Government loans serve specific purposes such as responding to an emergency or crisis, paying for education, and helping with housing or business needs. Loans differ from grants because recipients are expected to repay loans, often with interest.
This article will provide you with the correct information on how to get a loan to start a business from the U.S government, the requirements needed to get the loan, and government programs for small businesses.
How to Get a Loan to Start a Business from the Government in the US
Government small-business loans are available through banks and other approved lenders, not the government itself.
With most of these government programs, such as the popular SBA loan program, the government backs a part of the loan and repays the lender if the recipient defaults.
The government guarantee lessens the risk for lenders. It incentivizes them to offer small-business loans with flexible terms and competitive interest rates, and because of those benefits, government business loans have strict qualifications.
Government Business Loan Requirement
Below is a list of the requirement you need to get a government loan:
#1. Personal and Business Credit Scores
You will need good personal or business credit to qualify for a government SBA or traditional bank small-business loan.
Online lenders may be more considerate with credit scores, emphasizing your track record and business’s cash flow.
Personal credit scores indicate the ability to repay personal debts, such as car loans, credit cards, and a mortgage. Small-business lenders require a personal credit score to see how well you manage debt.
#2. Annual Revenue
Many lenders will only consider businesses that bring in at least a minimum of annual or monthly revenue.
The cash flow depends on the lender; if you need a business loan with low revenue, you will have to rely on alternative financing options, like invoice factoring.
#3. Years in Business
To qualify for a business loan, especially from a bank, you will typically need to have been in business for 2 years.
Online business loans tend to have less stringent requirements but require at least six months in business.
#4. Business Industry and Size
Government-backed loans from the United States. Small Business Administration comes with some requirements. If you want to qualify for the SBA loans, you will need to check a few additional boxes.
- The business will have to meet the SBA’s definition of a “small” business, which varies by industry. The Recipient can find theirs on the SBA’s website.
- The recipient must be a for-profit company.
- Recipients can’t operate in an ineligible industry, like gambling, real estate investing, or religious activities.
- The recipient must be current on all government loans with no past defaults
#5. Business Plan and Loan Proposal
Lenders will want to know how you plan to spend the money and see that you have a solid will to repay.
They may require a business plan from you explaining your business goals and how you plan to achieve them.
These documents prove you have enough cash to cover ongoing business expenses and the new loan payment.
It can give the lender more confidence in your business plans, increasing your chances of loan approval.
#6. Collateral or a Personal Guarantee
To qualify for a small-business loan, the Recipient may have to provide collateral to back the loan.
Business collateral is an asset, such as real estate, equipment, or inventory, that the lender can seize and sell if you default or can’t make your payments. It’s a way lenders can get back their money if your business fails.
Most lenders offer unsecured business loans, which don’t need collateral but will still come with a personal guarantee.
Lenders also take a blanket lien on business assets, giving the lender the right to take business assets to recoup an unpaid loan.
#7. Financial and Business Documentation
Banks and other traditional lenders require a wide range of paperwork when applying for a small-business loan. The legal and financial documents you may need for a small-business loan include:
- Business and personal income tax returns.
- Income statement and Balance sheet.
- Business and personal bank statements.
- Photo of your driver’s license.
- Commercial leases.
- Your business licenses.
- Articles of incorporation.
- A resume that shows business experience.
- Financial projections if the Recipient has a limited operating history.
Online lenders may provide a streamlined application process with faster underwriting and less documentation.
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Free Government Gant Programs for Small Business
500 Global Flagship Accelerator Program
Small businesses and start-ups seeking funding can do so on a rolling, year-round basis with the 500 Global Flagship Accelerator program.
Since 2010, this program has offered companies the opportunity for a 4-month accelerator program based in San Francisco in addition to a $150,000 investment. Rules for applying for this program can be found on the company’s website.
Business Warrior Small Business Loans
The Business Warrior program understands that getting loan approval through a traditional banking method can be challenging.
To help small businesses and start-ups access capital, Business Warrior is giving $5 million to small business owners.
The program will provide between $5,000 and $50,000 loans without the high rates cash advance companies usually charge.
Dream Big Awards
Applications for this program are now open for the U.S. Chamber of Commerce’s Dream Big Awards 2022.
The Dream Big Awards is an annual program that recognizes the effort of small businesses across America to contribute to the country’s economic growth.
The Barstool Fund
This grant is for small businesses affected by COVID-19 that kept on many employees during the pandemic and have a proven record of success.
GoFundMe Small Business Relief Fund
GoFundMe’s Small Business Relief Fund program will match $500 grants to qualifying small businesses negatively affected by COVID-19 and raise at least $500 through a GoFundMe campaign. The fund is backed by corporations like GoFundMe, GoDaddy, Intuit QuickBooks, Yelp, and Bill.com
Small Business Readiness for Resiliency Program
Small businesses often feel the effects of a natural disaster. When starting a business, raising funds to repair a roof or attend to flood damage can be challenging.
To help offset some of these costs, FedEx and the U.S. Chamber of Commerce Foundation have teamed up to create the R4R (Small Business Readiness for Resiliency) Program.
The program aims at helping small businesses put plans in place to prepare for disaster and provides immediate emergency funding when necessary.
Walmart Local Community Grants
Local organizations can receive funding from Walmart and Sam’s Club facilities through this small business grant.
The Best Government Small Business Loans and How to Get One
SBA loan is a well-known type of government business loan, banks and other approved lenders issue SBA loans, and the U.S. Small Business Administration partially guarantees it. SBA loans have low-interest rates and long terms.
There are several SBA loans options to choose from:
- SBA 7(a) loans
- SBA Express loans
- SBA CDC/504 loans
- SBA Microloans
How to Get an SBA Loan
If you are looking for support from the SBA, they have got some requirements you will need to meet up with:
- Recipients must be officially registered as a for-profit business and operating legally.
- As the business owner, you can’t be on parole.
- The recipient business must have fewer than 500 employees and less than $7.4 million in annual revenue each year for the past 3 years.
- Recipients’ net income must be under $5 million, and their tangible net worth must be less than $15 million.
- The Recipient must show they are investing their time and money into the business and have “invested equity.”
- The business must be physically based in the U.S., and the Recipient must be doing business with the United States and its territories.
- The small business must be in an SBA-eligible industry that is speculative, illegal, and non-profit businesses don’t get to play.
- The Recipient must show that they have already tried and failed to get funds from other financial lenders, thoroughly exhausting non-SBA loan options.
- The Recipient needs to prove they have a sound business purpose for the loan they request and that the SBA approves their intended fund’s usage.
- The Recipient must prove they are not delinquent on any debts to the U.S. government.
FAQ
Will the Government Give you a Business Loan?
Government loan programs offer financial support to people expanding or starting a business.
What is the $10 000 SBA Grant?
The SBA grant, now called the “targeted EIDL advance,” is only available to small businesses in low-income communities.
Eligible recipients can receive up to $10,000 in advance if they are a small business located in a low-income neighborhood that previously applied for the EIDL Advance grant but did not receive it.
How Does the Government Get Funding for Start-Ups?
Government small-business loans are available through banks and other approved lenders, not the government itself.
With most of these government programs, such as the popular SBA loan program, the government backs a part of the loan and repays the lender if the recipient defaults.
What Disqualifies you From Getting an SBA Loan?
A bad credit score below 630 is likely to disqualify you. Work on building your credit score before submitting an SBA loan application.
Who is Not Eligible for a PPP Loan?
If your gross income and net profit are zero or less, you are not eligible for a PPP loan.
How Long Does it Usually Take to Get an SBA Loan?
SBA loan processing takes approximately 2 to 3 months from start to finish, and sometimes it might take longer.
Watch the video below to know how to get a loan to start a business from the Government:
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