Running out of funds is one of the most significant dangers to small businesses, and loans can be frustratingly hard to obtain. Only 42% of small businesses managed to qualify for sufficient financing in 2021.

If you’re a small business owner in California, here are eight of the best business loans you can use to help meet your funding needs.

Local Loan Options for Small Businesses in California

State-specific loan options often have smaller applicant pools, and California loan programs are especially favorable to small businesses. As a result, local offerings are a great place for California business owners to start looking for funding.

Here are eight of the best local term loan options in 2024.

California Small Business Loan Guarantee Program

The Small Business Finance Center (SBFC) sponsors the Small Business Loan Guarantee Program (SBLGP) to support struggling small businesses in the state and encourage economic development in low- to moderate-income communities.

The SBFC guarantees a percentage of qualifying small business loans for participating lenders. In other words, it promises to cover a portion of the lender’s losses if the borrower defaults.

As a result, these loans may be more accessible and carry more favorable terms than other small business loans. However, the creditworthiness requirements and loan details ultimately depend on the lender.

Otherwise, small businesses in California are eligible for the program as long as they have less than 750 employees.

California Capital Access Program

The California Capital Access Program (CalCAP) is another program designed to incentivize lenders to work with underserved small businesses in the state. It’s a loan loss reserve program, providing up to 100% coverage on certain defaults.

Each time a participating financial institution underwrites a small business loan, a portion of the loan proceeds goes into its CalCAP portfolio. Those funds can reduce or cover the lender’s losses when a borrower defaults.

As a result, you may receive more favorable loan terms if you get a business loan through the CalCap program. CalCAP loans can provide small businesses with as much as $5 million.

Fortunately, there aren’t any other special eligibility requirements for borrowers to be eligible. Contact a participating financial institution to start the application process.

California Rebuilding Fund

The California Rebuilding Fund is a loan program designed to help small businesses in the state recover from COVID-19, especially those that struggle to access capital in historically underbanked parts of the state.

Small businesses must meet the following minimum requirements to get a loan through the program:

• Headquartered in California
• No more than 50 full-time employees
• No more than $5 million in annual revenue
• Suffered direct economic hardship as a result of COVID-19

Additional requirements apply if your business was operational before March 2020. You can confirm your eligibility through the fund’s online pre-application tool. If you’re eligible, it’ll put you in contact with a local lender who can help you.

The loan terms for accounts through the program are favorable. You can qualify for a loan up to $100,000 with an interest rate of the prime rate plus 1.0% and a loan term as long as five years.

Disaster Relief Loan Guarantee Program

The Disaster Relief Loan Guarantee Program (DRLGP) supports small businesses that suffer economic injury due to declared disasters, including COVID-19. It prioritizes those that couldn’t get federal funds through an Economic Injury Disaster Loan.

The DRLGP can cover 95% of the loan amount up to $1 million for seven years. Due to that extra incentive for lenders, your loan terms may be more favorable if you qualify for an account through the program.

To get a loan through the program, small businesses must be in California, have less than 750 employees, and have been negatively impacted or experienced disruption due to COVID-19.

Working Solutions Microloans

In addition to state-wide programs, small business owners should also consider targeting top-tier lenders that serve smaller localities, such as Working Solutions.

Working Solutions is a Community Development Financial Institution (CDFI) and non-profit organization that provides affordable capital to startups and young small businesses in Northern California, including San Francisco.

To qualify for a loan from Working Solutions, you must meet the following requirements:

• Operate in one of the 19 Northern California counties they serve
• Be an 18-year-old citizen or permanent resident
• Have one year of same-industry experience
• Have a secondary source of income (if startup)
• Be current on all personal and business debt with no active liens or judgments and no declared bankruptcies within the last year

Fortunately, there’s no minimum revenue or credit score, and you won’t have to provide collateral. If you qualify, you can receive a loan of up to $100,000 with a repayment term as long as five years. Interest rates start at 5% and are capped at 11%.

Los Angeles Federal Credit Union Business Loans

The Los Angeles Federal Credit Union (LAFCU) is a great place to start for those who want a California business loan from a traditional financial institution. It offers funds to entrepreneurs who need to finance inventory, working capital, or commercial real estate.

Since LAFCU is a credit union, you must be a member to apply for an account. Only individuals living in certain counties in Southern California are eligible for membership.

If you qualify for a business loan through LAFCU, you could receive a credit line for up to $5 million with a flexible repayment schedule at a competitive rate.

National Loan Options for Small Businesses in California

While it can be a good idea to try out local loan options first, nationally available loans are still a viable source of financing for small businesses in California. To help you start your search, here are a couple of the best nationwide business loan options in 2024.

SBA 7(a) Loans

The Small Business Administration (SBA) partners with qualified lenders to help provide financing for small businesses across the country. Like the SBLGP, it insures a significant portion of each loan’s principal value to incentivize lenders.

SBA loans are among the most favorable accounts in the country. They typically have the lengthiest repayment terms, lowest monthly payments, and lowest interest rates.

The 7(a) program is the most popular SBA loan program, offering installment loans of up to $5 million. You can use the funds in many different ways, including as a working capital loan or to purchase commercial real estate.

To be eligible for a 7(a) loan assistance, businesses must:

• Operate for profit
• Be considered a small business, as defined by SBA
• Be engaged in, or propose to do business in, the United States or its possessions
• Have reasonable invested equity
• Use alternative financial resources, including personal assets, before seeking financial assistance
• Be able to demonstrate a need for a loan
• Use the funds for a sound business purpose
• Meet FICO Small Business Scoring Service prequalification minimums
• Not be delinquent on any existing debt obligations to the U.S. government

In addition, you’ll need to meet your SBA lender’s qualification requirements. They’ll generally be similar to a traditional financial institution’s expectations, but there may be some extra flexibility.

Online Loans

Small businesses won’t always qualify for loans from traditional financial institutions, even with state or national programs incentivizing them. Lenders still have the final say and need to be reasonably confident you’ll repay them before working with you.

If you exhaust all of the more favorable business loan options and find that you still need funding, it’s worth considering online lenders since they generally have lower qualification requirements.

For example, OnDeck’s minimum eligibility requirements for a business loan include a 600 personal FICO score, one year in business, and $100,000 in gross annual revenue.

However, business loans from online lenders are also usually much more expensive than bank business loans. As a result, it’s generally better to improve your creditworthiness and apply for more affordable financing if you can wait.

How To Get a Small Business Loan in California

Getting a small business loan in California involves much more than filling out and submitting a single application. If you want business financing, here are the steps you should take:

• Check your credit reports and scores: You’ll need this information in hand to navigate the rest of the process effectively. Get your personal and business data if both apply.
• Improve your creditworthiness: Once you know where you stand, improve your creditworthiness as much as possible in the time you have. That may involve increasing your gross annual revenue, paying off debts, or acquiring credit accounts to improve your credit scores.
• Target the best loans available: The lender and loan program you choose strongly impacts your chances of success and eventual loan terms. Try to apply to the most favorable account you can realistically obtain.

Even if you do everything right, you may not get a loan with your first application. Don’t be afraid to shop around and try again, but avoid submitting too many in rapid succession to prevent unnecessary damage to your credit score.

What Is the Minimum Credit Score for a Business Loan?

There’s no universal minimum credit score for a business loan since requirements vary between providers. However, you can usually get a business loan from an online lender with a bad to fair personal credit score, which starts around a 600 FICO Score 8.

Meanwhile, traditional financial institutions usually require you to have good to excellent credit scores. Generally, they’ll want your FICO Score 8 to be closer to 700.

Unfortunately, the answer is more complicated for business credit scores since lenders don’t all prioritize the same algorithm. Here are some of the most popular scores and what lenders generally consider good ratings for each: 

• Dun & Bradstreet’s PAYDEX: 80
• Experian’s Intelliscore Plus: 76
• FICO’s SBSS: 180
• Equifax’s BDSS: 585
• PayNet’s MasterScore: 700

Once again, these aren’t universal standards since minimum scoring requirements can vary significantly between lenders.

Fortunately, you can use one of CreditStrong’s credit builder loans to improve your personal or business credit scores, even with bad credit. There’s no credit check to apply, and you can cancel at any time without penalty. Give one a try today!

How To Qualify for a Small Business Loan in California

The qualification requirements for small business loans in California vary significantly. However, lenders typically use the following criteria as their primary means of pre-screening applicants:

• Credit scores
• Time in business
• Gross annual revenue

Generally, it’s easiest to qualify for small business loans in California from online lenders and hardest to get them from traditional financial institutions. Guaranteed loan programs usually fall somewhere in the middle.

If you don’t meet the requirements for the best accounts, calculate your burn rate and determine how long you can afford to wait for financing. Using your runway to improve your creditworthiness can significantly reduce your eventual borrowing costs.

If you don’t have much time, consider applying for a smaller business line to generate working capital in the meantime. For example, business credit cards can help you manage your monthly cash flow and build business credit.

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