4 Best Government Small-Business Loans of May 2021

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.

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