Business financing comes in many forms, but for some small business owners, government small business loans offer the most benefits. These SBA loans are backed by the Small Business Administration (SBA) and issued by approved lenders, like banks and credit unions.
There are several SBA loan programs available to qualified business owners, each with their own set of rates, limits, and requirements. However, the three most common small business loan programs offered by the SBA are SBA 7(a) loans, 504 loans, and SBA Microloans.
SBA 7(a) Loan
The 7(a) loan program is the most popular loan program offered by the SBA, likely because of its flexibility. Eligible business owners can access up to $5 million to meet a variety of expenses, like purchasing inventory, equipment, or fixtures. An SBA 7(a) loan can also be used to refinance debt, manage seasonal expenses, purchase land, or fund new construction.
The 7(a) loan program also includes the SBA Express loans, which are available for amounts up to $350,000. These loans are very similar in terms of how funds can be used (e.g., working capital, equipment purchases, etc.), but they have a much faster turnaround time.
SBA Express loan applicants can expect a response within 36 hours of application completion, while traditional 7(a) loan applicants often need to wait weeks or months for their application to process.
If you are approved for a 7(a) loan, you can expect terms between 5 and 10 years, though funds meant for real estate projects can carry terms up to 25 years. SBA interest rates, which are based on the current prime rate, vary based on the loan term and total loan amount.
To control rates, the SBA does set maximum interest rate limits a financial institution, like a lender bank or credit union, may charge, which range from Prime + 2.25% to Prime + 4.75%. That means that based on the current prime rate, lenders can not charge more than 7.75% to 10.25%, depending on the term and size of the loan.
Only for-profit businesses that are located and do business within the U.S. are eligible for 7(a) loans. In addition, eligibility requirement include a satisfactory FICO SBSS Score, a feasible business plan, and no access to alternative financial resources.
Paycheck Protection Program Loans
Paycheck Protection Program (PPP) loans are part of the CARES Act and were designed to make capital available to small business owners to help them maintain their payroll through the CORONA-19 crisis. The federal government intended that these loans would help employees stay off the unemployment rolls and businesses remain viable during the shutdown caused by the coronavirus.
If a small business uses the funds to make payroll and can document those payroll expenses, the loan (or at least part of the loan) can be forgiven. In general terms, the CARES Act states that loan forgiveness is available to a business owner who submits the following documents with an application for forgiveness to their SBA lender:
- Payroll tax filings reported to the Internal Revenue Service
- State income, payroll, and unemployment tax filings
- Documentation, including cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, payments of covered lease obligations, and covered utility payments
If you’d like to read more about the Paycheck Protection Plan loans in more detail, we have published an PPP loan FAQ.
SBA 504 Loans (CDC loans)
While SBA 7(a) loan funds can be used for a variety of purposes, the 504 loan program, often referred to as the CDC loan program, was specifically designed to help business owners with real-estate financing needs. Funds, which are made available by SBA Certified Development Companies (CDCs), must be used to purchase, remodel, renovate, modernize, or construct a property.
If approved for this loan, you can expect funding amounts up to $5 – $5.5 million and a repayment term up to 25 years. Interest rates for 504 loans are notably low, with currents rates hovering around 3.9%.
Another attractive benefit of the 504 loan program is the relatively low downpayment of 10%. Many other small business term loans require down payments between 25% and 30%.
Economic Injury Disaster Loans (EIDL)
In addition to the PPP loan program, the SBA has also made disaster funds available to small businesses through the Economic Injury Disaster Loan program. Small businesses who suffered economic injury resulting from the coronavirus crisis can apply for an EIDL, which includes:
- Low fixed interest rates: 3.75% or 2.75% for non-profits
- Long-term repayment of up to 30 years
- No prepayment penalties
- Payments deferred (interest accrues)
Unlike the PPP loans which are guaranteed by the SBA, but from a bank or other SBA lender, the disaster loans come directly from the SBA. To qualify for one of these disaster loans, you need to be:
- A small business, cooperative, ESOP, or tribal business with 500 or fewer employees
- A small business that meets SBA size standards
- An individual who operates under a sole proprietorship, with or without employees, or as an independent contractor
- A private non-profit or small agricultural cooperative
- You business must be directly affected by COVID-19
These loans are available in all 50 states and US territories with a maximum loan amount up to $2 million. The SBA will determine your loan amount for which you will qualify based upon the information on your application.
If you’d like to read more about the EIDL in more detail, we have published an EIDL FAQ.
SBA Microloans
An SBA Microloan is available to business owners at various points of development, including startups, sole proprietorships, and any other qualified business borrower, and are often a good option for minorities, women, and veterans. These loans offer funding up to $50,000, though the average microloan is about $13,000.
Funds for these programs are made available to borrowers through SBA-designated intermediary lenders. These lenders are typically non-profit, community-based organizations that have the financial and technical experience required to manage these partnerships.
If your loan request is approved for this type of loan, you can expect repayment terms of 6 years or less, with rates between 8% and 13%. Of course, as with any other SBA lending program, loan terms vary based on the loan amount, funding purpose, and the requirements of the lender.
SBA Microloan funds can be used as working capital or to cover the costs associated with a number of business activities, including purchasing equipment, machinery, inventory, and supplies. Unlike SBA 7(a) funds, Microloans cannot be used to refinance or pay existing debt, nor can they be used to purchase real estate.
Grants for Women, Veterans, and Minorities
If you’re a small business owner who can identify as a woman, military member or minority, you may find that there are grants specifically created to help entrepreneurs like you manage the cost of business development. Here are a few to consider;
Grants for Women
Amber Grants
Launched by WomensNet in 1998, this $2,000 grant is awarded monthly in honor of Amber Wigdahl, with the goal of helping women pursue their entrepreneurial dreams. In addition to the monthly grant, WomensNet also awards a $25,000 Amber Grant once a year.
To be eligible for the $2,000 Amber Grant, you must be a female of eighteen years or older who operates a business within the United States or Canada. In addition, you must embody a number of qualities as specified by WomensNet, which include passion and a strong business vision. Only recipients of the monthly annual Amber Grants will be eligible for the $25,000 yearly grant, and decisions are based on an online vote.
Applications are accepted each month, and you can apply numerous times per year. To submit your application, visit the Amber Grants for Women website and complete a short, online form. There, you’ll be required to provide basic information about your business and what you would do with the grant money. All applicants must also pay a $15 fee upon the submission of their application.
GirlBoss Foundation Grant
The Girlboss Foundation provides millennial women with a number of tools and resources to help them realize their professional and entrepreneurial goals. One way they do this is through the Girlboss Foundation Grant.
In addition to $15,000 in project funding, award winners also receive exposure in local and regional press as well as within the Girlboss community.
To be eligible for this grant, you must own a business in the art, music, fashion, or design industry. Candidates are judged on a number of factors, including their business and financial acuity, creativity, and overall innovation and potential contribution to their industry.
At the time of publication, the application window for this grant has closed, but interested applicants can check the Girlboss Foundation site for the up-to-date information.
Cartier Women’s Initiative Grant
Created in 2006, the Cartier Women’s Initiative was designed to support women entrepreneurs around the world as they solve contemporary global issues.
At the culmination of this competition-style award program, 21 finalists will receive one-to-one personalized business coaching, access to valuable workshops and networking sessions, media visibility, and a scholarship to the INSEAD Social Entrepreneurship Executive Education Programme. Seven of the top finalists will receive $100,000 in prize money, and 14 finalists will receive $30,000.
To be eligible for this award, you must be an “impact-driven” business that aims to have a positive and measurable environmental and/or social impact. In addition, your business must be in its first to fifth year of operation and aligned with one of the Sustainable Development Goals (SDGs) as set by the United Nations.
Cartier Women’s Initiative is accepting applications for the 2020 Edition award from now until August 14, 2019, at 2 p.m. (CEST). If you’re interested in this grant, you can apply online at the Cartier Women’s Initiative website.
Small Business Grants for Veterans
The Great American Military Entrepreneur Challenge from StreetShares
The Great American Military Entrepreneur Challenge was created by StreetShares, a small business lending organization that works with veterans and their spouses. Each year, StreetShares extended four grants, with awards ranging from $15,000 to $2,500.
To be eligible for this award, you must be a veteran, reserve, or transitioning active duty member in the United States Armed forces. Gold Star families, or spouses, children, and immediate family of a Military member who died in active duty, are also eligible. Further, you must be 21 and own at least 51% of a business in the early stages of development.
If you’re considering this award, you’ll need to brush up on your video skills all applicants are required to submit a pitch video by August 11, 2019. The video must highlight your personal story, your business idea, how your business will positively impact the military community, and how you intend to use the award money. If you’re a finalist of this program, you’ll also be required to attend the Military Influencers Conference, which takes place in September 2019.
Warrior Rising
Warrior Rising provides a variety of resources and tools to help U.S. veterans and their immediate family start and grow businesses that perpetuate jobs for other U.S. military veterans.
To have access to potential grants, mentorship opportunities, workshops, training, and other programs made available through Warrior Rising, you’ll need to sign up as a “Vetrepreneur,” which you can do for free online.
After signing up, you can apply for either the Business Creation Process or the Business Acceleration process, both of which include six phases of growth, development, mentoring, and funding to those who are approved.
Funding options including initial grants, crowdfunding, investments, and loans. As such, amounts, eligibility, and deadlines vary from applicant to applicant.
VetFran
If you’re a veteran who is interested in opening a franchise business, then you may want to consider looking for a grant or financial assistance through the VetFran program. Through this program, you can work with numerous franchises, including The UPS Store, Grease Monkey International, Anytime Fitness, Liberty Tax 7-Eleven, and AAMCO.
Though VetFran programs vary based on the franchise you pursue, generally they offer veterans access to deeply discounted franchise free on-going training, and a variety of other special incentives.
To see if you qualify and find out what opportunities exist, you can visit VetFran.org or the International Franchise Association website, where you can select from fifteen different franchise categories, like healthcare, sports and recreation, retail, and internet and technology.
Small Business Grants for Minorities
Minority Business Development Agency (MBDA)
The MBDA provides a wealth of information, resource, and tools to help minority business owners overcome the challenges they often face. Though they don’t fund specific grants, they often post information about available grants that may benefit minority business owners.
One example of this is the Virtual Business Center (VBC) Grant competition, which is currently featured on their site. Through this grant, minority business owners can receive approximately $5,200 to assist in the purchase and use of workplace technology.
National Association for Self Employed (NASE) Growth Grants Program
NASE is an organization that offers paid-members access to a variety of resources, tools, and benefits that can help them grow their business.
As part of this program, the NASE awards one Growth Grant per month, with prize amounts up to $4,000. Funds can be used many ways, including to hire and train employees, start new marketing campaigns, and invest in equipment.
To be eligible for the Growth Grant, you must be a micro-business owner and NASE member in good standings.
The application process is ongoing, and applications are reviewed quarterly. If, for example, you submit an application in July (Q3), it will be reviewed in October (Q4).
FedEx Small Business Grant
Each year, FedEx awards ten business owners grants and other prizes to help them manage the costs associated with growth and development.
Grant totals vary from year to year, but in 2019, FedEx awarded one $50,000 prize, one $30,000 prize, and eight $15,000 prizes. Each recipient also received between $1,000 and $7,500 in FedEx print and business services.
Only United States-based, for-profit businesses who have been in business for at least six months and have fewer than 99 employees are eligible for this grant.
The 2019 award season has already come to a close; however, FedEx will be opening the application up for the 2020 award season in early 2020 — typically February.
How do I find a government start-up business loan?
There are a number of grants available to entrepreneurs at various stages of business development. As such, there is no single path towards business start-up grants. That said, one way to begin your search is to visit Grants.gov, which is a database over 1,000 grants available to business owners in the United States.
Are there government small business loans for bad credit?
Though the SBA does back loan products such as the SBA 7(a) loan and SBA Microloans, they do not originate loans. Instead, the SBA partners with banks, credit unions, and other lenders to provide loan programs to eligible business owners.
To be eligible for many of these loan programs, you must meet numerous SBA requirements as they relate to your time in business, number of employees, financial history, and industry type. Though the SBA does not typically specify a minimum credit score, applicant’s are typically expected to have good credit or a satisfactory FICO SBSS Score.
For that reason, a government small-business loan may not be the ideal choice for business owners with bad credit. Instead, you may want to look at these small-business loans for bad credit.
Are there any SBA loan alternatives?
SBA loans are just one of the many financing options available to help you grow your business. And though an SBA loan may carry the lowest interest rates and fees, other loans may better suit your needs. This is particularly the case if you have bad credit, don’t meet the SBA size or industry requirements, or if your business is one of the many non-profit organizations seeking funding within the U.S.
If any of that sounds familiar, you may want to consider term-loans offered by banks, credit unions, and online lenders, each of which base eligibility on their own set of requirements. Further, alternative lending solutions like crowdfunding, venture capital investments, and angel investors may also represent reasonable paths toward the funding you need.
Want to learn more about your small business funding options? Check out this article.
This article was originally written on July 12, 2019 and updated on June 25, 2020.
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