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.


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.


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.