TCB in the Community

Small Business Loans and Financing to Fund Your Startup in Houston, TX

posted on September 12, 2020 in Business

Photo: The Cannon Houston

Key takeaways from our “Know Your Funding Options” Lunch n’ Learn at The Cannon coworking campus in Houston, Texas

As a startup business, you are likely going to friends and family first for funding. Why not? They are easily the most likely people to believe in you and have your back from the beginning. After all, they’ve known you long enough to know your character.

We, a Greater Houston community bank focused on own-managed businesses, are all for this fundraising tactic. You should accept all the free, no-strings support you can get. Building and growing a new business is no picnic.

Instead of discouraging this practice, we let local startups and established businesses know: we can complement an equity raise.

You’re not limited to one business funding option

“None of these [business funding options] are mutually exclusive. We have clients who have components of all three. Often times that works out great.” – Duncan Stewart, Chairman and CEO of Texas Citizens Bank

You don’t want to make a mistake, but you don’t know where to begin. So, in your search for “perfection”—for the best product with the best service on the best terms—it’s easy to forget you have flexibility.

Remember, just because you tried something one way and it worked out okay, doesn’t mean you have to stick with it forever. Be careful with your biggest asset as a new company: your equity. That’s one thing you can’t reverse.

If you learn nothing else from this article, know that there are lots of financing options out there that don’t require you to give up a piece of your business and can work on your terms.

Here are a few popular financing products we offer at Texas Citizens Bank:

Conventional Business Loans

This is the type of business financing you’re probably most familiar with. Conventional or traditional loans include line of credit, inventory loans, equipment loans, and real estate loans.

The roadblock young businesses run into here is credit history. Conventional loans usually require history, collateral, and cash flow, all areas small and startup businesses are generally lacking in early on.

SBA Loans

Mini SBA Loan Case Study:

During the oil and gas downturn, big banks cut all ties to businesses in that industry. After one local businessman had his entire credit line cut off by his big bank, he turned to merchant capital (hard money lending).

With the working capital merchant, the business owner was paying 56%–60% interest rate on a $100–150K invoice. Once we got the debt refinanced into an SBA Loan, it took the business owner from $370K in debt service per year to $120K.

Government Guaranteed

What’s great about SBA loans is the government guarantees 75%–85% of the loan, depending on the loan size. As a result, financing is more accessible for smaller and startup businesses and banks mitigate some risk with the government guaranty. This is because SBA loans make it easier to bank businesses based on projections, translating into less exposure for the bank and more financing opportunities for small business owners.

Most Businesses are Eligible for an SBA Loan

“It [the SBA 7(a) loan program] casts the largest net” – Mark Danford, President and CEO of Waterstone LSP

SBA loans are ideal for startups as you don’t need two years or more of business operations, unlike many conventional loans.

“A lot of times startups will go toward SBA because it doesn’t fall within a bank’s typical credit policy.” – Mark Danford, President and CEO of Waterstone LSP

What most businesses don’t understand is there’s a high likelihood that their business qualifies. 97% of businesses are eligible for the SBA 7(a) program.

The SBA Process Doesn’t Have to Be Slow

SBA loans get a bad rap. Despite all the benefits, some business owners—and even some bank lenders—tend to avoid these loans due to bad experiences with the SBA loan process.

By partnering with a local SBA Loan Service Provider, we’re able to avoid many downsides by getting you all the advice and support you need to move faster. Waterstone LSP Owner Mark Danford will personally meet with you and your dedicated TCB Relationship Manager face to face to answer any questions you may have before getting started.

With Mark as your guide, the process goes as fast (or as slow) as you’d like to go. His comprehensive checklist breaks down the steps and his team is available to answer any questions or concerns along the way—removing unnecessary stress and barriers for you and your business.

SBA Loan Steps

The SBA loan process is not always easy, but it is with Texas Citizens Bank and Waterstone LSP. Here’s how the SBA loan approval process works at our bank:

  1. Business owner and lender meet and identify SBA loan as the best financing option
  2. Business owner meets with SBA Service Provider Mark Danford (Explain the process, map expectations, answer questions)
  3. Mark sends the business owner an SBA Loan underwriting checklist (forms needed to submit package)
  4. The bank reviews the loan request and underwriting and makes a credit decision.
  5. Waterstone LSP then works directly with the customer to package the remaining items for SBA submission and closing.
  6. Most loans close 5–10 business days after the SBA issues its authorization

Accounts Receivable (AR) Purchase

While a mouthful, this form of financing is based on a simple concept: bridging the gap between unpaid receivables.

New and fast-growth businesses are constantly running into this problem: they’re AR rich but cash poor. In other words, you don’t have assets, but you have lots of business and opportunity.

The last thing you want to do is turn down new jobs. Those jobs represent potential return or retainer customers. However, you don’t have the capital to crank out the production needed to fill the orders. This is where AR Purchase comes in clutch.

How it Works

  1. We check your customer’s creditworthiness
  2. Once approved, Texas Citizens Bank purchases one or more accounts receivable from that customer
  3. You get the majority (usually 80%) of your AR amount upfront
  4. You accrue daily fee (if you get paid the next day, you’re only charged for one day)
  5. Once your customer pays the AR, we pay you the remaining balance, minus fees

Debunking AR Purchase Myths

  • AR Purchase Facility ≠ Hard Money Lending
  • You DO NOT have to use AR Purchase on ALL your invoices—you pick and choose
  • No long-term contract—you pay for what you use on a daily basis (many merchant/hard-money lenders round up to the 30-day rate)
  • Not just for startups with no alternatives (one of our largest traditional customers uses this as needed because it’s an effective way to bridge his cashflow gaps)

Why Choose AR Purchase

AR purchase closes the seeming eternity between invoice and payment. In business, speed is the name of the game. If you can say yes before your competitor, you have the upper hand. Because that’s the reality, both small startups and large corporations take advantage of AR Purchase as needed.

When to Use AR Purchase

AR purchasing is only as good as your ability to redeploy the quick cash. If you’re able to reinvest immediately, you can make a good return. As a business owner, it’s about maximizing your windows of opportunity. If you don’t have a way to quickly monetize your receivables, you’ll miss out on opportunities while you’re waiting to get paid. Or worse, a competitor will pounce.  

Additionally, AR Purchase helps get debt off your balance sheet.

Credit Protection

“It’s like having your own in-house credit department for small businesses.” – Duncan Stewart, Chairman and CEO of Texas Citizens Bank

Credit Protection assists you in the event your customer can’t pay. It also helps you avoid unreliable customers altogether.

What many new businesses don’t realize is company names can be misleading. Don’t count on your blue-chip clients until you’ve done a credit check. Household names don’t guarantee you’ll get paid. Subsidiaries are not always supported by their parent company.

Mini Credit Protection Case Study:

For example, Target did not support Target Canada when corporate announced they were shutting down all their Canadian stores. In the end, Target Canada was essentially a side project that didn’t pan out. When Target pulled the plug, it did not pick up its subsidiaries tab, leaving an unpaid toy supplier high and dry.

“You just never know. So we’ve seen that with Target and if you look back and see all the brands that have gone bankrupt in the past: American Airlines, Duncan Donuts, Samsonite, General Motors … They’re household names.” – Ben Clumeck, President of Uber Trade Capital LLC

Benefits of Credit Protection:

  1. Lets you know if a potential customer is creditworthy
  2. Gives you an idea of how much you can expect a customer to reliably pay
  3. Gives insight into the global economy
  4. Partnership with global insurer gives you leverage as to collection
  5. Costs as little as $5,000 / year for a small business
  6. The average premium is 0.25% of what you’re invoicing
  7. 90% coverage guarantees peace of mind


Here’s the best part: none of these funding options require you to give up equity in your business. As a result, Conventional Loans, SBA Loans, AR Purchase, and Credit Protection are all great tools to help you get where you want to go with your business. Each financing option helps better position your new business for later equity raises and better valuation.

Why Texas Citizens Bank?

Okay, that all makes sense, but there are lots of banks out there that offer traditional and SBA loans. What makes Texas Citizens Bank any different?

Well, for one, we’re independent and locally owned. That translates to a flatter organization with faster loan decisions and service for you.

Second, the founders opened this bank to fill a void in the marketplace: megabanks were taking care of mega-companies, community banks and credit unions were taking care of consumers, but there were not a lot of great options for the small and medium Houston businesses. Texas Citizens Bank was built around the needs of owner-managed businesses in and around Greater Houston. As those needs evolve, we evolve.

Because we’re not enormous, we move fast. Because we’re not tiny, we can offer a full suite of business and personal services to local Houston business owners.  

Here’s how our Chairman and CEO Duncan Stewart explained Texas Citizens Bank’s sweet spot at our last Lunch n’ Learn:

“We can really do everything the national banks can do—either directly or through a partnership … There’s really very little that we can’t do.” – Duncan Stewart, Chairman and CEO of Texas Citizens Bank

And here’s what Waterstone LSP CEO Mark Danford had to say about us as a business customer himself:  

“My company is a small business itself. We do this work for twelve different banks. And we bank with Texas Citizens Bank. I bank with them personally and as a business. Their online banking is second to none. Their service is great. What I like is Tom is my relationship manager and if I have a problem and I pick up the phone and call Tom, he fixes it for me … You don’t get transferred to someone in Dallas or Chicago.” – Mark Danford, President and CEO of Waterstone LSP

Last updated: November 5, 2020

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