Securing a business loan through government funding means starting your company, accessing immediate capital, and getting off the ground without dipping into your savings. Numerous government loan programs, intermediaries, and other financing options can turn your dream into a reality.
Business Loans by Government Programs
A few types of loans are best for small and midsize businesses to succeed in their unique industry. Knowing the different types of funding options for your business venture can help you choose which one works best with your credit history, funding requirements, and repayment plan.
7(a) Loans
The 7(a) loan program is the Small Business Administration’s main loan program for funding small businesses and entrepreneurs.
This type of loan can be used for capital, refinancing debt, purchasing new equipment and technology, purchasing supplies and inventory, changing ownership, and improving current real estate and surrounding property.
Individuals can determine if they are eligible by adhering to the following criteria: operating a business, operating for profit, being a U.S.-based business, being a ‘small’ business, and being creditworthy.
Business owners can apply online using the Lender Match tool on the SBA’s website to communicate with an approved Small Business Administration lender. The loan application will vary based on the specific lender’s method, with each individual lender providing the applicants with the requirements for necessary documentation.
Business owners will be able to pay back the 7(a) loan for their company by adhering to pre-set monthly payments made from the interest on the business’s profits. The owner and lender will agree on a fixed or variable interest rate for monthly payments.
Maximum Loan Length: 25 years for property, seven years for capital
Maximum Loan Amount: $5 million
504 Loans
The next popular SBA loan for small businesses and medium-sized companies is the 504 loan, which provides long-term and fixed-rate financing for large-scale projects. Certified Development Companies provide loans to help boost economic development in a certain region.
Business owners are eligible for a 504 loan if they operate as a for-profit company, have less than $15 million in net profits, and have an average net income of less than $5 million. Furthermore, entrepreneurs must have a legitimate business plan, good character, and a plan to repay the borrowed money.
Owners can use the 504 loan to create new facilities, purchase long-term equipment, invest in new technology, modernize landscaping, upgrade existing facilities, and build existing structures or land. However, small business owners must remember that this type of loan can not be used for working capital, repaying debt, investing in real estate, or purchasing intellectual property.
Maximum Loan Length: 10-20 years
Maximum Loan Amount: $5 million
Microloans
Another type of business loans by government funding are microloans, which feature smaller funding of up to $50,000 through intermediaries. This program helps small businesses expand and reach their desired clientele, aiding non-profit, community-focused organizations.
Small business owners and new entrepreneurs need to check the requirements and stipulations of each intermediary lender to see if they qualify. The most usual qualifications include providing collateral and a personal guarantee of repayment.
Entrepreneurs can use the microloan for working capital, supplies, technology, machinery, equipment, and other aspects that will help enhance or upgrade their small business. However, they can not be used to purchase additional real estate to expand the business.
Owners who wish to apply for a microloan must check the individual requirements of community-based organizations and intermediaries providing the loans. Work with an SBA-approved intermediary to see the loan's credit requirements, terms, and conditions.
Maximum Loan Length: 6 years
Maximum Loan Amount: $50,000
Indian Loan Guaranty, Insurance, and Interest Subsidy Program
This specific type of government loan helps Indian-owned companies secure capital and financing from private investors, helping tribes and individual American Indian business owners succeed and boost the economy of a reservation area.
The business owner must be a member of a recognized American Indian tribe or a corporation/LLC with at least 51% ownership by American Indians or Alaska Natives.
Maximum Loan Length: 30 years
Maximum Loan Amount: $500,000
Military Reservist Economic Injury Disaster Loan Program
The MREIDL program provides capital to small businesses that need necessary help because the owner or an essential employee was enrolled in active duty as a reservist. The purpose of this loan is to give enough funding to a small business to cover its ability to return to normal operations after an employee returns from active duty.
The business owner must convince the SBA that they can repay the loans in a timely manner according to a pre-set schedule. The entrepreneur must also provide collateral for a loan exceeding $50,000.
Maximum Loan Length: 30 years
Maximum Loan Amount: $2 million
Economic Injury Disaster Loans
The EIDL program provides upwards of $2 million in assistance to small businesses or non-profit organizations that require aid due to an unforeseen disaster. This program allows small businesses or non-profit organizations to recover financially and maintain a favorable working capital position.
Businesses or non-profits must demonstrate they have suffered a substantial economic downturn and are located in the geographical disaster area.
Maximum Loan Length: 30 years
Maximum Loan Amount: $2 million
Business Physical Disaster Loans
The business physical disaster loan is for small businesses that have suffered damage to their business from a disaster due to physical damage or economic depression due to being in a disaster-declared area.
Maximum Loan Length: 30 years
Maximum Loan Amount: $2 million
Fisheries Finance Program
The FFP is a business loan government program that provides capital for reconstructing vessels, facilities, or quotas related to the Alaskan Crab and Northwest Halibut Fisheries. Small business owners can only qualify for this loan if they have good credit, ample liquidity behind their business plan, asset-secured projects, and a 3-year history of operating a fisheries project.
Maximum Loan Length: up to 25 years
Maximum Loan Amount: Variable annually
Business and Industrial Loans
The Business and Industrial Guaranteed Loan Program helps small business owners in rural communities by providing substantial capital to boost the current credit structure. To qualify for the loan, the borrower must be an individual, non-profit, Indian tribe, or public body.
Entrepreneurs can qualify for the loan if they employ local people, improve the current economy, promote environmental conservation, and reduce dependence on nonrenewable resources.
Maximum Loan Length: Variable
Maximum Loan Amount: $10 million
Equity Investment Small Business Investment Company Program
The last type of business loans by government agencies are geared towards small businesses and entrepreneurs is the SBIC program. This type of SBA loan focuses on providing long-term loans to small businesses to facilitate growth, expansion, and upgrades of their current technology and materials.
The SBIC is an excellent option for small businesses already established in their industry, as this loan increases the current cash flow to cover principal payments.
Maximum Loan Length: 10 years (average)
Maximum Loan Amount: $350 million
Benefits of Government SBA Loans
Business loans by government programs can provide the capital that is often required to start a company, facilitate growth, or expand in an industry. There are numerous pros to applying for and getting an SBA loan compared to using your own savings.
First, SBA loan requirements vary based on the specific type of loan, the funding needed, the niche of the business, and the location. Some loans might require businesses to meet the SBA size standards, which usually fluctuate based on the industry, current revenue, location, and the number of employees.
Next, businesses having trouble securing a traditional loan will have an easier time meeting the criteria for an SBA loan. SBA loans offer lower risk for lenders who invest in a new entrepreneur and business plan. Therefore, the approval rates are much higher for applicants—almost 46% of owners were approved for a business line of credit just last year.
In addition, SBA loans have a capped interest rate, which means it can’t fluctuate above a certain amount. SBA loans are beneficial for businesses that do not have any built-up credit or have lower credit scores and won’t qualify for high-interest online business loans.
Besides being easier to obtain, small business loans offer a wider range of loan amounts. For entrepreneurial adventures that start small, owners can get as little as $500 to get off the ground. Government business loans can reach as high as $5.5 million for midsize businesses looking to expand.
Lastly, the business funds can be used for a variety of reasons, adding to the loan's flexibility. New business owners can upgrade real estate, boost working capital, refinance debt, buy new equipment, install updated technology, purchase supplies, or change ownership.
Apply for Business Loans by Government Programs With Us
Do you need business loans by government funding for your new company but don’t know where to start? Don’t worry; we can help you with the application process. Use Business Loans to access the largest network of online lenders and find one perfectly suitable for you.
