Securing Funding for Your Small Business in California
Provided by TechGirl Financial
California has always been one of the best states to run a business. Not only because it has a booming economy, diverse industries, and a large talent pool, but it’s also home to transparency-focused regulations that help small ventures acquire funding.
In October of 2018, the Senate Bill 1235 was passed, which helped small businesses acquire a business loan. The government laid down rules to bring transparency to the small business lending industry, helping thousands of business owners understand the technicalities of the loan before signing and dodge high-cost debts
If you’re an up and coming business, it may be tricky to secure the funds you need to succeed. To help you find the money you need, here are some tips on how to finance your venture:
Go for a federal small business grant
One of the best options available in the state is the California Small Business Loan Guarantee Program, which is a state-run initiative that helps lenders provide lower rates by guaranteeing 80 to 95% of the loan that FDCs lend themselves directly. To be rendered eligible, you would need to be running a legitimate small business with one to 750 employees. And while the program can offer funding up to $20 million, only up to $2.5 million can be guaranteed. Repayment terms also often last at least seven years long, although they can stretch longer. Plus, nonprofits may also qualify.
Turn your business into an LLC
If you wish to run a business with family and friends, you can pool money together through your network and investors and turn your business into a limited liability company (LLC). It’s a business structure that combines the benefits of a corporation with the benefits of a limited partnership. It lets you enjoy pass-through taxation, asset protection, less rigid structures for management, and it’s easy to set up. ZenBusiness lays out the steps to forming an LLC in California, pointing out that it’s as easy as coming up with a name, appointing a registered agent, filing articles of organization, creating an operating agreement, and applying for an EIN. Once you’ve established an LLC, not only can you use your pooled resources for a start-up business, but you can also use it to invest in stocks, bonds, real estate, and mutual funds.
If you don’t have an established business yet but have an idea you want to check for viability, you may want to start with crowdfunding first. It allows you to pool money without shelling out any capital, so long as you market your idea in a way that will interest people. But while the process seems easy, The Balance notes that it requires careful planning and execution to convince people to donate their money to your project. You should also keep in mind that crowdfunding isn’t about long-term funding, rather asking for support for one-off ideas. However, if successful, it can be a great springboard for laying the groundwork for your next innovative project and eventually, a full-blown business.
Secure a Microloan
The great thing about small businesses is you don’t necessarily need a lot of cash to get things up and running. You only need a couple of thousand dollars to purchase your initial equipment and inventory. However, many lenders and banks don’t offer good terms for loans that don’t run into the tens of thousands. Luckily, microloans exist to lend you funds that are much less than a traditional loan, yet more than what you may be comfortable charging to your card. It’s ideal for those who have little to no credit history or would encounter trouble qualifying for a larger loan. Microlenders typically require less documentation than banks and are often flexible with their requirements. And while they have slightly higher interest rates, they’re great for fulfilling your capital gap in the short-term.
Now if you want to learn about retirement options for your business, check out our ‘Retirement Plan Options for Small Businesses’ guide.
Kim Gaxiola, CFP® may be reached at 800.584.3652 or firstname.lastname@example.org