Government Small-Business Loans: SBA Loans and Top Options

Government small-business loans are typically available through banks and other approved lenders, not the government itself. With most of these programs — like the popular SBA loan program — the government backs a portion of the loan and repays the lender if you default.

The government guarantee reduces the risk for lenders and incentivizes them to offer small-business loans with competitive interest rates and flexible terms.

Because of those benefits, government business loans often have strict qualifications. But if you can qualify, they’re a great option to fund or grow a company. Here are some of the best government small-business loans, plus information on alternatives if you aren’t eligible for funding.

Types of government small-business loans

Federal government small-business loans

SBA loans. Perhaps the most well-known type of government business loan, SBA loans are issued by banks and other approved lenders and partially guaranteed by the U.S. Small Business Administration. SBA loans typically have low interest rates and long terms, but can be difficult to qualify for.

There are several SBA loan options to choose from:

• SBA 7(a) loans. The 7(a) program is the primary type of SBA loan, with $36.5 billion in loans issued in fiscal year 2021, according to the Congressional Research Service. You can receive up to $5 million in funding for day-to-day expenses like payroll, as well as longer-term business costs like equipment financing. Funds are available as term loans or an SBA line of credit.
• SBA Express loans. A variation of the 7(a) program, Express loans come with a smaller funding maximum, $500,000, but offer quicker processing. If you need a fast business loan, you may be able to get approved for an SBA Express loan within a few days, whereas a 7(a) loan application may take weeks or months to process.
• SBA CDC/504 loans. These SBA loans also offer funding of up to $5 million; however, CDC/504 loans have strict usage rules compared with other government small-business loans. Their primary use is financing construction or real estate projects. Unlike 7(a) loans, you can’t use an SBA CDC/504 loan for working capital or refinancing debt.
• SBA Microloans. The SBA offers microloans of up to $50,000 through nonprofit community organizations. Microlenders often focus on assisting traditionally underserved populations, including minority business owners and women business owners, and may have looser eligibility requirements than other government-backed business loans. SBA Microloans can be good options for newer businesses or those with bad credit.

USDA Business and Industry loans. The U.S. Department of Agriculture provides a partial guarantee to lenders (banks, credit unions and other financial institutions) that issue loans to small businesses in rural areas. Businesses in these areas can use the financing for a variety of purposes, including growth and development, machinery and equipment purchases, real estate purchases and debt refinancing.

State and local government small-business loans

Many state and local governments offer financing options for small businesses. Pennsylvania, for example, offers a wide range of government-backed business loans, as well as small-business grants, tax credits and other programs.

You can browse government-backed loans in your state, by visiting your Secretary of State or Department of Economic Development website. USA.gov also offers a state-by-state search to guide you in the right direction.

COVID-19 government small-business loans

There are still financing options available for small businesses that need relief as a result of the COVID-19 pandemic. Here’s what you need to know:

• Paycheck Protection Program loans. The Paycheck Protection Program officially ended on May 31, 2021. If you received a loan prior to the closing period and haven’t heard from your lender regarding PPP forgiveness, you should reach out to them to initiate the process.
• Economic Injury Disaster Loans. As of January 1, 2022, the SBA is no longer accepting new applications for COVID-19 EIDL loans. You can submit a request six months from the date of decline for reconsiderations and 30 days from the date of decline for appeals, unless funding is no longer available. The period to apply for the $10,000 EIDL advance, or grant, has also expired.
• State and local COVID-19 relief. Some states and local governments are still offering small-business financing programs that are specific to COVID-19 relief. You can visit official government websites in your area to see what options may be available for your business.
  
  
  
  

Other types of government financing

Federal and state governments also provide nonlending initiatives that promote business growth. Here are some options to consider:

• Small-business grants. Federal, state and local governments offer a range of grant programs that provide free financing to small businesses. Grants.gov is a good resource for researching small-business grants administered by federal government agencies.
• Small Business Investment Companies. The SBA funds and licenses SBICs, which offer small businesses debt and equity. You can find an investor in your area on the SBA’s website.
• SBA contracting assistance programs. These programs, like the SBA 8(a) program, help small businesses win federal contracts.

Alternatives to government small-business loans

Government small-business loans are a strong choice for eligible borrowers. But a different type of business loan may be a better fit depending on your business’s qualifications and needs:

• If you’re a highly qualified borrower. If you have excellent credit, many years in business and strong revenue, you may want to look at bank small-business loans before government options. Banks typically offer the lowest rates on business loans, whereas SBA loan rates have set ranges based on rules established by the federal government.
• If you’re in a rush. Getting a government small-business loan requires approvals from a lender and the agency providing the guarantee, which can be time-consuming. Consider an online lender if you can’t afford to wait. Some offer funding as quickly as the same or next day. However, that convenience will likely mean a higher interest rate.
• If you’re just getting started. Businesses that haven’t been around for at least two years and lack strong financials won’t be able to get most government loans, though lenders set their own qualifications. Until your company is more mature, you’ll need to turn to startup business loan options such as credit cards or personal loans.
  
  
  
  

  Compare small-business loans

  For a look beyond government business loans, check out NerdWallet’s list of best small-business loans. Our recommendations are based on the market scope and track record of lenders, the needs of business owners and an analysis of rates and other factors, so you can make the right financing decision.

  To recap our selections...

  Government Small-Business Loans: SBA Loans and Top Options

  • SBA 7(a) loan: Best for Government small-business loans
  • SBA Express loan: Best for Fast government small-business loans
  • SBA Microloan: Best for Government small-business loans for bad credit
  • SBA Microloan: Best for Government loans to start a business
  • SBA CDC/504 loans: Best for Government small-business loans for real estate financing