Government Business Loans: What Small Businesses Need To Know

Not all small businesses are the same, but they all have one thing in common: the need for capital to grow, expand, and be successful. Unfortunately, small businesses don’t have unlimited funds available, so they often need a helping hand in the form of a business loan. Getting funding from a bank, credit union, or another traditional route isn’t always possible. Small businesses – especially those that have not been in business for long – are intrinsically risky prospects, and many lenders don’t want to take that gamble.

However, there is an alternative to traditional loans: government-backed business loans. These loans offer benefits to 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 learn everything you need to know about government business loans.

What Are Government Business Loans?

Government business loan programs offer opportunities for small businesses to obtain funding. Small businesses and startups are often unable to obtain traditional bank loans since they’re viewed as riskier ventures by lenders. That’s precisely why the Small Business Administration has stepped up to provide funding options that benefit both the lender and the borrower.

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 aid small businesses.

The SBA itself does not provide loans to small business owners. Instead, partner lenders known as intermediaries are used to provide funding. The SBA has established guidelines under each program, 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 funding. In other words, the Small Business Administration agrees to repay the guaranteed portion of the loan if the borrower defaults. This mitigates much of the risk for the lenders, giving them more incentive to lend to small business owners.

Who Are Government Business Loans For?

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Government business loans are available to every for-profit small business in the United States, providing the business meets the qualification guidelines. To obtain 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 fit the needs of just about 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 to receive funding for their next big project. The purchase of businesses and franchises can be funded through SBA loan programs as well.

The SBA offers funding opportunities for military veterans and service members through the Veterans Advantage program. Businesses run by women, minorities, and veterans, or those in underserved communities — including low-income areas — can request funding through the Community Advantage program.

SBA Loans For Immigrants

Although SBA loans are for businesses based in the United States, loan opportunities are available for immigrant small business owners. Permanent residents, naturalized citizens, and refugees or asylees with lawful permanent resident status can apply for government-backed loans. Lawful non-permanent citizens can also qualify provided they have up-to-date work visas. There are no special requirements for immigrants when applying for this funding. However, all immigration paperwork and documentation – in addition to the standard loan paperwork – will be required.

SBA Loans For Felons

Small business owners with felony records may still be able to obtain SBA-backed loans. The SBA’s rules state that funding will not be available for anyone with a record containing crimes of moral turpitude. This includes violent crimes such as homicide or aggravated kidnapping, as well as crimes of dishonesty such as theft, embezzlement, or fraud.

Felonies that do not involve moral turpitude may also disqualify an applicant from receiving funding based on the policies of the intermediary. Some lenders may opt to not loan to anyone with a felony record; therefore, any applicant convicted of a felony may have to shop around to find a lender willing to work with their criminal background.

Types Of Small Business Loans Offered By The Government

The SBA has multiple loan programs in place to meet the needs of small business owners. Potential borrowers should understand the interest rates, terms, repayment plans, and how each loan’s proceeds can be used before applying for a government loan.

General SBA 7(a) Business Loans

When most people think of government business loans, the SBA 7(a) program is typically what comes to mind. This program is the most popular because of its high maximum loan amounts, long repayment terms, and flexibility regarding how funds can be used.

SBA 7(a) loans can be used for just about anything. Funding is available to acquire a business or franchise. Existing businesses can purchase equipment, real estate, or use the money as working capital. Existing debt can also be refinanced using 7(a) loan proceeds. The possibilities are virtually endless with the SBA 7(a) loan, which is why it’s such a popular choice among small business owners.

Loans of up to $5 million can be taken out through the SBA 7(a) program. Interest rates are extremely competitive and are capped at a maximum of 4.75% over the base rate.

Loan Amount Less Than Seven Years More Than 7 Years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 – $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 or More

Base rate + 2.25%

Base rate + 2.75%

Repayment terms are set at 10 years for most purposes and 25 years for real estate. Ready to get started? Learn everything you need to know about SBA 7(a) loans.

SBA Express Loans

The SBA Express program is very similar to the 7(a) program in terms of how money can be employed. These funds can be used for just about any business-related expense. However, there are a few key differences between the Express program and the 7(a) program.

One of the biggest differences is that applicants for an Express loan will receive an approval response within 36 hours, compared to weeks through the 7(a) program. A major drawback with this program, however, is that the maximum loan amount is capped at $350,000.

Maximum repayment terms are the same as for 7(a) loans: up to 10 years for working capital and 25 years for commercial real estate. Interest rates are slightly higher for Express loans at 4.5% to 6.5% over the base rate.

SBA 7(a) Loans SBA Express Loans

Time to Approval

2 – 4 weeks

36 hours

Max. Loan Amount

$5 million


Interest Rates

Base rate + 2.25% – 4.75%

Base rate + 4.5% – 6.5%

Max. Repayment Terms

  • 10 years for working capital
  • 25 years for commercial real estate
  • 10 years for working capital
  • 25 years for commercial real estate

SBA Lines of Credit (CAPLines)

The SBA offers lines of credit known as CAPLines. There are four different CAPLines programs that designate how funds can be used.

CAPLine Type Loan Use

Working Capital CAPLines

Lines of credit that can be used for short-term needs such as working capital or operating expenses. 

Seasonal CAPLines

Lines of credit used by seasonal businesses to cover the costs of seasonal increases in accounts receivable or inventory. Seasonal CAPLines can not be used to cover costs during the off-season. 

Contract CAPLine

Lines of credit available for contractors to cover the costs of specific contracts. Credit lines can be used for overhead and general / administrative expenses. 

Builder’s CAPLine

Lines of credit used for expenses related to the construction and renovation of a residential or commercial buildings for resale. This line can be used for costs such as labor, supplies, materials, landscaping, or other substantial costs during the construction and renovation process. 

  • Contract CAPLines are used for financing costs related to specific contracts. These proceeds can be used toward overhead costs, administrative expenses, and general expenses. These loans cannot be used for purchasing assets, refinancing debt, or paying back taxes.
  • Seasonal CAPLines provide funding for inventory and accounts receivable during a busy seasonal period. In some instances, it can be used to fund increased labor costs.
  • Builder’s CAPLines are used to pay for expenses related to the construction or renovation of residential and commercial buildings that will be resold. Proceeds can be used toward labor, materials, landscaping, utility connections, and fees such as building permits.
  • Working Capital CAPLines provide short-term working capital for businesses. Fixed assets may be acquired using this credit line, but it must be refinanced within 90 days.

Loans of up to $5 million are distributed through all CAPLines programs. The maximum repayment term is 10 years, with the exception of Builder’s CAPLines, which have maximum terms of 5 years. The interest rate will never exceed 4.75% over the base rate.

Term Rates/Fees

Maximum Borrowing Amount

$5 million

Maximum Term Length

  • 5 years for Builder’s CAPLines
  • 10 years for Seasonal, Working Capital, and Contract CAPLines

Percentage Guaranteed By The SBA

  • 85% for loans below $150,000
  • 75% for loans above $150,000

Interest Rates

Base rate + 2.75% to base rate + 4.75%


  • Guarantee fee of 0.25% – 3.75% of the portion of the loan guaranteed by the SBA
  • Other possible fees charged by the bank / partner lender

SBA CDC/504 Loans

The SBA CDC/504 program is a government business loan program that provides financing for business expansion. Loan proceeds can be used to purchase buildings or land, build new facilities, renovate existing facilities, or purchase long-term machinery. Loan funds can also be used toward consolidating existing debt related to the purchase or renovation of facilities or equipment.

Through the SBA CDC/504 program, a borrower receives up to 40% of the project costs through an SBA-approved Certified Development Company, or CDC. Fifty-percent of the project cost is obtained by the borrower through a bank, credit union, or other lenders. The remaining 10% is paid by the borrower.

The maximum funding amount through the CDC/504 loan program is $5 million. Repayment terms are set at 10 years and 20 years, while the interest rate is based upon the 5-year and 10-year Treasure issues rate.

SBA 504 Loans

Borrowing Amount

No maximum, but the SBA will only fund up to $5 million

Term Lengths

10 or 20 years

Interest Rates

Fixed rate based on US Treasury rates

Borrowing Fees

  • CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan)
  • Possible prepayment penalty

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business


Collateral required; usually the real estate/equipment financed

Down Payment

10% – 30%

Find out more about the terms, rates, and requirements for SBA 504 loans.

How Does The CDC/504 Program Differ From The SBA 7(a) Program?

CDC / 504 Loans SBA 7(a) Loans

Loan Size

The CDC portion of the loan has a size limit, but the overall loan can be used to finance larger projects.

Offers flexibility for size projects, but are generally used for smaller sized projects.

Interest Rates

504 loans offer fixed-rate financing, which locks in low rates for the full length of the loan.

Usually has lower fees, but are variable, not fixed, and are adjusted quarterly. Rates typically rise over time.

Prepayment Penalty

High prepayment penalties

Prepayment penalties vary depending on loan

Loan Structure

  • 50% Bank Loan
  • 40% CDC Loan
  • 10% Borrower Down Payment

Varies depending on risk. Minimum 10% down payment for the borrower.

Loan Fees

Fees are negotiated per the 50% bank loan. Can be financed within the 504 loan.

Fees are based on the size of the loan. Can be financed within the 7(a) loan. An extra .25% of fees can be charged on portions of a 7(a) loan exceeding $1 million.

SBA Microloans

The SBA Microloan program provides loans to all small businesses that meet the basic requirements of the SBA. Non-profit childcare centers are also eligible to apply. Microloans can be used as working capital or to purchase inventory, supplies, fixtures, or equipment. Microloan proceeds cannot be used for the purchase of real estate or to refinance debt.

The maximum amount that can be borrowed through the Microloan program is $50,000. Interest rates for microloans vary by lender and are dependent upon their cost of funds. The typical interest rates for these government-backed loans are between 8% and 13%. The maximum repayment term for microloans is 6 years.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business


Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

Learn more about microloans and if these loans are right for your business.

SBA Disaster Loans

A disaster or unexpected event can cripple a business, even leading to its closure. SBA Disaster Loans are available to provide small business owners with the aid they need to keep their businesses alive.

  • Business Physical Disaster Loans provide up to $2 million to businesses and non-profit organizations to rebuild or replace property including buildings, equipment, and inventory following a disaster. Interest rates for these loans are set at 4% and 8%, with repayment terms up to 30 years.
  • Economic Injury Disaster Loans are available to small businesses, non-profits, and agricultural co-ops that are significantly affected by economic injury. Funding up to $2 million is available to help cover operating expenses and debts. Interest rates for these loans are 4% with repayment terms up to 30 years. Businesses may obtain a Business Physical Disaster Loan in addition to an Economic Injury Disaster Loan, but proceeds between both loans may not exceed $2 million.
  • Military Reservists Economic Injury Loans are available to reservists who are put on active military duty. These funds can be used to cover operating expenses but do not apply to refinancing debt, business expansion, or to cover profit or income loss. A maximum of $2 million may be borrowed based on the SBA’s calculation of the actual economic injury. Interest rates are 4% with maximum repayment terms of 30 years.
Term Rate/fee

Borrowing Amount

Maximum $2 million

Term Lengths

  • Max 30 years if no credit available elsewhere
  • Max 7 years if credit available elsewhere

Interest Rates

  • Maximum 4% if no credit available elsewhere
  • Maximum 8% if credit available elsewhere


None from the SBA; possible fees from outside agencies

Qualifying For A Government Business Loan

personal loans used for business


To qualify for a government business loan, a business must be based and operated in the United States. Unless otherwise specified, businesses should be for-profit. All businesses should meet the definition of a small business under the SBA’s guidelines, which limits the number of employees, annual revenues, and company net worth.

Applicants must have a good credit score, with a minimum recommended score of 680. Business and personal credit reports will be considered when applying for an SBA loan.

For many government loans, collateral is required. If there is not adequate business collateral, personal collateral in the form of real estate may be accepted. All borrowers must also sign a personal guarantee to be held liable in the event that the loan goes into default.

Down payments and fees will also be required and will vary based on the type of loan taken, the amount borrowed, and the lender’s policies.

To qualify for the Community Advantage program, the business must operate in an underserved area. To qualify for the Veterans Advantage program, the business must be at least 51% owned and operated by a military veteran, service member, reservist, National Guard member, or qualifying spouses or widows.

Can I get a government business loan if I have bad credit?

Credit is an important factor in qualifying for a government business loan. A minimum score of 680 is typically required to qualify for most SBA loan programs.

In addition to the credit score, intermediary lenders will also evaluate a credit report. Previous defaults on government-backed loans, bankruptcies, and foreclosures will be likely to disqualify the loan applicant. Additional negative items, such as collections and missed payments, will need to be explained by the applicant.

Any potential borrower that does not have a good credit score should work on raising their score before applying for government-backed loans. This can be done by obtaining a free credit report and score, paying off existing debt, and disputing any erroneous credit report items. Learn more about ways to boost your credit score.

I’m not qualified for a government business loan. What are my other business loan options?

Whether your credit score misses the mark or you just don’t meet the standard requirements need for government business loans, there are other options available. These options include working with your bank or credit union, borrowing from non-profit lenders, or seeking financing through online lenders.

How To Apply For A Government Business Loan

You know what government business loans are out there. You’ve selected a loan that fits your needs. The next step is to apply for your loan. Though the process can be time-consuming, it’s not much different from applying for a traditional loan from your bank.

To begin, the first step is to find an intermediary lender. You can find a lender through the SBA’s Lender Match tool, by a referral through your existing financial institution, or through an online loan broker.

In order to apply for a government business loan through an intermediary, required paperwork will need to be gathered. This includes business balance sheets, income statements, personal and business income tax returns for at least 3 years, and personal financial statements.

If loan proceeds are to be used toward the purchase of a business or franchise, documentation including real estate purchase agreements and business/stock/asset purchase agreements will be required. For debt refinancing, copies of notes, leases, and payment transcripts will need to be submitted with the loan application.

Startup businesses that don’t have all the required documentation must provide proof of industry experience, a detailed business plan, and financial projections with their applications.

Once the loan application is submitted, approval can take several weeks. However, with Express loans, approvals are given within 36 hours, although underwriting and funding can add additional weeks to the overall timeline. When going the traditional route with an intermediary lender, the entire loan process will take approximately 30 to 90 days.

To expedite the process, some borrowers opt to work with Smart Biz. This online marketplace simplifies and shortens the government loan application process and even provides non-SBA loan options when applicants fail to qualify.

Learn more about the process of applying for an SBA small business loan.

Alternatives To Government Business Loans

Even though government business loans are preferred by many entrepreneurs due to their long repayment terms and low interest rates, not every small business qualifies. Whether your business doesn’t qualify, your credit score isn’t yet high enough, or you need funding immediately, there are alternatives to consider.

Online Business Loans

Applying for a loan online is a great choice for many small business owners because these loans can be funded fast and requirements are much less stringent. Loans are available for business owners with credit scores as low as 500, although it’s important to note that terms and interest rates won’t be as favorable.

Through online lenders, small business owners can obtain installment loans, short-term loans, a business line of credit, equipment financing, or invoice financing. The required time in business and revenues vary, but requirements are typically lower than those required to obtain a government-backed loan. Depending on the type of loan requested, there may not be as much paperwork required as when applying for a government business loan.

Interest rates are based on the loan selected and creditworthiness. Repayment terms also vary and can range from a few months to several years. Daily, weekly, and monthly payment options are available depending on the lender and loan selected.

This is a great option for business owners with a low credit score or who don’t meet the requirements needed to get a government business loan. Interested in an online business loan? Narrow down your lender search by easily comparing lenders.

Banks & Credit Unions

Another business loan option is to go the traditional route with a bank or credit union. This option is best for a business owner that has collateral and a good credit score.

To apply, start with your existing financial institution. Speak with a loan specialist at your local branch, online, or over the phone to find out the types of loans available. This could include term loans, unsecured lines of credit, or other types of financing. Terms and interest rates vary by institution, creditworthiness of the borrower, and financing option selected.

It’s also important to learn about the requirements for obtaining one of these loans. Generally, collateral is needed as well as a credit score in the high 600s. However, requirements vary by institution. For loans, the funding process can take several months. If a faster option is needed, business credit cards for qualifying borrowers can typically be approved and sent out within days.

Non-Profit Business Lenders

Working with a non-profit business lender is another way to obtain small business loans. Typically, the loan amounts available through these lenders are much lower than government loans, usually maxing out at $50,000.

Because non-profit lenders are more limited in how much they can lend, they may be more selective with approvals. Applicants should expect to gather much of the same paperwork as required with government loans, while attending training or workshops may be required as a condition of the loan.

Loans from non-profit lenders often come with low interest rates. A good credit score is typically required, although qualifications vary by lender. Proof of sufficient cash flow, no bankruptcy filings, and other factors may be considered for loan approval.

Final Thoughts

Getting funding is often a critical step for taking a small business to the next level. For those who qualify, government business loans offer some of the best rates and terms on the market, helping to grow a business without adding a heavy debt burden. Though the process can be a bit difficult to navigate, knowing what to expect and the steps needed to qualify will pay off in the end for many small business owners.

The post Government Business Loans: What Small Businesses Need To Know appeared first on Merchant Maverick.



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