Considering that California’s state motto is “Eureka!,” it’s no surprise that it’s one of the top states for entrepreneurs to launch their business ideas. With California as your business’s home base, you have access to many small business loans and economic development resources to support your company.

This article will cover:

  • How much it costs to start a small business in California, and the licenses required
  • How to get a small business loan in California
  • How to write a business plan that supports your loan application
  • What to do next for your small business

How Much Does It Cost to Start a Small Business in California?

Startup costs meeting

Startup costs vary wildly from business to business, and it’s impossible to estimate them for your unique company needs.

However, there are filing fees for different business structures in California, so it’s easy to see how much it costs for the initial formation of your small business.

Register Your Business in California

Below are some of the most common business structures, but there are other options. If you’re unsure which structure is best for your business, you can hire a financial advisor to help you determine which one’s right for you.

  • Sole proprietorship: In a sole proprietorship, the owner and the business are treated as the same entity, and the owner is responsible for the business’s debts. You don’t have to register a sole proprietorship in California.
  • Limited liability company (LLC): Two or more people can own an LLC, limiting the owner’s personal liability (s). It costs $70 to register your LLC by filing for Articles of Organization.
  • Corporation: A corporation is owned by shareholders. It’s considered its own entity, so shareholders have limited liability. To register a corporation, file for Articles of Incorporation and pay the $100 fee.
  • Limited partnership: A limited partnership is a business owned by two or more people who contribute money or property toward the company. The owners don’t manage the business. It costs $70 to register for a Certificate of Limited Partnership.

What Business Licenses and Permits Do You Need in California?

Cities rather than the state issues business licenses in California. Each city has its licensing requirements that you must meet to operate your business there.

Because business licensing is so disparate throughout the state, the Governor’s Office of Business and Economic Development offers a license and permit search tool to help you find what you need.

Enter your city or county and your business type, and the tool will show you the licenses and permits you need and relevant agency contact information.

What Small Business Loans Are Available in California?

Loans Available in California

Getting a traditional bank loan will likely be difficult as a new small business owner, but many loan programs have been created to support small businesses.

These programs often include a loan guarantee, which means the program will cover a portion of the loan price if you default. This makes lenders more willing to take a chance on a new small business.

IBank’s Small Business Finance Center Loan Guarantee

The Small Business Finance Center (SBFC) has been supporting small business owners and entrepreneurs since 1968. It provides access to capital that businesses can use for startup costs, inventory, construction, and more.

To qualify for this loan program, you must have an established business entity and have between one and 750 employees. Unlike many small business loan programs, the SBFC doesn’t consider United States citizenship as an eligibility requirement.

Working Solutions CDFI Loan Program

The Working Solutions CDFI offers a unique loan program that combines funding opportunities with one-on-one mentorship that continues for the life of the loan.

The program provides microloans between $5,000 and $50,000. It’s ideal for new businesses because there’s no revenue requirement to apply.

Valley Small Business Development Corporation Loan Guarantee

The Valley Small Business Development Corporation (VSDBC) offers a loan guarantee program backed by a trust fund created by California. Through this program, you work directly with a lender, and then the lender works with VSDBC to get the loan guaranteed.

This program has one of the largest loan guarantees, offering a guarantee of up to 80% on loans up to $2.5 million. You can use this money for working capital, inventory, equipment, real estate, or debt refinancing.

The VSDBC also provides specialized loans for agricultural businesses.

California Capital Access Program for Small Business

The California Capital Access Program for Small Business (CalCAP SB) operates a loan loss reserve program that can cover up to 100% of loan defaults. This program makes banks and other financial institutions more amenable to providing loans to small businesses.

You can use the funds obtained through this program to purchase land, renovate buildings, offset startup costs, purchase equipment or inventory, or as working capital. However, there are a few restrictions; you can’t use the loan for bars, adult entertainment businesses, or gambling facilities.

Why Do You Need a Business Plan Before Applying for a Small Business Loan in California?

Business plan

If you’ve heard rumors that the business plan is outdated, consider what it would look like to apply for a small business loan without one. You’d have no concrete research to support the validity of your idea. To a lender, this would seem like a reckless proposition.

Lenders don’t fund “pie-in-the-sky” business opportunities. If you need money to start your small business, you need a business plan.

An official plan shows that you understand the importance of starting a new business venture, the challenges it poses, and how to make it a success.

What To Include in Your Business Plan

Business plans don’t have to be overwhelming, as they’re formulaic. Once you understand the formula, you just have to add in your information.

You should do this research whether you want to write a business plan or are thinking of moving forward without one.

The Census Business Builder tool is a tremendous help for market research:

  1. Executive summary: This is the first thing lenders will read, and it’s what captures their attention and makes them want to see the rest of your plan. (No pressure, right?) Though it’s listed first, you should write the executive summary last. Use this space to provide an overview of your products or services as well as your growth plans.
  2. Company description: Use this space to describe the problem your company solves. Be sure to highlight what makes your business unique.
  3. Market analysis: This section should focus on market trends, your target audience, and the strengths and weaknesses of your competitors.
  4. Organization and management: Describe your company’s business structure, such as an LLC or corporation. Provide an overview of your management team and the unique skills and experiences they bring to your organization.
  5. Service or product line: This is where you’ll detail the product or service you plan to offer and how it helps your target market.
  6. Marketing and sales: The saying, “If you build it, they will come,” doesn’t apply to business. Develop a strong marketing plan to ensure you can attract customers and generate sales.
  7. Funding requests: This section describes your funding requirements and how you plan to use the money. Be sure to include projections for how and when you’ll pay off the loan.
  8. Financial projections: This section provides an economic forecast for the next five years of your business. Include charts to help lenders visualize your projected cash flow and expenditures.
  9. Appendix: Use this space to provide documents that support claims made in your business plan. Consider adding letters of recommendation, your credit history, and product photos.

What to Do Next

Starting a new small business is equal parts exciting and overwhelming, and there’s a lot you’ll need to do, but it’s easy to do once you know the steps above and these next steps:

  • Apply for your federal employer identification number (EIN). This is basically a Social Security number for your business.
  • Open a business bank account. It’s important to keep your business and personal bank accounts separate to make taxes easier to file.
  • If you’re going to have a physical storefront, reach out to the California Business Investment Services for help choosing the best location for your business.

You can use the information in this article to register your California-based small business and get approved for small business loans that will help your company prosper.

Next, read how to start your online business.