Small Business Loans in Texas: What Entrepreneurs Need to Know

Gather all essential business formation documents including articles of incorporation/organization, operating agreement, partnership agreement, or other relevant formation documents. These establish your legal business structure and authority to enter into loan agreements. Lenders need to verify your business is properly registered and in good standing with the Texas Secretary of State.

Ensure your business has all required licenses and permits to operate legally in Texas. This may include general business licenses, industry-specific permits, sales tax permits, and local municipality requirements. Missing licenses can jeopardize loan approval and create compliance issues.

Compile comprehensive business financial statements including balance sheets, income statements, cash flow statements, and projections for at least 2-3 years. Texas lenders typically require detailed financial information to assess your business's ability to repay the loan. Be prepared to explain any unusual items or discrepancies.

Collect business and personal tax returns for the past 2-3 years. Most Texas lenders require these to verify income and assess tax compliance. Ensure returns are complete with all schedules and attachments. If you have any tax liens or issues, be prepared to explain them and provide resolution documentation.

Develop a comprehensive business plan that outlines your business model, market analysis, competitive advantages, management team, and detailed financial projections. Texas lenders want to see how loan funds will be used and how they will contribute to business growth and loan repayment.

Generate a current accounts receivable aging report that categorizes outstanding customer invoices by age (30, 60, 90+ days). This helps lenders assess your cash flow and collection practices. Be ready to explain any significant past-due amounts and your collection strategies.

Ensure your business has adequate insurance coverage including general liability, property, workers' compensation (if you have employees), and any industry-specific policies. Texas lenders typically require proof of insurance, and loan agreements often specify minimum coverage requirements. Be prepared to add the lender as an additional insured or loss payee on relevant policies.

Carefully review the loan agreement which outlines all terms and conditions of the loan including interest rate, payment schedule, default provisions, and covenants. In Texas, ensure the interest rate complies with state usury laws (generally capped at 18% for business loans unless specific exceptions apply). Consider having an attorney review this document before signing.

Examine the promissory note which is your written promise to repay the loan according to specific terms. Verify that all payment terms, interest calculations, and maturity dates match what was verbally discussed. In Texas, promissory notes for business loans must clearly state all material terms to be enforceable.

If required, review the personal guarantee document carefully. This makes you personally liable for the business debt if your business cannot pay. In Texas, personal guarantees are generally enforceable and can put your personal assets at risk. Consider negotiating limitations such as a specific dollar cap or time limit on the guarantee.

Examine the security agreement which identifies business assets being pledged as collateral for the loan. In Texas, this document creates a security interest in the specified collateral. Ensure the description of collateral is accurate and not overly broad. Consider excluding essential business assets if possible.

Understand that the lender will file a UCC Financing Statement (UCC-1) with the Texas Secretary of State to perfect their security interest in your business collateral. This public filing puts other creditors on notice of the lender's claim to your assets. Verify the collateral description matches your security agreement and request a copy of the filed UCC-1 for your records.

Create a system to track and comply with all loan covenants and reporting requirements. Texas lenders typically require periodic financial statements, tax returns, and other reports. Missing deadlines can trigger default provisions. Set calendar reminders for all reporting deadlines and payment due dates.

If you haven't already, register your business with the Texas Secretary of State. Foreign entities (those formed outside Texas) doing business in Texas must register as foreign entities. Failure to properly register can affect your ability to enforce contracts and access courts in Texas.

Ensure your business is current on Texas franchise tax obligations. Most legal entities doing business in Texas must file annual franchise tax reports and pay any taxes due. Lenders often verify tax compliance, and delinquencies can affect loan approval. Even if no tax is owed, reports must still be filed.

Prepare current financial statements including balance sheet, income statement, and cash flow statement. These should be prepared according to generally accepted accounting principles (GAAP) or on the same basis as your tax returns. Texas lenders use these to evaluate your current financial position and ability to service debt.