Government small business loans are an important part of the financing strategy of many small businesses. They tend to offer relatively relaxed underwriting standards and the interest rates available on these loans are usually much better than borrowing on your credit card.
The Small Business Administration
The primary source of small business loans is the Small Business Administration (SBA), a federal agency that provides a variety of loan programs to suit many kinds of small businesses. The SBA does not lend money to business owners directly. Instead, they provide loan guarantees to commercial lenders.
Small business loans are inherently risky for banks; they are much more willing to lend when the federal government stands behind these loans, guaranteeing the bank that the business owner will repay the loan as promised.
The SBA administers an array of small business loans on behalf of the U.S. Government, each designed to serve a different need or accomplish a specific public policy objective.
CAPLines help businesses with seasonal and short-term funding needs.
- The Contract Loan Program assists businesses with bridge loans to help them execute assignable contracts.
- A Seasonal Line exists to help seasonal businesses, such as farms, tourism, and travel-related businesses, to finance seasonal expenses and inventory growth.
- The Working Capital Line of Credit is available up to $5,000,000.
- A Builder's Line exists to help general contractors and builders manage the construction and labor costs of their projects. The building project itself typically serves as collateral for the loan.
SBA Export Loan Programs
Three types of Export Loan Programs provide funding to small business exporters.
- The Export Express Loan Program is the simplest of the three and offers financing up to $500,000.
- The Export Working Capital Program provides loans up to $5 million.
- The International Trade Loan Program provides loans, using fixed assets as collateral, to small businesses planning to export. This program is also for businesses that have been harmed by the import market.
Rural Lender Advantage Loan
The Rural Lender Advantage Loan is designed for rural small businesses, features a shorter application process than many SBA loans and offers funding of up to $350,000.
The Small Business Association's Microloan program facilitates short-term lending on a limited scale to small businesses across the country. The average loan under this program is $13,000, but loans can go up to $50,000 for qualifying businesses. You can use these loans to purchase inventory, furniture or other fixtures, to invest in equipment, or as working capital.
You cannot purchase land with this money, nor use it to pay down existing debts. You will generally need to put up some kind of collateral as security for the loan.
504 Fixed Asset Program
SBA's 504 Fixed Asset loans are for small businesses that want to create jobs, purchase land, build or renovate buildings, or acquire machinery. Loan limits go up to $5 million and can be repaid over 20 years.
Disaster Assistance Loans
The SBA guarantees a number of Disaster Assistance loans to help businesses that have been affected by disasters. If you are in a declared disaster area, you may be able to get special help via a loan guaranteed by the SBA.
- Business Physical Disaster Loans for the repair or replacement of property, equipment, inventory, and more. Loan amounts go up to $2 million.
- Economic Injury Disaster Loans are for small businesses that cannot obtain credit elsewhere, and go up to $2 million.
- Military Reservists Economic Injury Loans are for businesses that have had essential personnel called to active military duty.
Community Adjustment and Investment Program
Community Adjustment and Investment Program, or CAIP, facilitates lending in areas that have lost jobs as a result of the North American Free Trade Agreement, or NAFTA. Primarily, CAIP assists businesses in paying fees on eligible loans. These guarantees are subject to a job creation requirement - you must create at least one job for every $70,000 in benefits under this program.
Pollution Control loans help businesses reduce their negative impact on the environment. They help businesses establish facilities that reduce or eliminate pollution. You must use the proceeds for fixed assets and facilities only.
The SBA has special programs to facilitate lending in federally designated Historically Underutilized Business Zones, or HUBZones. The SBA also facilitates lending in areas defined as economically disadvantaged via the Community Reinvestment Act.
The SBA helps businesses obtain surety bonds when they have trouble getting them through traditional means. In addition, state governments frequently provide a number of credit options, and incentives for small businesses to expand. Check with your state's Department of Commerce for details.
Small Business Lending Fund
The Small Business Lending Fund is an adjunct to the Small Business Jobs Act of 2010. The fund encourages financial institutions to make loans to small businesses and was funded to the tune of $4 billion by the U.S. Treasury. The money was distributed among 332 lending institutions for the expressed purpose of lending to small businesses so they will be empowered to create American jobs.
To learn more about this program and its lending institutions, visit the SBLF's Quarterly Use of Funds Report to Congress.
U.S. Department of Agriculture Loans
The United States Department of Agriculture (USDA) also offers a variety of guaranteed small business loans. These funds are primarily intended for businesses in rural areas, and lending objectives include:
- Wider access to broadband services
- Ongoing creation of new businesses
- Development of regional food markets
- Responding to climate changes
- Job creation in the areas of natural resources, conservation, and land management
Business and Industry Guaranteed Loans
The Business and Industry (B&I) Guaranteed Loan Program guarantees loans up to $10 million, though waivers for higher amounts are possible. Repayment terms may be as long as 30 years. Loan recipients must agree to fulfill at least one of the following:
- Employ people
- Enhance the environment or economy
- Engage in conservation or aquaculture
- Develop solar or other renewable energy systems
Intermediary Relending Program
The Intermediary Relending Program (IRP) exists to reduce poverty and enhance commerce in rural areas. Non-profits, public agencies and American Indian groups may borrow up to $15 million, spread across a period of 14 years, for the purpose of re-lending the funds. These groups are called intermediaries. End borrowers may receive up to $250,000 and must use it to create or retain jobs in remote areas.
Biorefinery Assistance Program
Biorefinery Assistance Loan Guarantees supports emerging technologies for biofuel. Recipients must:
- Increase U.S. energy independence
- Encourage conservation and public health
- Identify diverse markets for agricultural and forestry waste products
Rural Energy for America Program (REAP)
The Rural Energy for America Guaranteed Loan Program exists to fund the development of alternative energy, such wind, hydro power, geothermal energy, and others. Loans range from $5,000 to $25 million. Lenders receive loan guarantees of up to 85 percent of the principle.
Rural Business Investment Program
The purpose of the Rural Business Investment Program (RBIP) is to infuse capital into rural areas to be used for the development of new businesses. Recipients must have qualified management teams who are experienced in venture capital. Recipients must help to foster wealth and job creation in small businesses.
Follow Your Dream!
With this breadth of government guaranteed business loans available, now may be the perfect time to engage your entrepreneurial spirit. Whether you go through the SBA, SBLF, or USDA, write a business plan and begin the footwork to reach your goals.