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For small business loans with competitive interest rates and flexible repayment terms, government-backed small business loans can be a great option for businesses that need financing. Loans through U.S. Small Business Administration (SBA) programs are available through SBA-approved lenders, not the government itself. The government backs the loans and covers a portion of the loan amount if they aren’t repaid.
Funds are flexible, and businesses can use them for everything from financing equipment to buying real estate. There are several types of government loans for small businesses, including SBA 7(a) loans, microloans, SBA 504 loans, SBA disaster loans and SBA CAPLines.
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1. SBA 7(a) Loan
SBA 7(a) loans are available up to $5 million, and repayment terms vary depending on the purpose of the loan. SBA 7(a) loans are flexible and used for a wide range of purposes, including starting a new business or purchasing new equipment or property.
If you finance real estate with an SBA 7(a) loan, you can qualify for the maximum repayment term of 25 years. In comparison, terms max out at 10 years for SBA equipment, working capital and inventory financing. Variable interest rates range from the base rate plus 2.25% to the base rate plus 4.25%, depending on the loan amount and repayment term. Fixed-interest loans come with rates between 5% and 8%.
SBA 7(a) Variable Interest Rates
|Max Interest Rate (up to 7 years)
|Max Interest Rate (more than 7 years)
|$25,000 or less
|Base rate plus 4.25%
|Base rate plus 4.75%
|$25,000 to $50,000
|Base rate plus 3.25%
|Base rate plus 3.75%
|$50,000 or more
|Base rate plus 2.25%
|Base rate plus 2.75%
Keep in mind, the application process for SBA 7(a) loans is more complex than for other small business loans. SBA-approved lenders typically require detailed financial documents, but the benefits of an SBA 7(a) loan are often worth the time. Still, an SBA 7(a) loan is best suited for a business with a solid financial history that doesn’t need money quickly.
2. SBA Express Loan
Designed to help small business owners quickly access the funds they need, SBA Express loans come with short turnaround times.
Loans are available up to $500,000 and have flexible repayment terms from seven to 25 years. SBA Express loans come with interest rates between 4.5% and 6.5% above the prime rate, and Express revolving lines of credit are available for up to 10 years.
Once your application is received, the SBA will respond within 36 hours—much faster than standard SBA loans. If approved, you’ll receive funding within seven business days, which makes an SBA Express loan an excellent option for small business owners looking to secure financing quickly.
3. SBA Microloan
SBA microloans are tailored to small business owners who need funds to rebuild, re-open, repair, enhance or improve their businesses. Loans are available up to $50,000, but the average SBA microloan is around $13,000.
Terms max out at six years, and interest rates typically fall between 8% and 13%—although individual lenders decide the loan terms. You can’t use microloan funds to pay existing debts or to purchase real estate.
You can apply for a microloan through SBA-approved nonprofits and community-based organizations. Qualification requirements vary by lender and approval can take anywhere from a few days to a few weeks. Lenders usually disburse funds within a month of approval.
4. SBA CDC/504 Loans
SBA 504 loans, or CDC/504 loans, help small businesses secure the funding they need to grow and create jobs. The program is administered by participating CDCs (Certified Development Companies), which provide 40% of the loan funding, and a private bank or credit union funds 50%. The borrower covers the last 10% with a down payment.
Loans are available up to $5 million (or $5.5 million for small manufacturers) and repayment terms extend to 10 years for machinery and equipment and 25 years for real estate. The current 10-year Treasury rate determines the interest rates for SBA 504 loans.
These funds allow you to purchase fixed assets, such as real estate, long-term equipment and machinery. You can also use SBA 504 loans to improve or modernize a business’s existing facilities.
To apply for a CDC/504 loan, you’ll need to work with a Certified Development Company to prequalify based on personal and business tax returns, interim financial documents and a personal financial statement. Once you determine the real estate, equipment or other eligible assets you want to purchase with the loan, you’ll submit a formal 504 loan application.
Approval typically takes a week, and once that comes, funding takes an additional 30 to 60 days, depending on the complexity of the loan.
5. SBA Disaster Loans
SBA disaster loans are for businesses that have suffered a physical or economic loss due to a federally-declared disaster. In some cases, they’re only available to business owners unable to obtain sufficient credit elsewhere.
Economic Injury Disaster Loans
Economic Injury Disaster Loans (EIDLs) are available to eligible small businesses, small agricultural cooperatives and private nonprofit organizations that suffer substantial economic injury due to a disaster. Loan amounts can reach $2 million, but ultimately are determined by the applicant’s ability to repay the loan.
Repayment terms go up to 30 years, with interest rates capped at 4% annually. Businesses can use EIDL funds to meet financial obligations and cover necessary operating expenses. Companies can qualify for an EIDL and a physical disaster loan, but the maximum combined borrowing limit is $2 million.
Business Physical Damage Loans
Business physical damage loans cover business losses not covered by insurance. Loans are available up to $2 million, with repayment terms as long as 30 years. The SBA caps interest rates at 4% for businesses that can’t obtain credit elsewhere, but if you have other available credit, the maximum interest rate is 8%.
Business owners can use funds to repair or replace real property, machinery, equipment, fixtures, inventory and improve rental properties. Borrowers can’t use this SBA loan to upgrade or expand a business unless required by building codes.
In addition to its disaster loans, the SBA offers mitigation assistance, including for wind, floods, wildfires, earthquakes and hail. Mitigation assistance helps business owners prepare their homes and businesses for future disasters rather than funding repairs for damage from past events. Overall, SBA mitigation assistance can boost SBA disaster loan funds by up to 20% for building upgrades.
6. SBA CAPLines
SBA CAPLines help small businesses address short-term and cyclical working capital needs. These lines of credit are available up to $5 million and interest rates range from 2.25% to 4.75% plus a base rate, such as the prime rate or the SBA Peg Rate. Repayment terms extend up to 10 years for CAPLines, except for Builders CAPLines, which extends up to five years.
There are four types of SBA CAPLines, each with a different purpose and qualification requirements beyond those for standard 7(a) loans.
- Seasonal CAPLine: Borrowers can use Seasonal CAPLines to finance seasonal increases in accounts receivable and inventory—but not to maintain business in slow seasons. To qualify, a business must have been in business for at least one year and be able to demonstrate seasonal impacts to their business.
- Contract CAPLine: Contract CAPLines are for financing the cost of fulfilling a contract, sub-contract or purchase order. Qualified business borrowers must show they can operate profitably based on the completion of similar past projects and can perform the work included in the contract, among other requirements.
- Working CAPLine: Working CAPLines can be used to cover short-term working capital and operating needs, but not to pay for delinquent withholding taxes or floor planning. Businesses must generate accounts receivable or have inventory to qualify.
- Builders CAPLine: Construction contractors and housebuilders can use Builder CAPLines to finance direct expenses related to construction or “substantial” renovation of a specific project. Qualification requirements are more extensive than other CAPLines, and businesses must show sufficient managerial and technical ability, among other qualifications.
How To Get Government Loans for Small Business
Government-backed loans have unique qualifications, application requirements, repayment terms and interest rates that you should consider before applying. On top of that, requirements can also vary by lender.
Regardless, most SBA-approved lenders have similar processes, so there are a few general steps to follow when applying for a loan.
1. Evaluate Your Borrowing Needs
Determine your business goals and the specific project or expense you need to finance. Consider the costs of your proposed project, fees and interest, and how much you can afford in monthly payments. A business loan calculator can help you understand the full cost of a loan.
2. Check the Qualification Requirements
Each loan and lender has different requirements in order to be eligible for a loan. Before moving forward with an application, make sure you meet credit, financial and other requirements to qualify for a loan.
3. Find an SBA-approved Lender
Use the SBA’s Lender Match tool to find an SBA-approved lender specializing in your industry and business type. Additionally, ask local banks and credit unions about their SBA lending programs, including your current bank or credit union. It may be easier to qualify for an SBA loan if you have an existing relationship with the lender.
4. Gather Your Financial Information
Before applying for a government loan for your small business, gather the necessary financial documents to ensure a smooth application process. For SBA 7(a) and SBA CAPLines, the documents you’ll need can be found on a SBA submission checklist.
Some standard documents include tax returns, bank statements, balance sheets, income statements and cash flow projections.
5. Submit an Application and Await Loan Approval
Once you choose an SBA-approved lender and organize your financial documents, follow the lender’s application instructions carefully and submit the necessary forms. A loan officer will review your application and determine if you meet the lender’s approval criteria.
Approval for government business loans can take as little as 36 hours but can take up to a month or longer depending on the loan program, lender and the complexity of your finances.
6. Sign Loan Documents and Receive Funding
After your loan is approved and you accept it, the lender will fund the loan according to the terms of the agreement. In some cases—as with an EIDL—you’ll need to work with your case manager to manage disbursements, meet recordkeeping requirements and comply with the loan agreement.
Who Qualifies for Government Small Business Loans?
To qualify for a government-backed small business loan, prospective borrowers must meet the eligibility requirements. Each loan program and lender can have different requirements, but generally, businesses must have fewer than 500 employees, be for-profit and operate in an eligible industry. Additionally, some lenders require businesses to meet certain credit score, revenue and time in business criteria.
Check the specific eligibility criteria for each loan type before applying, and work with your individual lender to ensure you meet its unique requirements.
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