How To Fund Your Small Business In California


Small businesses are the backbone of California’s vibrant economy, often needing external funding for various reasons such as startups, business expansion, seasonal fluctuations, equipment financing, or in the wake of disasters. In 2020, California businesses with revenues of $1 million or less received a staggering $14.8 billion in loans from reporting banks. With a wide array of funding options ranging from business grants to small business loans available in California, the Golden State provides ample opportunities for small businesses to thrive and prosper.

Government Small Business Grants

U.S. Small Business Administration Grants

The U.S. Small Business Administration (SBA) offers several grant programs to assist small businesses. The State Trade Expansion Program (STEP) is designed to help small businesses enter and expand into international markets. Eligibility typically depends on export potential and business size, varying awarded amounts.

The Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs foster innovation in the technological realm. The level of innovation and commercial potential usually determines eligibility. The grants are sizable, but competition is intense.

The SBA’s 7(j) Management and Technical Assistance Program provides training and guidance in areas such as business development and securing financing. Qualification criteria often include factors like business size and location, minority status, or being located in an economically disadvantaged area.

The SBA does not typically offer grants for starting or expanding a business. They primarily provide support in the form of technical assistance and access to capital through their various loan programs.

California EmployABILITY Business Grant

The California EmployABILITY grant is a state initiative aimed at promoting inclusive workplaces. This grant is available to small businesses that prioritize employing individuals with disabilities. Qualifying businesses can receive financial aid for costs associated with providing accommodations, assistive technologies, or creating accessible workplaces. The awarded amount varies ($20,000 to $200,000) based on the assessed need and the resources requested. This grant not only provides funding but also sends a powerful message about inclusivity and diversity in California’s small business environment.

California Nonprofit Performing Arts Grant Program

The California Nonprofit Performing Arts Grant Program is specifically tailored for nonprofit organizations dedicated to the performing arts. This grant offers financial support for organizations fostering creativity, arts education, and community engagement. The amount awarded varies ($25,000, $50,000, or $75,000), largely based on annual gross revenue ($1,000-100,000, $100,001-1,000,000, or $1,000,001-2,000,000). Applicants need to demonstrate their contribution to the local arts scene and a solid plan for utilizing the funds.

Government Small Business Loans

SBA Loans

SBA loans are a significant source of funding for small businesses in California. These loans, guaranteed by the U.S. Small Business Administration, come in various types. The SBA 7(a) Loan is the most popular, providing businesses with a versatile loan (up to $5,000,000) that can be used for a range of purposes. Qualification criteria include a good credit score, a solid business plan, and profitability.

The SBA Express Loan is designed for businesses needing faster loan processing. Though the maximum loan amount is lower ($500,000) than the 7(a) Loan, the approval process is expedited.

The SBA Microloan Program targets small businesses and non-profit childcare centers needing small-scale financing. It’s particularly useful for startups, with loans going up to $50,000.

California Small Business Loan Guarantee Program

The California Small Business Loan Guarantee Program (SBLGP) plays a vital role in providing small businesses that lack access to traditional funding routes with an opportunity to secure financing. Backed by the State of California, this program provides guarantees up to 80-90% of the loan, thus encouraging lenders to finance small businesses that are deemed risky.

Qualifying for the SBLGP requires businesses to meet certain criteria. Firstly, businesses need to be located in California and should be categorized as small businesses as per the U.S. SBA’s definition. Secondly, the businesses must show that they can generate cash flow sufficient to repay the loan. This is usually demonstrated through a sound business plan with comprehensive financial projections. Finally, the purpose of the loan must directly contribute to the business’s ability to create or retain jobs in California.

The SBLGP provides loan guarantees up to a maximum of $1 million, with the specific loan amount determined by the lender based on the creditworthiness and financial needs of the business.

Small Business Loans from Banks

California-based businesses have the option to seek loans from large national banks or smaller local banks, each offering distinct benefits and drawbacks. Large banks can offer high loan amounts, sometimes exceeding a million dollars. However, securing these loans often requires strong credit, and the approval rates can be low due to rigorous screening processes. The application process can be lengthy, and collateral may be needed.

On the other hand, small local banks often present a more accessible option. They offer loan amounts that are typically more suitable for small businesses, with a more lenient credit requirement. These banks tend to have better approval rates, though the application process may require a substantial amount of paperwork.

Small Business Loans from Alternative Lenders

Alternative lenders refer to non-bank institutions that offer small business loans. These lenders have become popular due to their fast and simple application processes, high approval rates, and the ability to lend up to $500,000. However, the drawback is that their interest rates may be higher than traditional banks.

Alternative lenders offer various types of small business loans, including working capital loans, short-term loans, and unsecured loans. These are often beneficial to businesses that need quick access to capital, have no collateral, or are unable to secure loans from traditional banking institutions.

Working Capital Loans

Working capital loans are temporary loans designed to finance everyday business operations like payroll, rent, and inventory purchases. These loans are not meant for long-term investments but for addressing short-term operational costs. A key feature is that they often have a fast approval process, aiding businesses facing temporary cash crunches.

Short-Term Loans

Short-term business loans are typically used for immediate business needs. These could include unexpected expenses, bridging cash flow gaps, or seizing a business opportunity. The loan amount is repaid over a short period, usually less than a year, which distinguishes it from longer-term financing options.

Unsecured Loans

Unsecured loans are funds lent without the need for collateral. They are typically used for a wide range of business purposes, from working capital to business expansion. While the no-collateral feature makes them attractive, they usually come with higher interest rates due to the increased risk to the lender.

Business Line Of Credit

A business line of credit operates similarly to a credit card. It provides businesses with access to a specific amount of money that can be borrowed on an as-needed basis. The interest is only paid on the money that has been borrowed. The benefits of this form of credit are lower interest rates compared to business credit cards and the flexibility to use funds whenever needed. However, the available credit limit might be lower than what can be obtained through a loan, making it suitable for managing short-term cash flow needs rather than substantial capital investments.

Frequently Asked Questions

Is California a good place to start a small business?

Indeed, California provides a fertile environment for starting a small business. With its robust economy, diverse population, and access to key markets, the state offers a wealth of opportunities. Additionally, California provides significant support for small businesses, including a variety of loan programs and grants designed to foster growth and success. To know more, read how to start a small business in California.

What is the best way to get money for a small business?

The best way to secure funding for a small business greatly depends on its individual needs and circumstances. For some, grants may be an excellent choice, especially for those who meet the specific qualification criteria. However, grants are highly competitive and offer limited funding. Many businesses, therefore, opt for small business loans, which are more widely accessible and come in various types, allowing for more flexibility based on the business’s specific financial needs.

Where can I find grants for my small business?

There are several resources to find small business grants. These include federal and state government websites such as and the U.S. Small Business Administration (SBA). Additionally, private corporations and nonprofits often offer grants, and information about these can often be found through online search or platforms like GrantWatch. It’s important to research thoroughly and check each grant’s eligibility requirements and application deadlines.


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