1000 Things to Know About Starting a Business in San Francisco: Part 2

Building on the foundational steps covered in Part 1, this article delves into understanding the unique San Francisco market, exploring funding options, and navigating the complex tax landscape. These elements are crucial for positioning your new business for sustainable operation and growth in the City.

Understanding the San Francisco Market

Grasping the current economic climate, workforce dynamics, and available infrastructure is essential before fully launching operations.

Economic Conditions & Trends (2024-2025)

The San Francisco economy presents a mixed picture as of early 2025. While downtown activity indicators like transit use show improvement, job losses, particularly in tech, persist. The city faces budget challenges, though potentially less severe than earlier forecasts. Key trends include:

• Employment: The SF Metro Division experienced significant job losses since mid-2022, especially in Information, Professional/Business Services, and Finance. However, Education & Health Services showed growth. Job postings remain below pre-pandemic levels, though the unemployment rate saw a slight dip in early 2025.
• Population: After a post-pandemic decline, the city saw slight population growth in 2024.
• Commercial Real Estate (Office - Q1 2025): The office market shows signs of change, though challenges remain.

  SF Office Market Snapshot (Q1 2025 - Data varies by source)

  Metric	Status/Trend
  Overall Vacancy	Remains historically high (approx. 34-36% reported by major firms). Trophy/Tier 1 buildings significantly lower (around 7%).
  Leasing Activity	Rebounded significantly late 2024/Q1 2025, highest since 2015/2022 depending on source. Driven by Tech (AI) and Class A renewals/expansions.
  Asking Rents	Slight overall decline Y-o-Y but stabilizing. Approx. $66-$69/sq ft overall average. Class A CBD around $72/sq ft. Still below 2019 peaks.
  Net Absorption	Mixed signals across reports (some positive, some negative for Q1 or trailing 12 months).
  Sublease Space	Availability has stabilized after peaking; AI firms utilizing high-quality subleases.

• Commercial Real Estate (Retail - Q1 2025): Showed positive net absorption for the second consecutive quarter, indicating some recovery. Prices forecast to bottom out in 2025.
• Tourism & Hospitality: Hotel occupancy and rates trended upwards but remain below pre-pandemic levels.
• Cost of Living/Doing Business: Remains exceptionally high, impacting housing, wages, and operating expenses.

Demographics & Workforce

• Population: Around 832,000 residents (2024 estimate).
• Labor Force: Approximately 2.5 million in the broader SF-Oakland-Fremont Metropolitan Statistical Area (MSA). Highly educated overall, but diverse skill levels exist.
• Wage Levels: Significantly higher than national averages due to cost of living and demand in sectors like tech and finance. May 2024 MSA data shows mean annual wages like $194,270 (Management Occupations), $238,050 (Computer/Info Systems Managers), and $243,770 (Financial Managers).
• Talent Pool: Deep talent pool, especially in tech, finance, biotech, and professional services, fed by strong local universities (Stanford, UC Berkeley, UCSF). However, competition for talent is fierce, and retention is challenging.
• Commuting Patterns: Significant reliance on public transit (Muni, BART) and bridges, though ridership is still recovering. Remote/hybrid work remains prevalent, affecting downtown foot traffic.

Infrastructure & Resources

• Transportation: Extensive public transit, major airport (SFO), Port of SF, and connected (though often congested) highways.
• Utilities: Reliable electricity (PG&E, CleanPowerSF), water/sewer (SFPUC), gas (PG&E), and high-speed internet.
• Technology: World-class digital infrastructure supporting the dominant tech industry.
• Education: Proximity to top universities and numerous vocational/coding programs.
• Startup Ecosystem: Dense network of incubators (e.g., Y Combinator, 500 Global, Techstars) and accelerators providing resources and mentorship.
• Coworking Spaces: Abundant options (e.g., WeWork, Regus, Spaces, Industrious) offering flexibility and networking.
• Industry Associations: Numerous groups (SF Chamber, tech associations, etc.) provide advocacy and networking.
• Government Support: Agencies like SFOSB, OEWD, SBA, SBDC, SCORE offer direct assistance.
• Quality of Life: Vibrant culture, diverse neighborhoods, natural beauty, and renowned culinary scene, balanced against high costs, homelessness, and public safety concerns.

The San Francisco market offers immense opportunity alongside significant challenges. Success requires strategic navigation, leveraging resources while mitigating risks like high costs and regulatory complexity.

Funding & Financial Resources

Securing capital is often a major hurdle. San Francisco offers a wide range of funding options, from venture capital to local grants, but accessing them requires understanding the landscape.

Venture Capital (VC)

• Global Epicenter: The SF/Bay Area remains the dominant hub for VC funding, especially for tech, AI, life sciences, and fintech. Over half of recent AI/ML VC funding flowed here.
• Major Firms: Home to top global VCs (e.g., Sequoia, a16z, Kleiner Perkins, Accel, Lightspeed, Index, Bessemer).
• Investment Stages: Firms invest across all stages, from Seed (e.g., First Round) to Growth (e.g., Insight Partners).
• Industry Focus: Many are sector-agnostic, while others specialize (e.g., Khosla - deep tech, Venrock - healthcare).
• Current Climate (2023-2025): Experienced a significant downturn in 2023 from peak years. While activity is picking up (especially in AI), the market remains cautious, and fundraising is challenging.
• Accessing VC: Highly competitive. Requires a strong team, large market, scalable model, traction, and effective networking/pitching. Introductions are often crucial.
• VC Expectations: VCs seek high growth and significant returns, often influencing strategy and taking board seats.

Angel Investors & Networks

• Role of Angels: High-net-worth individuals providing early-stage capital (pre-seed/seed), often before VCs. Typically invest smaller amounts.
• Prominent SF Angels: Includes many successful founders and tech executives (e.g., Sam Altman, Naval Ravikant, Reid Hoffman).
• Angel Groups: Formal groups pooling resources (e.g., Band of Angels, Bay Angels, Astia Angels, Keiretsu Forum). Platforms like AngelList facilitate connections.
• Finding Angels: Leverage networking, platforms like AngelList, and introductions.
• Angel Expectations: Often provide mentorship and connections alongside capital. Seek strong potential returns but may be more flexible than VCs.

Accessing Capital - The Reality

While SF is known for VC, this top-tier funding is hard to secure, especially post-correction. Angel investment is also competitive. Startups often rely on a mix: personal savings, friends/family, grants, loans (SBA loans and city grants are more accessible, though smaller), and potentially crowdfunding early on. Networking is paramount for visibility and access to investors.

SBA Loans

The U.S. Small Business Administration (SBA) guarantees loans made by partner lenders, making it easier for small businesses to qualify.

Common SBA Loan Programs

Program	Primary Use
7(a) Loan Program	Most common; flexible use (working capital, expansion, equipment).
Microloan Program	Smaller loans (up to ~$50k) via non-profits for startups, specific needs.
CDC/504 Loan Program	Long-term, fixed-rate financing for major fixed assets (real estate, equipment).
Disaster Loans	Direct low-interest loans for declared disaster areas (property damage, economic injury).

Connect with the SBA San Francisco District Office, SBDC, or SCORE for guidance. Use the SBA's online Lender Match tool.

Grants (City, State, Federal, Private)

Grants offer non-dilutive funding but are typically competitive and targeted.

• SF Office of Small Business (SFOSB) Grants: Actively manages various local programs. Check the SFOSB website for current availability and eligibility. Key examples include:

  Examples of SFOSB Grant Programs (Check current status/details)

  Grant Name	Description
  First Year Free	Waives initial City registration, license, and permit fees for qualifying new businesses.
  Storefront Vandalism Relief	Up to $2,000 per incident (max 3/yr in 2024) for repairs (broken windows, graffiti).
  Accessible Barrier Removal	Up to $10,000 reimbursement for CASp inspections or accessibility equipment.
  Fire Disaster Relief	Up to $10,000 for businesses impacted by major fire.
  Downtown SF Vibrancy Fund	Loan ($25k-$100k) paired with $25k grant for businesses filling vacant downtown storefronts (specific zone).
  Legacy Business Grant	Funding opportunities for officially recognized Legacy Businesses (30+ years).
  Other Specific Grants	Programs like SF Shines (improvements), Vacant to Vibrant, Healthy Retail SF, etc., may be available depending on funding cycles.

• Other SF City Grants: Other agencies offer grants for specific goals (e.g., Community Challenge Grants, SF Community Investment Fund, Grants for the Arts).
• California State Grants: Includes programs like the California Competes Tax Credit (job creation). Check GO-Biz.
• Federal Grants: Primarily via Grants.gov. Direct grants for typical for-profit startups are uncommon; mostly for research (SBIR/STTR), specific sectors, or non-profits.
• Private/Corporate Grants: Numerous programs exist (e.g., Awesome Foundation, Amazon Business Grants, Honeycomb Credit, Faire Grant, Freed Fellowship, Skip Grants). Research needed via resources like Candid.org (formerly Foundation Center).

Other Funding Options

• Crowdfunding: Platforms like Kickstarter, Indiegogo. Good for consumer products.
• Traditional Bank Loans: Require strong plan, credit, collateral. Harder for new startups.
• Incubator/Accelerator Funding: Many programs offer seed funding ($20k-$500k+) for equity (e.g., Y Combinator, 500 Startups, Techstars, Alchemist).
• Strategic Partnerships: Investment from larger corporations for capital and market access.
• Revenue-Based Financing (RBF): Funding repaid via a percentage of future revenue. Less dilutive than equity but potentially costly.
• Personal Funds / Friends & Family: Often the very first source of capital.

Navigating Taxes & Fees

Tax compliance in San Francisco is complex, involving multiple agencies and unique local taxes. Careful management is essential.

San Francisco Gross Receipts Tax (GRT)

• Primary SF Tax: The main business tax, replacing the old Payroll Expense Tax. Levied on businesses "engaging in business" in SF.
• Basis: Calculated on the portion of total gross receipts sourced (allocated/apportioned) to San Francisco using specific industry rules.
• Rate Structure: Progressive (rates increase with SF gross receipts) and varies significantly by primary business activity (NAICS code). Rates are subject to scheduled increases (Prop F).
• 2025 Tax Rates (Illustrative - CHECK OFFICIAL SCHEDULES):

  Table 1: San Francisco Gross Receipts Tax Rates (Illustrative 2025 Projections) - Consult official TTX schedules for current rates.

  Business Classification (Example NAICS Categories)	Projected Rate Range (Low GR Tier - High GR Tier)
  Retail Trade; Certain Services	0.079% - 0.224%
  Information	0.585% - 0.879%
  Administrative & Support Services	0.814% - 1.008%
  Financial Services	0.640% - 0.896%
  *Note: Additional Homelessness GRT (0.175%-0.690%) applies if SF Gross Receipts > $50M. Additional Overpaid Executive Tax (0.1%-0.6%) applies if pay ratio > 100:1.*

• Allocation & Apportionment: Complex rules based on industry determine the taxable portion of gross receipts. Correct application is vital.
• Small Business Exemption: Businesses below a certain SF gross receipts threshold (adjusted periodically) are exempt from *paying* GRT, but must still register and may owe the registration fee. Check TTX for the current threshold.
• Homelessness Gross Receipts Tax: Additional tax (0.175%-0.690%) for businesses/groups with >$50M SF gross receipts.
• Overpaid Executive Tax: Surtax (0.1%-0.6% of SF GRT or 0.4%-2.4% of payroll for Admin Office Tax filers) if CEO pay exceeds 100x median SF worker pay.
• Filing Deadline: Annual Business Tax Return due last day of February.
• Estimated Payments: Quarterly estimated payments required for most businesses (typically due Apr 30, Jul 31, Oct 31).
• Tax Credits: Investigate potential credits (e.g., certain office-based businesses starting with 2024 return filed in 2025).
• Complexity: The GRT's structure (multiple rates, tiers, sourcing rules, surtaxes) often necessitates specialized tax expertise.

California Corporate Income / Franchise Tax

• Administering Agency: California Franchise Tax Board (FTB).
• Rates: C-Corps: 8.84% on CA net income. S-Corps: 1.5% on CA net income. Banks/Financial Institutions pay higher rates (10.84% C-Corp, 3.5% S-Corp).
• Minimum Franchise Tax: $800 annually for most Corps and LLCs doing business in CA, regardless of profit. Due in first quarter. New entities exempt for their *first* tax year only.
• Apportionment: Businesses with income inside/outside CA use specific formulas (Schedule R) to determine CA taxable income.
• Return Due Dates: Typically 15th day of 4th month after tax year ends (e.g., April 15 for calendar year).
• Estimated Taxes: Quarterly estimated payments required.

California Sales & Use Tax

• Administering Agency: California Department of Tax and Fee Administration (CDTFA).
• Applicability: Sales tax on retail sales of tangible personal property in CA. Use tax on taxable items bought from out-of-state without paying CA tax.
• Rate: Statewide base rate is 7.25%. Local districts add taxes.
• San Francisco Combined Rate (as of Apr 1, 2025): 8.625% (7.25% state + 1.375% SF district taxes). Collect at this rate for sales sourced to SF.
• Seller's Permit: Required from CDTFA *before* making taxable sales in CA. Usually free to register.
• Filing & Payment: Report and pay collected tax to CDTFA on a regular schedule (monthly, quarterly, annual) based on volume. Electronic filing/payment generally required.

California Employer Payroll Taxes

• Administering Agency: California Employment Development Department (EDD).
• Employer Registration: Register with EDD (Form DE 1) within 15 days of paying >$100 in wages in a quarter.
• Taxes Overview:

  Table 2: CA Employer Payroll Tax Rates & Limits (2025) - Verify current rates/limits with EDD.

  Tax Type	Paid By	2025 Rate	2025 Taxable Wage Limit (per employee, per year)
  Unemployment Insurance (UI)	Employer	1.5% - 6.2% (Varies by employer experience)	$7,000
  Employment Training Tax (ETT)	Employer	0.1%	$7,000
  State Disability Insurance (SDI)	Employee (withholding)	1.2%	No Limit (All Wages - effective Jan 1, 2024)
  Personal Income Tax (PIT)	Employee (withholding)	Varies (per W-4/DE-4 and EDD schedules)	Subject to withholding

• Deposit & Reporting: Deposit withheld PIT/SDI and employer UI/ETT contributions on a required schedule (quarterly, monthly, etc.). File quarterly reports (DE 9, DE 9C). Electronic filing/payment via EDD e-Services usually mandatory. Strict deadlines apply.

Other Potential Fees & Taxes

• SF Business Registration Fee: Annual fee paid to TTX, separate from GRT, based on prior year's SF gross receipts. Progressive rates.
• SF Annual License Fees: For specific city permits (health, fire, etc.), billed annually by TTX. Fees vary.
• SF Business Personal Property Tax: Annual tax on business assets (equipment, furniture) located in SF. File Form 571-L annually with Assessor-Recorder.
• SF Real Property Transfer Tax: Tiered tax on real estate transfers in SF, due upon recording. Rates increase significantly with property value.
• Industry-Specific Taxes: E.g., SF Hotel Tax, CA cannabis taxes, cigarette taxes, 911/988 surcharges.
• Filing Fees: Nominal fees for state filings (Statement of Information) and local filings (FBN).

Managing taxes requires interacting with multiple agencies (SF TTX, CA FTB, CA CDTFA, CA EDD, IRS), each with distinct rules and deadlines. Accurate record-keeping and often professional assistance are crucial.

Sources

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