During the COVID-19 pandemic, the federal government made headlines through its Paycheck Protection Program (PPP) and COVID-19 Economic Injury Disaster Loan (EIDL) program. Loans through these programs kept many businesses afloat throughout 2020 and 2021 during COVID-related restrictions. In the case of the PPP, many loans were also forgiven.
While both the Paycheck Protection and COVID-19 Economic Injury Disaster Loan programs have since been discontinued, it is still possible for small businesses to get business government loans. Many programs for business government loans still exist, as does government help for small businesses. This guide will look at those loan programs and examine how to get a government business loan.
Federal Government Small Business Loans
Loans from the Small Business Administration (SBA) are the most popular type of government business loan, even though they can be difficult to qualify for. They have low interest rates and repayment over longer terms. These loans, however, are not issued by the government but by banks and other approved lending institutions. SBA partially guarantees these loans. The SBA offers several types of loans to select from. SBA 7(a) loans, 504 loans, and SBA microloans are the most common business loan programs offered by the SBA. Learn more about how SBA loans work with our comprehensive guide.
Types of SBA Loans
SBA (7a) Loans.
According to the Congressional Research Service, the SBA issued $36.5 billion in loans in 2021, with the majority of this amount going to loans from its 7(a) program. Small businesses can receive up to $5 million in loan funds for day-to-day expenses such as payroll, utilities, and the like. Long-term costs such as financing equipment purchases and repairs can also be funded through a 7(a) term loan or through an SBA line of credit.
To qualify for an SBA 7(a) loan, businesses must meet the SBA size criteria and be a for-profit entity. Eligible businesses must be able to demonstrate repayment capability, and they cannot already have the internal ability â be it through business or personal resources — to provide the financing options they require.
SBA Express Loans.
This type of loan is a variation of the 7(a) program. The maximum amount of funding that an SBA Express loan can provide is $500,000. But the advantage of an Express loan is quicker processing. Small business owners may receive approval for an SBA Express loan within a matter of days. A 7(a) loan, meanwhile, can take weeks or months to approve.
New businesses, startups, or businesses with bad credit may find SBA microloans to be a good option. SBA microloans of up to $50,000 are typically offered through nonprofit community organizations. The average size of a microloan through this program is approximately $13,000.
Microlenders in general typically can focus on helping minority and women business owners, along with other small businesses from underserved entrepreneurs. The SBA Microloan program is a popular source of government financial assistance for minorities.
In addition to the financing the microloans provide, many of the nonprofit organizations also offer management and technical help to small business owners who receive the loan.
SBA Community Advantage Loans
This loan program is designed to meet the financial needs of small businesses in underserved markets. SBA Community Advantage Loans helps local non-profit organizations and other local lenders to provide business financing of up to $250,000 to underserved business owners including minorities, women, and veterans.
SBA CDC/504 Loans
While CDC/504 loans also offer funding of up to $5 million, they have stricter rules of how the funds can be used compared to other small business loans that the government is involved with. CDC/504 loans must primarily be used for financing projects that involve construction or real estate.
Eligible businesses must fit the size criteria established by the SBA and must be for-profit organizations. More eligibility requirements may be found on the CDC/504 Loan Program Eligibility page on the SBA website.
Economic Injury Disaster Loans (EIDL)
While the COVID-19 EIDL loan program has been discontinued, EIDL assistance still can be obtained by small businesses, small agricultural cooperatives, and most non-profit organizations that are located in a declared disaster area. If these organizations have suffered substantial economic harm as a result of that disaster, they may be eligible for an EIDL loan.
Substantial economic injury is defined as the business not being able to pay its normal operating expenses and other financial obligations for their business needs. Small businesses can only be considered for the EIDL program if the SBA determines that the businesses cannot find financial help or credit elsewhere.
The actual loan amount is based on the economic hit that the small business has taken as a result of the disaster, and the actual financial needs of the business. The amount of property damage â if any â that a business may have suffered is not a consideration for an EIDL.
The SBA may provide up to $2 million to help meet the needs of the business, such as working capital and normal expenses such as rent, utilities, health care benefits, and fixed debt payments. The $2 million is based on a business qualifying for both an EIDL and a physical disaster loan through a separate SBA disaster assistance program known as business physical disaster loans. Business physical disaster loans cover any property damage a business may have incurred. More information is below.
Business Physical Disaster Loans
Businesses of any size along with most private non-profit organizations can apply to the SBA for a loan to help them recover after a disaster. To qualify, a business or a non-profit must have sustained physical damage and must be located in a county where a disaster has been declared.
Business and non-profit owners can apply online for a physical disaster loan through the SBAâs secure Disaster Loans Assistance Website.
Other Government Loans for Small Businesses
Small Business Investment Company (SBIC) Program
This is an SBA program that is designed to stimulate and supplement the investment of private equity capital in small businesses in order to help those businesses grow, expand, and modernize. The businesses that typically qualify for this program are established, profitable businesses that have the cash flow sufficient to meet interest and, occasionally, principal payments.
Small businesses interested in SBIC financing should use the SBIC directory to research SBICS in their state that may be a good fit for them. Only companies defined as âsmallâ by the SBA can qualify for SBIC financing.
USDA Business and Industry Loans
The U.S. Department of Agriculture (USDA) also provides loans similar to SBA loans. The USDA offers a partial guarantee of loan repayment to lenders that issue loans to small businesses in rural areas. These providers include banks, credit unions, and other financial institutions. There are few usage restrictions on the funds for those businesses that qualify for the loans. The financing can be used for a wide variety of purposes such as purchasing real estate, machinery, and equipment, refinancing debt, and growing and developing the business.
Business and Industrial Loans
The Business and Industrial (B & I) Guaranteed Loan Program was created to improve, develop, or finance business and industry in order to encourage employment and improve the economic outlook in rural areas. Individuals, corporations, partnerships, co-ops, and other legal for-profit and non-profit organizations are eligible. B & I are typically available in rural areas.
Borrowers interested in receiving a B & I loan must either be United States citizens or reside in the United States after being legally admitted for permanent residence. Corporations or other non-public organizations must be 51 percent owned by individuals who are either U.S. citizens or who live in the U.S. after being legally admitted for permanent residence.
Military Reservist Economic Injury Disaster Loan (MREIDL) Program
Sometimes a small business may have difficulty meeting its normal operating expenses because an essential employee, who is also a military reservist, was called to active duty. In those cases, the MREIDL program can help the company with its expenses.
These loans are designed to provide just a small amount of working capital to meet its financial obligations until the essential employee is deactivated from the military and business operations return to normal. They are not supposed to fill the gap for lost income. Collateral is required for all MREIDLs over $50,000. While the SBA will not decline a loan application because of a lack of collateral, it will demand that the small business use available resources as collateral, such as real estate.
Indian Loan Guaranty, Insurance, and Interest Subsidy Program
This program is managed by the Division of Capital Investment. It helps Native American-owned businesses to receive commercial financing from private lenders. The goal of the program is to reduce risk and find reasonable interest rates for Native American-owned businesses in an effort to enhance economic development on or near the reservation of a Native American community.
To qualify for this program, businesses must be either an American Indian tribe or native Alaskan group that is recognized by the Federal government; an officially enrolled individual member of a Federal government-recognized American Indian tribe or native Alaskan group, or a corporation, limited liability company (LLC) or other business with at least 51 percent ownership by American Indians or Alaskan natives who are formally recognized by the Federal government.
Fisheries Finance Program (FFP)
Through the FFP, the federal government provides long-term financing for the cost of fishing-related construction. This includes fishing vessels such as boats and ships, fisheries, and aquacultural facilities.
The qualifications for this program are strict. All four of the following criteria must be met:
- The business owner must be an aquaculture operator and a U.S. citizen.
- Interested business owners must also have good credit and a profitable record of earnings. An acceptable level of net worth and liquidity behind the project is also required.
- Projects must be fully secured with the assets of the business and business owners. This includes personal guarantees. Non-recourse credit is not available.
- Business owners are required to have at least three years of experience in owning or operating the fisheries project that is seeking the financing. Failing that, business owners need at least three years of experience in owning or operating a similar project.
More information about the Fisheries Finance Program can be found on the official NOAA website.
Small Business Grant Programs
In addition to loans, federal and state governments also offer grant programs that provide free financing to small businesses. An advantage of grants over loans is that grants do not have to be repaid.
The government annually funds thousands of grant programs for small businesses. With so many grants in play, opportunities to acquire funding through grants is a real possibility for companies of all sizes and from virtually all industries. These grants can be found at Grants.gov.
The SBA also offers grants to businesses in certain industries, along with state and territory governments.
The SBAâs Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs are among these grant programs. The SBIR and STTR programs are designed to motivate small companies to conduct scientific research that helps meet the objectives of ongoing federal research, and that may have potential for commercial appeal.
While the SBA does not provide grants for starting and expanding a business, it does offer grants to non-profits and educational organizations that support entrepreneurship. Such grant-worthy groups include those that support veteran-owned and service-disabled veteran-owned businesses. Small Business Development Centers are also the type of community organizations that are eligible for small business grants from the SBA.
Understand Your Government Business Loan Options
Government-backed loans can be an extremely valuable resource for businesses that are looking to grow. As we always advise, doing your research is extremely important, especially when considering a major financial commitment. A major advantage of government loan programs is that there is extensive documentation and official pages to conduct research and make sure youâre getting into the loan program that is right for your business.