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.
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:
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:
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.
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.
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.
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.
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.
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.
