Government Business Loans
Not all small businesses are the same, but they all have one thing in common: the need for capital to grow, expand and succeed. Unfortunately, small businesses don’t have unlimited funds available, so they often need help in the form of business loans. It is not always possible to obtain funds from a bank, credit union or other traditional means. Small businesses — especially those that haven’t been in business long are inherently risky prospects, and many lenders don’t want to take that gamble.
However, there is an alternative to traditional loans: government-backed business loans. This benefits borrowers and lenders alike, creating a win-win situation for everyone involved. How does the process work? Is a government loan right for your business?
Read on to find out everything you need to know about government business loans.
What is a Government Business Loan?
Government business loan programs offer small businesses access to funding. Small businesses and startups are often unable to get traditional bank loans because they are seen as a risky venture by lenders. That’s why the Small Business Administration has stepped up to provide funding options that benefit both lenders and borrowers.
The Small Business Administration, or SBA, was established in 1953 to provide resources for small businesses. In addition to offering training programs and other tools to help small business owners succeed, the SBA has also established several funding programs designed specifically to assist small businesses.
The SBA itself does not make loans to small business owners. Instead, partner lenders known as intermediaries are used to provide funding. The SBA has established guidelines under each program, including keeping interest rates low and offering longer terms to make loans more affordable for the small business owner. The SBA guarantees a percentage of the loan – usually anywhere from 50-85% of the funds. In other words, the Small Business Administration agrees to pay the guaranteed portion of the loan if the borrower defaults. This reduces much of the risk for lenders, giving them more incentive to lend to small business owners.
Who are government business loans for?
Government business loans are available to every for-profit small business in the United States, if the business meets eligibility guidelines. To receive an SBA loan, each business must officially qualify as a small business based on its number of employees, net worth, and annual revenue.
The SBA offers multiple programs to meet the needs of almost any small business. Established businesses can use SBA-backed loans to expand with new or updated facilities, purchase equipment, or obtain working capital. Startups can also qualify for funding for their next big project. Purchases of businesses and franchises can also be funded through the SBA loan program.
The SBA offers funding opportunities for military veterans and service members through the Veterans Advantage Program. Businesses run by women, minorities and veterans or in underserved communities including low-income areas can request funding through the Community Benefit Program.