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Government Small-Business Loans: Top Options for Funding

By Ryan Lane, Randa Kriss
Last updated on October 3, 2023
Edited bySally Lauckner
Fact checked and reviewed

⏰ Estimated read time: 9 minutes

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

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Government small-business loans are a highly desirable form of business funding — as they generally offer low interest rates and long repayment terms. These small-business loans are typically issued by banks and other approved lenders, however, not the government itself.
Instead, the government backs a portion of the loan and repays the lender if you default. Here, learn more about some of the best government business loans and how to qualify for financing.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

Here are 4 government small-business loans

LenderNerdWallet RatingMax loan amountMin. credit scoreNext steps

SBA 7(a) loan

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Best for Overall government small-business loans

$5,000,000650

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SBA Express loan

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Best for Fast government small-business loans

$500,000650

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SBA Microloan

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Best for Government small-business loans for bad credit + Government loans to start a business

$50,000620

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SBA CDC/504 loan

Best for Government small-business loans for real estate

$5,000,000680
Read Review

Here are 4 government small-business loans

Best for Overall government small-business loans

U.S. Small Business Administration

Max Amount

$5,000,000

Min. Credit Score

650

Best for Fast government small-business loans

U.S. Small Business Administration

Max Amount

$500,000

Min. Credit Score

650

Best for Government small-business loans for bad credit + Government loans to start a business

U.S. Small Business Administration

Max Amount

$50,000

Min. Credit Score

620

Best for Government small-business loans for real estate

U.S. Small Business Administration

Max Amount

$5,000,000

Min. Credit Score

680

I'M INTERESTED IN:

Our pick for

Overall government small-business loans

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

SBA 7(a) loan

Read Review

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Max Loan Amount
$5,000,000
Min. credit score
650
Est. APR
11.50-15.00%
7(a) loans are issued by private lenders and backed by the SBA. They offer long repayment terms and low interest rates.
Lowest interest rate

Max loan

$5,000,000

Min. Credit score

650

Apr range

11.50-15.00%

7(a) loans are issued by private lenders and backed by the SBA. They offer long repayment terms and low interest rates.
Read Review

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Our pick for

Fast government small-business loans

SBA Express loans offer up to $500,000 and can fund faster than other SBA loan options.

SBA Express loan

Read Review

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Max Loan Amount
$500,000
Min. credit score
650
Est. APR
11.50-15.00%
SBA Express loans are available in amounts up to $500,000 as either a term loan or line of credit. These loans typically fund faster than standard 7(a) loans.

Max loan

$500,000

Min. Credit score

650

Apr range

11.50-15.00%

SBA Express loans are available in amounts up to $500,000 as either a term loan or line of credit. These loans typically fund faster than standard 7(a) loans.
Read Review

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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

Read Review

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Max Loan Amount
$50,000
Min. credit score
620
Est. APR
8.00-13.00%
SBA microloans are small-sized loans funded by the U.S. Small Business Administration and issued through approved intermediaries, typically nonprofit and community lenders.

Max loan

$50,000

Min. Credit score

620

Apr range

8.00-13.00%

SBA microloans are small-sized loans funded by the U.S. Small Business Administration and issued through approved intermediaries, typically nonprofit and community lenders.
Read Review

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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

Read Review

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Max Loan Amount
$50,000
Min. credit score
620
Est. APR
8.00-13.00%
SBA microloans are small-sized loans funded by the U.S. Small Business Administration and issued through approved intermediaries, typically nonprofit and community lenders.

Max loan

$50,000

Min. Credit score

620

Apr range

8.00-13.00%

SBA microloans are small-sized loans funded by the U.S. Small Business Administration and issued through approved intermediaries, typically nonprofit and community lenders.
Read Review

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Our pick for

Government small-business loans for 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 loan

Max Loan Amount
$5,000,000
Min. credit score
680
Est. APR
5.00-7.00%
SBA 504 loans are designed to promote business growth and job creation through the purchase or upgrade of major fixed assets.

Max loan

$5,000,000

Min. Credit score

680

Apr range

5.00-7.00%

SBA 504 loans are designed to promote business growth and job creation through the purchase or upgrade of major fixed assets.

How Much Do You Need?

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Government business loans vs. traditional business loans

With a traditional business loan, you apply for financing and if approved, repay your lender over time. Government business loans are similar, except the government provides your lender with a guarantee on your loan.
This guarantee means that if you were to default on the loan, the government would pay back your lender for the money they lost. The government’s guarantee reduces the risk for lenders and incentivizes them to offer small-business loans with competitive interest rates and flexible terms — usually for small-business owners who wouldn’t qualify for such terms on their own.
Because of those benefits, however, government business loans often have strict qualifications and a lengthy application process. But if you can qualify, they’re a great option to fund or grow a company.

Types of 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 $27.5 billion in loans issued in fiscal year 2023, according to the SBA. 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 several 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.

SBA Disaster loans

SBA disaster loans offer financing to small businesses that have experienced and suffered damage from a declared disaster. These loans are issued directly by the SBA and are available in amounts up to $2 million.
Disaster loan options include:
  • Economic injury disaster loan (EIDL). EIDLs provide working capital to businesses that have suffered economic damage due to a disaster. This funding is available to help them resume normal operations. 
  • Business physical disaster loan. This financing can help you repair or replace damaged real estate, equipment, machinery or other physical assets.
  • Mitigation assistance. In addition to loan funds, the SBA offers mitigation assistance, which can increase your physical disaster financing by up to 20% to help you make upgrades so your property is more resilient in the future.
  • Military reservist economic injury disaster loan (MREIDL). These loans are available to help businesses that have suffered economically as a result of a key employee being called up to active military duty.
The SBA also offers disaster assistance to homeowners and renters who experience damage to their primary residence.

USDA business loan programs

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 (typically populations of 50,000 residents or fewer). 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.
Some of these loan programs include:
  • Business & Industry Loan Program. Offers loans to business owners located in a rural area with 50,000 or fewer residents.
  • Rural Microentrepreneur Assistance Program. Offers loans up to $50,000 to business owners located in a rural area with 10 or fewer full-time employees.
  • Rural Economic Development Loan Program. Offers loans to fund projects that will create or retain rural jobs. 

State and local government small-business loans

Many state and local governments offer financing options for small businesses. New York, for example, offers lending resources for small businesses through its Empire State Development Division and by backing private sector CDFIs and lenders. It is also still offering some pandemic recovery programs.
You can browse government-backed loans in your state, by visiting your Secretary of State or Department of Economic Development website. You can also try getting in touch with the National Association of Government Guaranteed Lenders (NAGGL) closest to you. For instance, the North Texas branch, or NTAGGL, has a list of member organizations and their contact information on its website.

Additional government funding for small businesses

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.

How to get a government business loan

1. Decide how much funding you need

Consider how much funding you need and how you’re going to use it. Some government loans, like SBA 504 loans, can only be used for specific purposes, so it’s important to understand your borrowing needs at the beginning of the process.
You should also consider how much debt you can afford. For SBA financing, an SBA loan calculator can help you estimate payments and interest costs.

2. Evaluate your qualifications

Government loans typically have strict business loan requirements. You’ll likely need good credit, strong finances and multiple years in business to qualify.
You may also have to meet criteria specific to the type of loan you choose. SBA loans, for example, require that you:
  • Qualify as a small business based on size standards.
  • Be a for-profit business operating in the U.S. 
  • Have exhausted other financing options.
  • Can show your ability to repay the loan.

3. Research and compare lenders

Unless you’re applying for an SBA disaster loan, you’ll be getting funding from a third-party lender, like a bank or credit union. If you already have an existing relationship with a financial institution, you might start your search by seeing if that lender offers SBA or USDA loans.
To find other potential lenders, you can use the lender match tool on the SBA website. The SBA also maintains a list of current intermediaries participating in its microloan program.

4. Gather your documentation and apply

Government business loans generally require a lengthy application process with extensive documentation. You may be required to provide:
  • Business and personal bank statements.
  • Business financial statements, such as income statements, balance sheets and cash flow projections.
  • Business and personal Income tax returns.
  • Existing debt schedule, if applicable.
  • Business certificates or licenses.
  • Loan application history.
  • Resumes for each business owner.
  • Business overview and history.
  • Business lease.
SBA loans also require specific forms for your personal financial statement, borrower information, statement of personal history and personal guarantee.
Your lender should be available to guide you through the process and answer any questions you may have.

5. Wait for approval and sign loan agreement

It may take anywhere from a few weeks to a few months to receive approval and funding from a government business loan. Once you’ve been approved, however, your lender will send you a business loan agreement.
You should read over this contract thoroughly and follow up with your lender if you have any questions or concerns. It can also be helpful to have a business attorney look over the agreement as well.

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. Here are some alternatives to consider:
  • Bank business loans. If you’re a highly qualified borrower with 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.
  • Online business loans. 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.
  • Business credit cards. Although some SBA loans are available to startups, it may still be difficult to qualify if you don’t have strong finances or can’t provide collateral. If your company is just getting started, a business credit card may be more useful to help you pay for everyday expenses — plus, earn rewards. 
  • Personal loans. If you need to make a bigger purchase and have strong credit, you might consider a personal loan for your new business. It’s important to keep in mind, however, that your personal finances will be at risk if you can’t repay.

Find the right business loan

The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose. NerdWallet recommends comparing small-business loans to find the right fit for your business.
Last updated on October 3, 2023

Wondering if you qualify?

It’s possible to get a business loan even if you have bad credit. Bad-credit business loans are available from alternative sources, like online or nonprofit lenders.

Learn more

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