Guide to Getting a Government Small Business Loans

Acquiring finances to either start or grow a small business can be a challenging affair. Many entrepreneurs postpone plans for startups or growth of their businesses due to lack of enough finances. The federal, local and state governments offer a wide range of financial option for small businesses for example grants, venture capital and small business loans.

How does the government offer low-interest loans to small businesses?

The Small Business Administration (SBA) is a government body that engages in the provision of support for small business. They do this with the help of banks, community-based lending organization and credit unions that partner with SBA. A business is small if it meets the SBA standard size requirements in its respective industry. The size is determined by the average number of employees and average annual receipts over the past years. All businesses applying for SBA loans must be operating legal business activities. SBA offers different kinds of loan programs that are distinguished by the use of the proceed and the amount of the loan.

Prerequisites of Getting the Government Small Business Loans.

There are several characteristics that an applicant must fulfill before qualifying for any loan. These requirements are initially analyzed by the lender who gives a review to SBA if the lender requires guaranty. First, it must be eligible for the particular type of loan they are applying for, and they must not be in a position to get funds from other sources. The applicant must have relevant management expertise and provide a feasible business plan. The business plan must explain uses of the proceeds, assets to be used as collateral, strategies of generating income, and how the loan is to be paid among others.

The character of the business owners is scrutinized by filling SBA Form 912 which is a Statement of Personal History. They also fill Personal Financial Statement, SBA Form 413. Every loan program has a different kind of loan application form which the applicant must fill. There must be adequate equity invested in the business, and the business must have the ability to repay the loan. The applicant must remit several documents to the lender, they include, business certificate and license, business financial statements, resume, loan application history, income tax returns and business ownership and affiliations.

The Process of Getting the Government Small Business Loan.

The lender ensures that the applicant has fulfilled all the above requirements and determines whether they will need SBA guaranty. Applicant and lender must prior complete relevant documents and submit them to SBA’s Loan Guaranty Processing Centre. It is screened to check creditworthiness and eligibility. Upon approval, a loan authorization with terms and conditions of the guaranty and a letter of transmission is provided.

SBA’S SMALL BUSINESS LOANS PROGRAMS.

Basic 7(a) Loan Program.

It is derived from section 7(a) of the Small Business Act, and it is the SBA’s primary business program. The program is for businesses that are for- business only and those that meet the prerequisite requirements. The applicant fills SBA Form 1919 and submits all the relevant documents to the lender. Businesses involved in speculative nature of business, non-profit organization, gambling businesses and defaulters of federal loans are not eligible for this program. Those who qualify for this program must use the proceed for the purchase of inventory or equipment or furniture, start or acquire a business, expand the business, acquire business land and improve leasehold, renovate and build business facilities.

SBA guarantees a portion of the total loan depending on the amount, and the maximum single loan that one can get is $ 5 Million and SBA guaranty 75%. The borrower must give all business assets acquired with the proceed as collateral and in the case of SBA guaranty all business assets are on lien. No collateral is required for $ 25,000 loans. The maturity period for proceeds used in working capital is between 5-7 years while as proceeds used in real estate acquisition is 25 years. The interest rate is negotiated between the borrower and the lender, but it must be within SBA’s maximum.

Certified Development Company Loan Program (504)

The program is for businesses that undertake community economic development activities such as job creation, small manufacturing and meeting public policy goals among others. It is a long-term financing tool for economic growth and development within a community. It is for businesses that want to expand and make a profit. Applicants must fill SBA Form 1244 together with the other documents.

The loan should is used in the acquisition of capital assets and equipment, construction of new facilities, renovate and modernize fixed assets, refinance debt and investment in the rental area. The proceeds are not for working capital. SBA finances 40 percent, lender 50 percent, and borrower 10 percent. The maximum one can get is $ 5 Million, but small manufacturing can get $4 Million. Real estate loans maturity period is 20 years and 10 or 20 years for heavy equipment. Collateral used is the assets being financed and personal guarantees of owners depending on the loan amount.

Microloan Programs.

SBA is not involved in the application and approval process, and this is because the loan is offered through approved intermediaries. The intermediaries are non-profit community-based lenders with experience in lending and assisting in business management. Applicants contact the nearest Microloan Program Intermediary Lender. For applications to be considered, the borrowers must undergo training. The program’s training covers topics such as business plan, specific training in the relevant industry and general business education. The loans are eligible for startup and existing businesses, women, minorities, low-income earners and certain non-profit centers.

The proceeds are used for working capital, purchase of inventory, machines, and equipment. It cannot be used for purchase of real estate. The maximum one can get is $50,000 and interest rates are negotiated between the lender and borrower and determined by factors like planned purpose of the funds. The rates are between 8-13%, and loan is payable in six years. The lenders require collateral from the borrower.

Disaster Assistance Program

The funds are available to all business sizes and homeowners in a declared disaster location. There are three loans available for small business owners. Borrowers must fill a loan application form and a signed and dated IRS 4506 –T. SBA sends an inspector to assess and estimate the cost of the damage. The applicant must not be in a position to outsource funds elsewhere or use their funds without being exposed to financial hardship. However, physical loans applicants who can get financing elsewhere the interest rate are up to 8%. The loan maximum is $2 Million and the interest does not exceed 4% per year. It is a long-term loan payable in 30 years.

Physical Disaster Loans:
It is used for rebuilding and replacing an uninsured or underinsured property damaged by a disaster. Loans are used to replace machinery, real property, inventory, furniture and leasehold improvements. The loan does not replace lost revenue and sales. The loans can also be used to expand and upgrade the business. Another option with disasters is hazard insurance for business. For many businesses this is essential coverage.

Economic Injury Disaster Loans.
It helps the business meet ordinary and necessary financial obligations as they recover from a disaster. Proceeds are used for working capital until normal operations resume. A business may qualify for both economic injury disaster loan and physical disaster loans.

Military Reservist Economic Injury Disaster Loan.
The loans are for businesses facing financial loss when the owner is called for active duty as a military reservist. The funds are used to cover operating expenses until the persons are released from active duty. The proceeds cannot be used to expand the business or to re-finance a long-term debt. If the business involved is a major source of employment, then the loan can exceed $ 2 Million. Collateral is required though it cannot be a subject for loan declination. Related: USAA consolidation loan.

OTHER SBA’S LOAN PROGRAMS.

There are other programs offered by Small Business Administration such as Small Business Innovation Research Programs, Small Business Technology Transfer Program, Small Business Investment Program and Export Loan Programs among others.

SBA is dedicated to encouraging small business lending so that there is more job creation, which as a result, will promote the country’s economic growth and development. Having all these programs, entrepreneur should identify the one that suits them, and start their project.
There are many advantages of getting a government small business loan, one being the low interest as compared to banks and other financial institutions. The other advantage is the duration of loan maturity, which for all programs is long enough. Basic 7(a) has a prepayment fee for any borrower who repays before the maturity time, and this encourages long-term financing. The lenders are also secure as their risk is lower than lending without SBA guaranty.

How to Get a Business Line of Credit for a Startup Business With No Revenue

Like most entrepreneurs, you probably do not have much extra cash to fund your startup business. Even if you do have some savings, you probably do not want to deplete all of your resources on your new venture. This is where a credit line comes in handy.

A business credit line is a form of financing that allows you to borrow money up to a predetermined amount, which you can use as required. The great thing about lines of credit is that you only pay interest on the money you borrow – not on the entire line of credit. This makes them an attractive option for startup businesses, which often have irregular or unpredictable cash flow.

Another advantage of having a credit line is that it can give you the flexibility to cover various expenses, such as inventory, marketing, or even unexpected repairs. And unlike a term loan, you do not have to make fixed monthly payments – you can pay back what you've borrowed, plus interest, when you have the funds available.

Of course, one of the downsides of a business credit line is that it is hard to qualify for – especially if your startup does not have any revenue yet. But do not despair – there are still some options available to you.

Here are a few tips for getting a business credit line for a startup with no revenue.

Try a community bank or credit union

One of the best places to start your search for a credit line for your business is your local community bank or credit union. These lenders are typically more willing to work with small businesses and startups and may be more flexible regarding credit requirements. When registering for a credit line at a community bank or credit union, bring along any financial documents, such as your business plan, tax returns, and personal financial statement. This will give the lender a better idea of your business's financial health and ability to repay the loan.

Consider a collateralized line of credit

If you are having trouble qualifying for an unsecured business line of credit with no revenue, you may want to consider a collateralized line of credit. This method is backed by some form of collateral, such as equipment, inventory, or real estate.

Collateralized lines of credit tend to be easy to qualify for than unsecured lines of credit, but they come with some risks. If you default on the loan, the lender could seize your collateral, putting your business in a difficult financial position.

Look for alternative lenders

If you are having trouble qualifying for credit from a traditional lender, you may consider working with an alternative lender. These lenders typically have looser credit requirements and are more willing to work with startups and small businesses.

Remember that alternative lenders often charge higher interest rates than traditional lenders. So, compare the costs of different loans before you decide on one.

Use a personal line of credit card

If you cannot qualify for credit, another option is to use your credit card for your business expenses. This can be a good option if you have strong personal credit and are comfortable with the risks involved.

Remember that if you use a credit card for your business expenses, you will be personally responsible for repaying the debt. If your business fails, you could end up damaging your credit score.

Apply for a government loan

If you are having trouble qualifying for credit from a traditional lender, you may consider applying for a government loan. These loans typically have looser credit requirements and can be easy to qualify for than private loans.

Government loans often come with strict requirements, such as how the loan must be used. So, research the requirements of different government loans before you apply.

Tips for Getting Approved for A Business Credit Line With No Revenue

Have a well-thought-out business plan

The first step in getting approved for a business credit line is to have a detailed and well-researched business plan. Your business plan should include information about your target market, projected revenue, and how you plan to use the funds you request.

Understand your credit score and history

The credit score of a business owner is one of the most important factors lenders will weigh when considering their application. As a result, it is critical to understand your credit score and history before applying to make the best decision possible. You may get a free copy of your credit report from each of the three major credits.

Show proof of revenue

Even if your startup business does not yet have any revenue, you will need to show proof of revenue to get approved. This can include information about investments, grants you have been awarded, or even personal savings you're using to fund your business.

Demonstrate your ability to repay the loan

Lenders will want to see that you have a plan for how to repay the loan, so it is important to understand your cash flow and budget before applying. It would help if you also were prepared to provide collateral, such as equipment or inventory, to secure the loan.

Find the right lender

Not all lenders offer business lines of credit, so it is important to shop around and find one that is a good fit for your needs. You should compare interest rates, fees, and repayment terms before deciding which lender to work with.

Lenders Offering Unsecured Business Lines of Credit

Wells Fargo

Wells Fargo offers two startup business lines of credit: the Business Secured Credit Card and the Wells Fargo Startup Accelerator Program.

Credit Conditions

-Minimum credit limit of $5,000
-The interest rate is variable and starts at 8.49%
-Annual fee of $75

Pros

-Availability of Mastercard Access Card
-Reasonable rewards programs

Cons

-There is no information about the maximum credit limit
-The interest rate may be high for some businesses

To qualify for the Wells Fargo Startup Accelerator Program, your business must be less than two years old and have a minimum monthly revenue of $5,000. You will also need a credit score of 640 or higher.

OnDeck

OnDeck offers unsecured business lines of credit with a minimum credit limit of $5,000.

Credit Conditions

-Interest rate is variable and starts at 9.99%
-Origination fee of 2.5% - 4%, depending on the size of the loan

Pros

-Depending on the terms agreed, you get instant funding
-Credit line increases availability

Cons

-The minimum time in business (six months) may be more than some startups have
-Monthly maintenance fee
-Payments are made weekly

Qualifications

Your business needs to have existed for at least one year and annual revenue of at least $100,000. As an individual, you will need a credit score of 600 or higher.

Fundbox

Fundbox offers no doc business line of credit funding, meaning no collateral or personal guarantee is required.

Credit Conditions

-Minimum credit limitof$1,000
-Interest rate is variable and starts at 4.66%
-Origination fee of 0.5% - 1%, depending on the size of the loan

Pros

-Short time for funds availability
-Minimum credit score required (600+)

Cons

-Weekly payments are required
-The interest rate may be high for some businesses

Qualifications

Your business needs to be operational for at least three months and have a minimum monthly revenue of $5,000. You are required to have a credit score of 500 or higher.

BlueVine

BlueVine offers unsecured business lines of credit.

Credit Conditions

-Minimum credit limitof $5,000
-Interest rate is variable and starts at 6.25%
-Origination fee of 0.5% - 2.5%, depending on the size of the loan

Pros

-Fast approval process
-Provides business checking

Cons

-The minimum time in business (six months) may be more than some startups have
-Each draw on the line of credit has a short repayment term (6 or 12 months

Qualifications

Your business needs to have been operational for at least three months and have a minimum monthly revenue of $5,000. You will also need a credit score of 600 or higher as an individual.

SunWise Capital

SunWise Capital offers unsecured business lines of credit with a minimum credit limit of $5,000.

Credit Conditions

-Interest rate is variable and starts at 6.99%
-Origination fee of 3% - 5%, depending on the size of the loan

Pros

-Less approval time
-Fast funding periods

Cons

-Short Repayment periods of six to 12 months
-Payments should be made monthly

Qualifications

Your business needs to have existed for at least one year and have annual revenue of $100,000. You are also required to have a credit score of 650 or higher.

There are a few things to consider when choosing a business credit line. First, you will need to decide if you want a secured or unsecured loan. Secured loans need collateral, while unsecured loans do not. Second, you will need to compare interest rates and fees. Be sure to shop around and compare offers from multiple lenders before deciding. Finally, ensure you understand the qualifications for each loan so you can choose the one that's right for your business.


1) http://www.govloans.gov/loans/loan-details/1497
2) http://www.businessnewsdaily.com/7695-small-business-loan-guide.html
3) https://www.sba.gov/sites/default/files/files/resourceguide_national.pdf
4) https://www.sba.gov/loanprograms