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4 Best Government Small-Business Loans of May 2021

Government-backed business loans offer favorable terms but have tough qualifications.

Ryan LaneApril 16, 2021
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Government small-business loans are available through banks and other approved lenders, not the government itself. Rather, the U.S. Small Business Administration backs these third-party loans, incentivizing lenders to offer you competitive interest rates and flexible terms.

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

Easily get real, personalized small business loan rates to compare — not just ranges or estimates.

It’s free and won’t affect your credit.

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Our pick for

Government small-business loans

SBA 7(a) loans are the most common government small-business loan, offering up to $5 million for equipment, working capital, refinancing debt or other business purposes.

SBA 7(a) loan

SBA 7(a) loan

Est. APR

5.50 - 8.00%

Min. Credit Score

650

7(a) program participants include specialized lenders like Live Oak Bank and big-name traditional banks like Wells Fargo.

Pros

  • Available as a term loan or line of credit.
  • Interest rates are capped.
  • Long repayment terms available.

Cons

  • Personal guarantee is required.
  • Collateral is typically required.
  • Longer processing times than online lenders.
Read full review

Qualifications

  • Be a for-profit U.S. business.
  • Must first use alternative financial resources, including personal assets.
  • Financial qualifications determined by individual lender.

Our pick for

Fast government loans

Applying for most government business loans is a lengthy process. But if you need fast funding, SBA Express loans currently provide up to $1 million with SBA responses within 36 hours.

SBA Express loan

SBA Express loan

Est. APR

7.75 - 9.75%

Min. Credit Score

650

On Oct. 1, 2021, the maximum SBA Express loan amount will permanently drop to $500,000.

Pros

  • Available as a term loan or line of credit.
  • Interest rates are capped.
  • Faster processing time compared to other government loans.

Cons

  • Personal guarantee is required.
  • Lower borrowing maximum than other government loans.
  • Shorter repayment term for line of credit than 7(a) loans.
Read full review

Qualifications

  • Be a for-profit U.S. business.
  • Must first use alternative financial resources, including personal assets.
  • Financial qualifications determined by individual lender.

Our pick for

Government loans to start a business

Most lenders will require at least two years in business to get a government-backed loan. However, microloans of up to $50,000 may be available to newer businesses.

SBA Microloan

SBA Microloan

Est. APR

8.00 - 13.00%

Min. Credit Score

620

The average microloan is roughly $13,000 according to the Small Business Administration.

Pros

  • Less strict eligibility requirements than other government loans.
  • Available from nonprofit lenders.

Cons

  • Personal guarantee is required.
  • Collateral is typically required.
  • Small borrowing maximum.
Read full review

Qualifications

  • Be a U.S. business.
  • Financial qualifications determined by individual lender.

Our pick for

Government small-business loans for bad credit

Microloans are offered through nonprofit, community-based organizations, which may be more willing to work with you if you have low or poor credit.

SBA Microloan

SBA Microloan

Est. APR

8.00 - 13.00%

Min. Credit Score

620

The average microloan is roughly $13,000 according to the Small Business Administration.

Pros

  • Less strict eligibility requirements than other government loans.
  • Available from nonprofit lenders.

Cons

  • Personal guarantee is required.
  • Collateral is typically required.
  • Small borrowing maximum.
Read full review

Qualifications

  • Be a U.S. business.
  • Financial qualifications determined by individual lender.

Our pick for

Government loans to finance real estate

SBA CDC/504 loans offer low-cost, long-term financing that you can use to purchase, renovate or construct buildings and facilities.

SBA CDC/504 loans

SBA CDC/504 loans

Est. APR

2.60 - 3.20%

Min. Credit Score

680

You cannot put an SBA CDC/504 loan toward working capital, existing debt or a rental real estate investment.

Pros

  • Low down payment required.
  • Repayment terms of up to 20 years.
  • Competitive interest rates.

Cons

  • Personal guarantee is required.
  • Collateral is required.
  • Longer processing times than online lenders.
Read full review

Qualifications

  • Be a for-profit U.S. business.
  • Net worth of less than $15 million.
  • Average net income of less than $5 million for the two years prior to your application.
  • Financial qualifications determined by individual lender.

Easily get real, personalized small business loan rates to compare — not just ranges or estimates.

It’s free and won’t affect your credit.

Get Started

on Fundera's website

Small-business loan government programs

The federal government encourages business lending by providing funds and partially guaranteeing defaulted SBA loans. Government small-business loan programs include:

  • Paycheck Protection Program loans. PPP loans are a form of assistance for small businesses affected by the pandemic. These forgivable loans offer funding of up to $10 million, and you can apply with a participating lender until May 31, 2021.

  • Economic Injury Disaster Loans. These loans are an additional form of COVID-19 relief for small businesses. Unlike other government small-business loans, you apply directly with the SBA for one. The maximum funding amount is $500,000.

  • SBA 7(a) loans. The 7(a) program is the primary type of SBA loan, with nearly $22.6 billion in loans issued in fiscal year 2020, 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.

  • SBA Express loans. A variation of the 7(a) program, Express loans come with a smaller funding maximum (currently $1 million) 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 long-term business 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.

The federal government also provides small-business grants and other nonlending initiatives that promote business growth. For example, its SBA 8(a) program certifies disadvantaged business owners so they can bid on set-aside government 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 SBA, which can be time-consuming. Consider an online lender if you can’t afford to wait. Some offer funding as quickly as the same day or the 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

NerdWallet has a list of the best small-business loans and recommends comparing small-business loan options to find the best deal for your company. All of our recommendations are based on the lender’s market scope and track record and on the needs of business owners, as well as rates and other factors, so you can make the right financing decision.

Last updated on April 16, 2021

To recap our selections...

NerdWallet's Best Government Small-Business Loans of May 2021