Can I Get a Business Startup Loan From the Government?

Can I Get a Business Startup Loan From the Government?

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The Government, despite what the cool kids are saying, is there to help you. From Pell Grants for students to various incentives for first-time home buyers, there are options to help you out. But what about your small business? Starting your own venture is expensive, a Nav survey found that 62% of business owners used their personal savings to fund their business. To reduce the hurt and the impact on your own wallet and preserve or kick off your cash flow, it’s wise to seek out grants or a business loan from the government for help.

So, then, are there options available from the government to help fund your startup? Let’s take a look.

The Short Answer

You’re here for a simple answer, and that answer is: probably. If you’re looking to the government for funding for your business, look no further (or anywhere else, really) than the Small Business Administration (SBA). There are a few loan products they offer, each with their own requirements, for which you may qualify.

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Government Business Loan Types

The SBA offers three types of startup loans:

  1. SBA Microloan,
  2. SBA Community Advantage Loan, and
  3. SBA 7(a) loan.

What sets these apart from most other business loans is the lack of a requirement for time in business. Most lenders will require that you have at least two years in business before they can approve you, but these three loan types omit the requirement, giving you an advantage.

SBA Microloan

The SBA Microloan is, as the name suggests, a smaller-than-normal loan. Where traditional loans have a limit of up to $130,000, the SBA Microloan caps out at a $50,000 limit. The low dollar amount and relatively higher-than-normal interest rate (8-13%) are because of the fewer requirements and the subsequently higher risk for the lender. While $50,000 isn’t going to last you decades, it’s substantial for new entrepreneurs looking to get their operation off the ground.

You can use an SBA Microloan for working capital, buying inventory or machinery/equipment, or adding furniture or fixtures. It can’t be used for real estate or dealing with preexisting date. You must have a credit score of at least 640, some collateral, and there may be a personal guarantee involved.

SBA Community Advantage Loan

A branch of the SBA Microloan program, the Community Advantage Loan program is designed to provide loans to businesses in an underserved community. It has a higher loan limit of $50,000-$250,000, and a lower interest rate of 7-9%.

Unlike the Microloan, requirements will vary from lender to lender, to it’s best to build a solid relationship with a lender who offers this product. Fulfilling the requirement of helping an underserved community is key, and your financial history and time in business likely won’t be as important as it would be with other financial institutions.

SBA 7(a) Loan

The 7(a) Loan is the bread and butter of the SBA. It’s easily the most popular SBA product among small businesses, but startups can qualify as well due to the lack of the time-in-business requirement. Still then, it’s a tough loan to get.

You’ll need a credit score of at least 680, no recent derogatories such as bankruptcies, and collateral for any loan amount over $25,000. If you have a good credit score, the rest of the requirements aren’t too complicated to check off.

How to Prepare to Apply for a Business Loan from the Government

Review your business plan. Without a solid, well-written and planned business plan, you’ll have a hard time getting any loan, let alone an SBA loan. Keeping an eye on your personal and business credit scores will be key as well (you can do so for free with Nav).

Remember, the government has an interest in the success of your (tax-paying) business. Explore your options, get ready, and improve your chances of approval.

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About the Author — Connor Wilson is a writer at Nav, a free site giving business owners access to their business and personal credit scores, and tools that match them to the best financing and services.

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5 responses to “Can I Get a Business Startup Loan From the Government?

  1. Helpful article, which broke down the three types of government based loans, however, a little short on the description of the 7(a) loan. Why is it the hardest but most desirable loan to acquire?

  2. Hello Nav,
    I often hear from individuals and businesses who offer to help me to establish Business Credit without using my Social Security Number for establishing a personal guarantee. The fees they charge are usually in the hundreds, even thousands of dollars. Are these Scams? Can I establish business credit on my own without the help of these individuals, at no cost, the same as establishing personal credit?

    1. Hi Jason, there are places to get and build your business credit that have fees that are not scams, however you can start establishing business credit for your company for free via a Nav account. A free account offers summary reports from Experian and Dun & Bradstreet, plus tools to help you build business credit. Hope that helps!
      https://www.nav.com/signup/