Business Loans and Financing Options for California Companies
California is home to over 4 million small businesses, representing 99.8% of all businesses in the state. Access to financing is critical for companies to start up, operate, and grow. This article explores the wide range of business loan and financing options available to California businesses.
Bank Loans
Traditional bank loans from commercial banks and community banks are a common source of financing for California companies. Banks offer various loan products including:
-- Term Loans – Fixed amount loans issued for a specific timeframe (6 months to 7 years) with regular principal and interest payments. These loans can be secured or unsecured.
- Lines of Credit – Revolving credit facilities that allow businesses to access funds as needed up to a maximum credit limit. Interest is paid monthly on outstanding balances.
- SBA Loans – Loans partially guaranteed by the Small Business Administration (SBA) to encourage lending to small businesses. Low down payments and long repayment terms.
According to users on Reddit, top California banks for small business lending include Wells Fargo, Bank of America, Chase, Union Bank, City National Bank, First Republic Bank, and U.S. Bank.
Alternative Online Lenders
Online alternative lending has grown rapidly in California. Internet-based non-bank lenders provide quick access to financing through advanced lending platforms and data analytics. Popular products include:
- Term Loans – Unsecured loans up to $500K with 3-5 year repayment periods. Quick online application and funding in a few days.
- Lines of Credit – Revolving credit facilities from $5K to $100K+ to handle operating expenses. Draw funds as needed.
- Invoice Factoring – Sell unpaid invoices to quickly access up to 80% of their value. Remaining balance paid minus fees after customers pay invoices. Flexible limits.
- Merchant Cash Advances – Receive an upfront lump sum in exchange for a percentage of future credit card sales. Payments adjust with sales volume.
Leading alternative lenders in California include Kabbage, OnDeck, CAN Capital, PayPal, and Lendio.
Angel Investors & Venture Capital
Equity funding from angel investors and venture capital firms is a financing option for promising startups and emerging companies to fuel rapid expansion. Typical deal sizes range from $100K to $2 million for angels and $2 million to $10+ million for VC rounds.
Major CA-focused investors include:
- SoGal Ventures
- Cross Culture Ventures
- Backstage Capital
- Precursor Ventures
- Lightspeed Venture Partners
- Sequoia Capital
- Accel
Southern California and Silicon Valley lead the nation in angel and venture capital deals. Top sectors include software, biotech, manufacturing, and business products and services.
Invoice Factoring
Invoice factoring allows businesses to sell outstanding invoices to a commercial finance company to raise money faster. The factor immediately advances 75-90% of the invoice value, with the remaining balance paid minus fees after the customer pays the invoice.
Factoring is flexible financing that scales alongside sales. There are no fixed repayment schedules or limits on the total invoices sold. Costs are 1-5% of the invoice value.
Leading California invoice factoring companies include Interstate Capital, BlueVine, and Riviera Finance.
Purchase Order Financing
Purchase order financing provides the working capital businesses need to fulfill customer orders. Companies secure financing based on outstanding purchase orders to cover costs like materials, inventory, and labor until they receive payment.
California has lenders specializing in PO financing such as Exchange Capital, Farwest Capital, and DSA Factors.
401(k) Business Financing
Solo 401(k) plans allow California business owners to use pre-tax retirement funds to invest in their own company. Owners can contribute up to $61,000 annually as an employee deferral plus an employer contribution up to 25% of compensation.
401(k) business financing does not require a credit check or collateral. Interest rates are competitive and all payments go back into the 401(k).
Top 401(k) lenders include Guidant Financial, Benetrends, and Pension Funding Direct.
Equipment Financing & Leasing
Acquiring equipment is easy with financing and leasing solutions tailored for California businesses:
- Equipment Loans – Gain ownership through fixed payments over 2-5 years. Apply for $5K to $5M+.
- Equipment Leasing– Pay for the equipment’s useful life while upgrading more frequently. Flexible end-of-term options.
- Vendor Programs– Many equipment manufacturers offer direct financing programs with special rates and terms.
Well-known CA equipment finance companies include Balboa Capital, TimePayment, and Marlin Equipment Finance.
Commercial Real Estate Loans
From small offices to large industrial warehouses, commercial mortgages help California businesses finance real property purchases and construction:
- SBA 504 Loan – Get up to 90% financing for commercial real estate and heavy equipment. Below-market fixed rates with 10-20 year terms.
- Conventional Loans – Competitive interest rates, flexible terms, and loan amounts up to $50 million from banks and private lenders.
- Construction Loans – Fund ground-up construction for owner-occupied properties. Only pay interest until the project is finished.
Well-rated lenders include Live Oak Bank, First Republic, and Axos Bank.
Government Grants
Federal, state, and local government agencies offer numerous grants to support California small businesses. Opportunities can be found for innovation, exporting, renewable energy, manufacturing, farming, and more.
Key programs include:
- Small Business Innovation Research – $50k to $1.5 million for tech and science startups.
- California Competes Tax Credit – Income tax credits up to $180k over 5 years.
- California Capital Access Program – Portfolio insurance encourages business lending.
Crowdfunding
Crowdfunding platforms like Kickstarter and Indiegogo enable California entrepreneurs and small business owners to fund new products and projects through small contributions from a large number of backers.Popular CA crowdfunding sites include:
- GoFundMe – Personal fundraising for business ideas or expenses.
- Kiva – 0% interest microloans empower underserved business owners.
- Wefunder – Equity crowdfunding for startup investments.
Revenue-Based Financing
Revenue-based financing (RBF) offers flexible growth capital to California businesses in exchange for a fixed percentage of monthly or quarterly gross revenue. Payments scale up and down with sales performance.Leading RBF companies include Lighter Capital, RevUp Capital, and Uplift.
Hard Money Loans
Hard money loans from private investors provide financing for California businesses and real estate investors not eligible for traditional bank loans. They offer quick approvals and funding but have higher rates and fees.Top California hard money lenders include Lima One Capital, Carlyle Capital, and Alpha Investing.
Free Business Credit Cards
Business credit cards that offer 0% intro APR periods can provide free short-term financing for California companies. Many cards also provide generous signup bonuses, rewards points, and cash back.Top 0% business cards include:
- Ink Business Unlimited – 0% for 12 months
- Ink Business Cash – 0% for 12 months
- Chase Freedom Flex – 0% for 15 months
Friends & Family Loans
An interest-free loan from friends or family members may be an option for California business owners who have strong personal relationships with people willing and able to lend them money. This allows you to avoid expensive financing costs.Set clear terms for repayment and have a promissory note detailing the loan amount, interest, payment schedule, and collateral. Get advice from small business lawyers to ensure agreements are structured properly.
Rollovers for Business Startups
A Rollover for Business Startups (ROBS) lets California entrepreneurs use retirement funds from a 401(k) or IRA to start a business without early withdrawal penalties or taxes. ROBS offers funding faster than selling a house or liquidating investments.Top ROBS providers include Guidant Financial, Benetrends, and ROBS 401k Advisors.
Bottom Line
Access to capital is vital for California businesses at all stages of growth. Many financing options are available from traditional and alternative lenders to meet different needs. Be sure to evaluate multiple funding sources to find the best rates, terms, and structure for your company. With the right financing, California businesses can continue driving economic growth and opportunity.
Resources
Videos
- YouTube Video on Financing Options for Small Businesses
- CNBC Video on Top Loans & Financing For Entrepreneurs
Articles & Guides
- U.S. News – How to Get Small Business Loans in California
- Inc. – Where to Get Funding for Your California Startup
- Fundera – Best Small Business Loans in California