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Government Small Business Loans

Small Business Loan Guide Step 2: How Uncle Sam can Give Your Small Business a Hand

    Small business loans are normally risky investments for lenders. As a result some businesses find it hard to obtain small business loans from private lenders. Luckily, the government helps businesses out by offering small business loan programs through the Small Business Administration, or SBA. The SBA loans are excellent sources of financing, because they are easier to get than standard business loans offered by private lenders.

Sources for Government Small Business Loans

    Because small businesses create jobs and help the economy, all levels of the government try to help small businesses grow and prosper. Most governments do that by creating programs that either offer small business loans or offer incentives to private lending institutions that prompt them to offer small business loans. So, if you are looking for loans, you should check out the development offices of your local, regional and state governments as well as the programs offered by the Small Business Administration on the federal level (Better Business Bureau). The programs offered by your local, regional and state governments will vary depending on where you live; however, any small business in the US can apply for Small Business Administration loans. In fact, the Small Business Administration, or SBA, has helped almost 20 million businesses, and the SBA is the largest single financial supporter of US businesses ("Overview & History of the SBA"). The SBA should be one of the top names on your list if you're searching for government small business loans.
    Because the SBA is the largest financial supporter of businesses, it is very helpful to understand how their programs work. The SBA offers guaranteed lending programs that are designed to encourage private lenders to give money to small businesses. The SBA doesn't lend you the money. They offer guarantees to private lenders, such as banks and credit unions, who then give you the loans ("SBA's Role"). So, to get a SBA loan, you will actually go to a private lender and request a commercial loan that fits the SBA requirements and qualifies for a SBA guarantee. What the SBA guarantee does is alleviate the lender's risk by agreeing to pay the lender for its losses if you default on your loan. So, lenders aren't scared to give small businesses loans because if you or other small business owners don't pay the money back, the government will ("SBA's Role").

SBA Loan Programs

    The SBA offers three main loan programs that may be able to assist your small business. In all three programs the SBA acts as guarantor, encouraging lenders to give money to small businesses by protecting them from loosing money. Here is the basic information about each of the three government small business loan programs.

  • Basic 7(a) Loan Guaranty: The basic 7(a) Loan Guaranty program is the most commonly used government source for small business financing. It is designed to help small businesses grow and expand. It can be used for working capital, equipment, furniture, fixtures, land, construction, debt refinancing and other improvements ("Snap Shot"). The loans are obtained through private lenders, but backed by the SBA. The loans must be paid back in 10 to 25 years depending on how much is borrowed and what the money is used for ("Snap Shot"). The Basic 7(a) SBA loan should be one of the first government financing options you consider.
  • Certified Development Company (CDC) 504 Loan Program: CDC 504 loans can only be used to buy real estate or machinery and equipment for expanding and modernizing ("Snap Shot"). The loans are obtained through certified development companies, which are usually private, non-profit organizations that strive to improve their communities ("Snap Shot"). If your reason for borrowing matches up with the eligibility requirements, you should look into non-profit groups in your area to see if they offer a CDC 504 loan.
  • Microloan 7(m) Program: 7(m) microloans are short-term loans for small business and non-profit childcare centers. The loans can be for no more than $35,000, and the loans can only be used for working capital, inventory, supplies, fixtures, furniture and equipment ("Snap Shot"). The loans cannot be use for buying real estate or paying off other debt ("Snap Shot"). If you are interested in a 7(m) microloan, they are given by special intermediary lenders, which are usually non-profit groups that specialize in loans and technical assistance ("Snap Shot").

    Government small business loans don't have to be difficult to find if you know where to look. As you can see, there are quite a few options available. Once you find a loan program that seems right for your business, the next step is to apply. If you need advice about how to apply for small business loans, read our article Small Business Loan, which is all about how to apply.

The Rest of Our Small Business Loan Guide:


Better Business Bureau. "BBBTips(tm) on Business Credit." (accessed September 20, 2006).

Small Business Administration. "Overview & History of the SBA." (accessed September 20, 2006).

Small Business Administration. "SBA's Role." (accessed September 20, 2006).

Small Business Administration. "Snap Shot." (accessed September 20, 2006).