Utah’s economy is booming and so are small businesses within the state. It ranked third on Forbes Best States For Business for 2019 and the Salt Lake City area has earned the moniker “Silicon Slopes” due to the many tech companies located there. Utah small businesses employ nearly half the state’s workforce, according to the SBA Office of Advocacy.
With growth comes growing pains, though, and one challenge that many businesses in Beehive State will face is access to capital. Whether you’re starting or expanding a business in Utah, you’ll want to understand your options for small business loans and other types of financing.
How a Small Business Loan Can Help Your Utah Business
Ultimately, a small business loan is meant to help your business grow. How you choose to spend those funds is up to you. Borrowers often have flexibility when it comes to how they choose to invest funds. Options can include hiring employees or expanding pay and/or benefits; investing in marketing; expanding a product line; securing patents or trademarks, and much more.
While many business owners prefer to avoid debt— for good reason— that’s not always possible. Some businesses require capital for equipment, for example. Others may require the business to spend money upfront for inventory, labor or other costs before the business gets paid. Business financing can help fill those gaps so the business can continue to grow.
Types of Small Business Loans to Choose From
When it comes to getting funding for your business, you may have more options than you realize. Some loans are tougher to get— bank loans, for example, often have high eligibility standards— but if you cast a wide net you may come up with a funding option or two that will work.
Make sure you avoid an “all or nothing” approach. Even if you can’t get the exact amount you need, you may be able to get some funding from one source and more from another.
Lines of credit
A business line of credit can be a great loan option for those that want to have access to capital, but aren’t sure how much they will need at any given time. With a line of credit you are approved to borrow up to a certain amount. You then borrow as much as you want, and once you pay it back you have access to those funds again. Great for working capital shortfalls, this is one of the most popular types of short-term funding used by small business owners.
If you want a loan that you can pay back over time with predictable payments, a term loan can be a great option. While loan details vary, this type of loan generally offers fixed payments over 2-5 years and sometimes longer. (Some bank and SBA loans have repayment periods as long as 20—25 years.) This financing is great for specific projects where you know how much you need to borrow.
Commercial real estate loans
A commercial real estate loan is exactly what it sounds like: a loan to purchase or expand real estate that will be used for a business, rather than a personal residence. These loans often carry favorable terms with long repayment periods, but watch out for balloon payments and other potential pitfalls.
Equipment financing or leasing
Some businesses re quire heavy investments in equipment: think semi trucks or farm equipment, for example. However, there is also equipment smaller businesses may need such as computers or laptops. If you don’t want to pay for equipment in full, equipment leasing or financing may help. It can help preserve cash flow and may even offer lucrative tax benefits.
Invoice factoring or financing
Businesses that invoice other businesses for services or goods may be able to get paid more quickly with invoice factoring or financing. With this type of financing, the business will either sell its invoices to a third party company at a discounted rate in exchange for financing, or use those invoices as collateral for the loan. With many businesses taking longer to pay (30—60 days or more), this option can provide much needed funds and reduce the hassle of chasing payments from customers.
Merchant cash advance
A merchant cash advance is where a business that has a record of strong sales gets an advance against future expected sales. It’s usually offered to businesses with strong credit or debit card sales, but online sales may qualify as well. Payments are taken out of future sales or the business bank account on a daily or weekly basis. It doesn’t require great credit and it’s very fast, which is why some business owners are willing to pay the higher cost associated with this type of financing.
Business credit cards
It is hard to think of a small business tool that has as many benefits as business credit cards. They often offer cash back, travel rewards and other bonuses. Many cards allow you to build business credit.
And here’s where they help with financing: most business credit cards also feature a line of credit. This allows the business to access short-term financing as needed. Interest rates can be on the higher side, though, so look for 0% welcome offers if you plan to carry a large balance for several months. They are popular with startups as well as existing businesses that may have trouble getting approved for a loan. As long as you have good personal credit and sufficient income from any source (not just the business in many cases) you may qualify for a card.
For startups and entrepreneurs that have limited or no traditional capital options crowdfunding can be a great financing option. The benefits of crowdfunding are that you can go straight to individuals to get an investment, pre-sell products or even borrow money. This allows people that believe in your company to support your business. There are several different types of crowdfunding and various platforms so you’ll want to find the right option for your business.
If you are looking for a smaller loan— often less than $50,000— but you’re having trouble getting approved, a microloan may be worth exploring. These loans are often made by non-profit lenders trying to help entrepreneurs who are traditionally disadvantaged, such as rural, woman-owned, minority-owned, or veteran-owned businesses. Interest rates are good and they may be credit flexible. Some microlenders work with new businesses or even startups.
The U.S. Small Business Administration has a robust small business lending program with several different SBA loan programs, including 7(a) loans, SBA Express loans, SBA 504 loans, export loans, microloans and more. (Here’s a guide to the types of SBA loans and how to qualify.)
But the SBA only makes one type of loan itself, and that is disaster loans. For those you’ll apply at SBA.gov. But for other SBA loans, you will apply at lenders (such as banks) that work with the SBA. These loans carry attractive terms, and they typically require good credit to qualify.
Small Business Loan Options for Utah
If you’re looking for financing for your Utah small business, you can certainly start by talking with local lenders. Here are some additional options to consider:
Commercial real estate loans
Equipment financing and leasing
Business cash advance
What it Takes to Get Approved for a Small Business Loan
When you go to apply for a small business loan, keep in mind most lenders are going to look at three main eligibility factors when evaluating your loan application:
- Credit scores
- Time in business
Does your business make enough money to pay back the loan? (Or if it’s a startup, will it?) This is why lenders look at financials. For many lenders, especially online lenders, your business bank statements will be used to answer this question to their satisfaction. If you don’t have a business bank account, it’s essential you open one and use it for business expenses. Traditional financial institutions, such as banks or credit unions (and some SBA lenders) may also require financial statements and tax returns so make sure your bookkeeping is up to date.
If you don’t have strong business revenues, consider business credit cards, crowdfunding, some SBA loans and microloans, vendor financing, VC or angel funding.
Good credit scores can really help you when it comes to applying for loans. And yes, many lenders consider personal credit for business loans. Good credit not only opens up more loan options, but can help you get lower interest rates. Some lenders check business credit as well. That being said, there are still loan options for those that do not have good credit scores.
If you don’t have good credit, consider crowdfunding, microloans, vendor financing, VC or angel funding or business cash advances.
Time in business
After the two year mark, many businesses are seen as safer bets by lenders. Before your business hits that two year mark it will probably be regarded as riskier which can make securing a loan much more difficult. Traditional lenders in particular may prefer to lend to well-established businesses.
New businesses can consider business credit cards, crowdfunding, microloans, vendor financing, or VC or angel funding.
There’s a fourth factor that will impact the type of loan your business may get, and that’s your industry. Lenders may prefer to lend to businesses in some industries and not others. The type of industry you’re in will often be reflected on your business credit reports by SIC or NAICS code. Make sure yours is accurate.
What Loan is Best for Your Utah Small Business
Given all these different types of loans, you may find yourself wondering which one is best for your business. First and most importantly, you’ll need to understand which types of loans you can qualify for. The best loan is of no use to your business if you can’t get approved.
Beyond that, other important factors are:
- Term length
- Use of loan proceeds
Evaluate the loan options you qualify for against these criteria to decide which one is best for your current goals as well as the financial health of your business.
Small Business Grants for Utah
Grants can be a great way for small businesses to get funding. They allow entrepreneurs to access money that they don’t have to pay back. At the same time, grants can be hard to come by— especially startup grants— and there may be a lengthy application process— especially for government grants. Some grants are very competitive as well.
That is why grants should be seen as a great bonus for a company rather than their first focus when it comes to financing. Apply for grants that you think are a great fit, but also explore financing options and have a plan in place in case you don’t get the grant you want.
Grants are made by government agencies (federal, state and local) as well as by private businesses and foundations. Three places to start your search for grants include:
Additional Resources for Utah Small Businesses
There is strong support for businesses in Utah, and a variety of organizations are there to help your business succeed.
State of Utah
The State of Utah has several websites that provide helpful information to Utah small businesses. Utah.business.gov has helpful information about how to start and run a business in the state.
If you need more specialized help with a Utah specific question the Governor’s Office of Economic Development is a great resource. Learn about small business credits, opportunity zones, rural development, grants and more.
Coronavirus.Utah.gov provides information about pandemic relief programs including PPP and EIDL (now closed to new applicants), Employee Retention Credit and more.
Utah Small Business Development Center
Free business mentoring and education is available from your SBDC. The Utah SBDC offers help all across the state. Offices are located Salt Lake City, St. George, Orem, Ogden and more, but you can get assistance no matter where your business is located within the state. Services include workshops, coaching, business training, business plan development, government contracting, exporting and much more. It’s a resource worth tapping, no matter what stage your small business is at.
Another terrific organization providing free small business mentoring and confidential assistance is SCORE Utah. Work with an experienced business mentor to get help starting or growing your business. SCORE mentors can also often connect you with local small business resources.
This article was originally written on February 24, 2022 and updated on February 25, 2022.