Government Small Business Loan Options
The government partners with lenders to offer affordable finance options for small business owners. You can get small business loans from the SBA, the USDA and other government agencies.
SBA loans
SBA business loans are the primary way for small businesses to obtain government loans. While all SBA loans come with a government guarantee and interest rate cap, each program has its own set of requirements.
SBA 7(a) loans
- Up to $5,000,000
-
Variable-rate loans capped at 10.50% to 14.00%
14% for loans $50,000 or less
13.5% for loans $50,001 to $250,000
12% for loans $250,001 to $350,000
10.5% for loans above $350,000
Some borrowers may qualify for lower rates. Based on the current prime rate of 7.50% + a rate maximum set by the SBA. -
Fixed-rate loans capped at 12.50% to 15.50%
15.5% for loans $25,000 or less
14.5% for loans $25,001 to $50,000
13.5% for loans $50,001 to $250,000
12.5% for loans above $250,000
Some borrowers may qualify for lower rates. Based on the current prime rate of 7.50% + a rate maximum set by the SBA. - Best for working capital
The SBA 7(a) loan program is the SBA’s most popular loan. You could use SBA 7(a) funds as a working capital loan to cover seasonal expenses or to purchase inventory, furniture or equipment. You could also use a 7(a) loan to cover construction or remodeling costs. Further, if you want something more flexible or short-term, you could look into getting an SBA Line of Credit.
| Loan name | Max. amount | Terms | Best for… |
|---|---|---|---|
| Standard 7(a) | $5,000,000 | Up to 25 years | Working capital, inventory, equipment, real estate or debt refinancing |
| 7(a) Small Loan | $500,000 | Up to 25 years | Working capital, small purchases |
| SBA Express | $500,000 | Up to 10 years if used as a line of credit | Urgent needs (SBA turnaround within 36 hours) |
| Export Express | $500,000 | Up to 7 years if used as a line of credit | Entering or expanding an existing export market |
| Export Working Capital | $5,000,000 | Up to 3 years if used as a line of credit | Export companies in need of working capital |
| International Trade Loan | $5,000,000 | Up to 10 years | Long-term financing for growing export companies |
| CAPLines | $5,000,000 | Up to 10 years | Short-term or cyclical funding |
SBA 504 loans
- Up to $5,500,000
- Rates are pegged to an amount above the market rate of 10-year Treasury issues
- Best for large purchases
SBA 504 loans provide long-term, fixed-rate funds to purchase fixed assets for your small business, like a building, land or machines.
The following three parts are required to secure an SBA 504 loan:
- 10% down payment: You’re required to pay at least 10% (sometimes more) on the loan.
- 40% certified development loan: A certified development company (CDC) finances up to 40% of the loan, which is guaranteed by the SBA.
- 50% bank loan: An SBA-approved bank or a credit union provides the remaining amount, which must be at least 50% of the total loan.
The maximum loan amount for SBA 504 loans is $5,500,000 ($5.5 million for small manufacturers and green energy projects). Loan terms range from 10 to 25 years, depending on the loan’s use.
SBA microloans
- Up to $50,000
- Rates are generally between 8.00% and 13.00%
- Best for newer businesses
Businesses interested in smaller loan amounts might benefit from the SBA microloan. While you can apply for up to $50,000 with a microloan, the average loan amount is around $13,000. You can use microloans for working capital, inventory, furniture and fixtures, machinery or equipment.
The maximum repayment term for a microloan is seven years, and the interest rate is usually between 8.00% and 13.00%, though it’ll vary by lender.
Businesses apply for this loan with an SBA-approved intermediary lender. Many SBA microloan lenders are nonprofit community-based organizations.
USDA business loans
- Typically up to $10,000,000
- Starting rates vary between lenders
- Best for established businesses in rural areas
The U.S. Department of Agriculture (USDA) offers a partial guarantee to lenders issuing business loans in rural areas. Business owners can use funds for purposes like development, equipment, real estate and debt refinancing.
USDA loans typically range from $200,000 to $5 million, though loans can reach as high as $10,000,000 or more in some cases. To qualify, your business must operate in a town or city with 50,000 or fewer inhabitants.
The USDA has five loan guarantee programs under the OneRD Guarantee Loan Initiative, which aims to streamline private investments in rural communities:
- Business & Industry Guaranteed Loan
- Water and Waste Disposal Guaranteed Loan Program
- Community Facilities Guaranteed Loan Program
- Rural Energy for America Guaranteed Loan Program
- Timber Production Expansion Guaranteed Loan Program
Rural Microentrepreneur Assistance Program
- Up to $50,000
- Rates are not disclosed
- Best for new businesses in rural areas
The USDA’s Rural Microentrepreneur Assistance Program gives funds to Microenterprise Development Organizations. These organizations can then use that money to offer microloans to rural businesses.
The loan comes with a fixed interest rate and terms of up to 20 years, and can be used for things like working capital, equipment, debt refinancing and real estate improvements.
Some federal agencies set aside a certain portion of government contracts for small businesses to help level the playing field for new entrepreneurs. Some set-asides are reserved for disenfranchised groups including women business owners, minority business owners and disabled veteran business owners.
State and local government small business loans
In addition to federal funding programs, some states and local governments offer small business loans and education programs, though the specific options available to you will depend on your location.
For example, the Department of Treasury’s State Small Business Credit Initiative (SSBCI) supports entrepreneurship in communities across the country by providing funds to states, territories and tribal governments to assist in creating local programs that provide financing to small businesses within those jurisdictions.
However, the way jurisdictions return this funding to small businesses varies, with some offering venture capital, some providing loan guarantees and others creating capital access programs.
To learn more about the specific business loans that may be available in your area, search for business resources on your state’s agency websites.
How to qualify for a government business loan
Follow each organization’s instructions for application details. While the government guarantees its loan programs, you’ll need to apply directly with a lender and meet their specific business loan requirements to receive funding.
Here are the general SBA loan requirements you must meet to qualify:
- Meet the SBA’s size standards. Understanding the SBA’s small business definition can ensure your business would be considered a “small business.”
- Be a for-profit business registered and operating in the U.S. The SBA typically only funds for-profit companies physically located and operating within the U.S. or U.S. territories.
- Have invested equity in the business. Lenders want to know you’re invested in your business’s success. It helps if you can provide a down payment or show your previous investments to the company.
- Be able to repay the debt based on your business’s projected operating cash flow. As with other loans, you’ll likely need to show your annual revenue and projected cash flow to reassure the lender that you can successfully repay this debt.
- Know how you plan to use the funds. Be prepared to show the lender, in detail, why you need financing and how you plan to use the funds. You’ll most likely need to provide a business plan as well.
- Not eligible for traditional financing. Government-backed loans are typically reserved for business owners unable to secure funding through a traditional bank or credit union. Be sure to exhaust other financing opportunities before turning to SBA loans.
Read the SBA’s full terms, conditions and eligibility requirements before you apply.
How to get a government business loan
While every lender will have a slightly different application process, here are the general steps of how to get a small business loan.
1. Decide how much you want to borrow
Consider your business goals and the total costs of a small business loan, including fees and interest. Use our business loan calculator to estimate your monthly payment and ensure it’s within your budget.
2. Check the lender’s requirements
Small business lenders typically look at your personal and business credit scores, time in business, personal financial history and business income.
3. Research SBA-approved lenders
The SBA’s Lender Match tool can help you find SBA-approved lenders who fit your criteria. You can also inquire about SBA lending programs at traditional banks and credit unions. Having an existing relationship with a lender could help increase your likelihood of gaining approval.
4. Gather required documents
Help speed up the application process by gathering necessary paperwork in advance. These documents include a business plan, business licenses, personal and business tax returns and building leases (if applicable).
5. Submit application and review
Follow the lender’s instructions and submit all required forms. Your lender will review your application and let you know if more material is needed.
Government business loans typically have a longer approval timeline than traditional business loans. For example, the overall process for SBA loans can take up to around two months, though it might go faster depending on your circumstances.
Be sure to review the loan agreement and confirm that the monthly payment will be within your means.
Government business loans vs. traditional business loans
While government loans and traditional loans share many similarities, the main difference is the government’s guarantee. With government business loans, there’s less risk for lenders because the government promises to cover a percentage of the loan if the borrower can’t repay the debt.
The government guarantee — and the regulation that comes with it — allows lenders to impose less strict qualifications, while also offering competitive interest rates and flexible terms. Small business owners who don’t qualify for traditional small business loans might have better luck with a government small business loan.
But while government business loans may have a more complex and lengthy application process, they aren’t all slow. For example, SBA Express Loans have a 36 hour turnaround time for the SBA to review the application — however, the total funding time will depend on the lender.
Government grants for small businesses
The federal government issues grant money to a variety of institutions, including nonprofit and education institutions, local governments and rural cooperatives. These organizations often distribute the funds to eligible small businesses — but unlike loans, you usually won’t need to repay small business grants.
SBA grants
In addition to loans, the Small Business Administration provides small business grants and training programs to help promote entrepreneurship. For instance, the Service-Disabled Veteran Entrepreneurship Training Program (SDVETP) offers a training program to veterans injured in the line of duty who are or want to be business owners.
SBIR/STTR
Powered by the SBA, the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs make a portion of federal research and development budgets available to eligible businesses. Companies must have 500 or fewer employees and be primarily U.S. owned to qualify. Both SBIR and STTR encourage participation in entrepreneurship by all types of business owners, including women, those considered as minorities and people with disabilities.
There are three phases for the SBIR/STTR awards. Phase I awards are typically between $50,000 and $275,000 and are intended for newer businesses. Phase II awards are usually between $750,000 and $1.8 million and are intended for more established businesses to expand on results from Phase I. There’s no funding from the SBIR or STTR for the third and final phase, which focuses on commercialization.
SBIR participating agencies:
STTR participating agencies:
SBIC
There’s one more SBA-supported way for entrepreneurs to get needed funding: A Small Business Investment Company (SBIC). These are private companies that are licensed and regulated by the SBA and invest their own money in eligible small businesses. The SBA typically matches the investors’ funds $2 to $1.
USDA grants
In addition to business loans, the Department of Agriculture offers Rural Business Development Grants. These grants go to universities, nonprofits and other agencies, as well as towns and tribal communities. Those agencies and entities may then award funds to businesses or projects in the area.
National Institute of Standards and Technology funding
The National Institute of Standards and Technology (NIST), part of the U.S. Department of Commerce, is one of the oldest physical science laboratories in the country. It works in part to develop new technologies and standards, as well as improve the measurement system in the U.S.
The NIST Office of Advanced Manufacturing (OAM) offers financial support to pursue innovative technology and boost energy efficiency in the manufacturing sector. Open grant opportunities are posted on the OAM website.
Other alternatives to government loans
Government loans for small businesses can help secure the funding you need at a low price. However, another type of small business loan might better suit your company’s qualifications and financial needs.
Here are some options depending on your situation and financial need:
- If you need money quickly: For fast funding times, consider an online loan or business line of credit with an alternative lender. Keep in mind that these loans often come with higher interest rates and shorter repayment terms.
- If your business is established: Consider a small business term loan with a traditional bank if you’ve been in business for at least two years, easily make a profit and have excellent business or personal credit. Banks generally offer low business loan interest rates with favorable terms.
- If you have a newly-established business: You might have difficulty securing government funding if your business hasn’t been running for at least two years with good financials. While there are some startup business loans, you might need to consider business credit cards or personal loans for business if your company is brand-new.
- If you have poor credit: Generally, a personal FICO Score of 680 or higher can increase your chances of approval for an SBA government loan. To see where you stand, check your credit score before applying. If you can postpone applying for a business loan, focus on boosting your credit score to get the most competitive rates.
Frequently asked questions
While there aren’t specific government loans for bad credit, the SBA microloan typically has less stringent requirements than other government business loans. You can receive up to $50,000 with this loan.
Equipment loans are another option for bad-credit borrowers, since the equipment typically acts as collateral to secure the loan. You can also consider a small business loan for bad credit with an alternative lender. Be aware, though, that bad-credit loans often come with higher rates and less favorable terms.
The Food and Drug Administration (FDA) and Federal Emergency Management Agency (FEMA) don’t offer business loans. However, both organizations provide resources to help small businesses interested in working with them.
Learn more about doing business with the FDA and how to work with FEMA.
The SBA microloan is a government loan that’s open to startups. However, most other government loans require multiple years in business. If you need more funds for your business, consider other ways to get funding for your business.
Compare business loan offers
- SBA loans
- USDA business loans
- State and local government small business loans
- How to qualify for a government business loan
- How to get a government business loan
- Government business loans vs. traditional business loans
- Government grants for small businesses
- Other alternatives to government loans
- Frequently asked questions
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