobs. But if you’re eligible, you can receive a sizable loan at below-market interest rates. That money can be used for any number of purposes, from working capital to real estate.

There are other options in Houston too. The Houston-Galveston Area Local Development Corporation facilitates SBA 504 Loans in addition to having its own Business Loan Fund with 10-year repayment terms. These loans can be used for a variety of purposes in several Texas counties, but must also demonstrate that the funds will help create jobs.

Austin

In Austin, there are also additional resources for companies looking to grow. The City of Austin has partnered with private lenders along with the United States Department of Housing and Urban Development to create the Family Business Loan Program.

“Our mission is to enable existing local businesses to expand and create jobs, revitalize communities, increase the tax base of the City of Austin,” their website says.

Loans through this program come with eligibility criteria: you’ll need to demonstrate that your company will create no fewer than one job per $35,000 you borrow. They’re also project-focused. You can’t just apply for this loan to suit any business purpose – working capital, for example, is explicitly not able to be the only purpose of this loan. It can, however, be used for refinancing existing debt, buying machinery, acquiring land, or renovating buildings.

Documents Needed For Grant and Business Loan Applications

Once you’ve decided on the grant or loan you’re looking for and where you can get it (including whether you’d like to use Texas’s allocated resources), you must gather your paperwork. Paperwork specifics vary from lender to lender – a term loan from a traditional bank, an equipment loan from a credit union, and a short-term loan from an online lender will all likely require slight variations in their documentation. However, you’ll most likely need some or all of the following:

  • Loan application. There will likely be a specific document from the financial institution in question.

  • Resumes. Lenders don’t want to lend money to strangers. Who are you, and any other partners? Where have you been in the past, and how does that experience make you a qualified lender?

  • Personal and Business Credit Reports. What’s your business credit score? What’s yours? Business lenders want to lend money to borrowers who’ve demonstrated a history of repaying debts. If you’ve got a great personal credit score to go along with a great business credit history, you’re more likely to be approved for the amounts you’re looking for at a manageable interest rate.

  • Business Plan. Lenders want to know not only how creditworthy their borrowers are, but how those borrowers are planning to use their loans to grow their businesses. Where does this debt fit in with the plan? What business needs are covered by the loan? What exactly does your business do? Who are its customers?

  • Financial Statements. You’ll need to prepare tax returns, likely for your personal income tax as well as your business. You’ll need to have bank statements, balance sheets, profit and loss statements, cash flow data, and possibly even projections. You’ll also want to have all of the information about your other debts.

  • Legal Documents. Your business should be registered with the government and likely have a DBA. You’ll need articles of incorporation if you’re operating a corporation, business licenses, any sort of partnership agreements, permits, and any relevant regulatory paperwork. Some loans also require a particular amount of time in business to determine eligibility, and your legal documents can show your business’s age as well.

Last Thoughts

If you’re considering launching a startup or moving an established business into Texas, you now have a pretty good idea of the options available to you. The state government would love to have your company moving into the state, and is willing to help. Evaluate all of the available options for your company, and your industry, and you’ll certainly find a business financing option that’ll be a great fit for your company.

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