A Guide to Small Business and Startup Loans From the Government

Navigate the complexities of securing government loans for small businesses and startups with our comprehensive guide, designed to unlock potential funding avenues for your venture's growth.

Starts at $0 + state fees and only takes 5-10 minutes

Excellent 4.8 out of 5 stars 15,728 reviews

As you’re probably aware by now, starting a new business is anything but a tiny task. Ninety percent of startups fail, with more than 20% failing in the first year. One major reason for this failure? Funding. And with the coronavirus pandemic, fiscal concerns have only increased for those thinking of founding a small business startup.

However, private loans from traditional financial institutions aren’t always the only or even the best way forward. Fortunately, the federal government has many resources for small business owners looking for a leg up. Leveraging government resources like those offered through the U.S. Small Business Administration (SBA) is an excellent way to help set your small business up for success. 

Borrowing from the U.S. government takes away some of the uncertainty that may exist with private lenders. Below, we’ll guide you toward resources that can best sustain and grow your small business. We’ll also go over the steps in the application process to know what to expect when seeking government loans.

Why should you get a government loan?

Figuring out the right type of loan — whether through a private lender or a government agency — to ensure small business success can be challenging. While private lenders can get you quickly through the paperwork, government loan programs for small businesses generally offer more protections to borrowers.

Here’s a brief breakdown of the pros and cons for each funding option:

Private Lender ProsPrivate Lender ConsImpacts
Tailored funding offeringsHigher interest ratesYou may be able to secure a loan that works more closely in line with your small business goals, but the high interest rate may make the loan more expensive over time.
Rapid application processUnregulatedIt’s tempting for someone like a part-time consultant with an LLC to have new business capital very quickly. However, there are fewer protections from overseeing agencies.
Unsecured optionsShorter termsNot having to put up collateral is an attractive feature, but shorter loan terms also generally mean higher monthly payments.
SBA Lender ProsSBA Lender ConsImpacts
Broader eligibilitySlow approval process and lower-credit applicants may be less qualifiedSmall business owners not qualifying for traditional loans may be eligible, although the time it takes to find out might be more than you can afford to spend.
Capped interest ratesDown payment and collateral typically requiredProject-based business owners, such as those running full-time skilled trade LLCs, don’t have to worry about paying their lives away in interest. Still, the amount of money and collateral likely to be due upfront is significant.
Various loan amounts availableLiable for the loan if business defaultsSBA lenders tend to allow applicants to apply for any loan amount they need up to about $5 million, but applicants should recognize they will still owe this money if their business fails. For side-gig freelancers, the availability of funding may promote their startups more efficiently than private lenders, but they will also take on more financial risk if the business goes bust.

Some lenders may not jump to give small businesses or startups loans, so SBA-guaranteed loans help secure the funding needed from partnered lenders. These loans can be used to fund various business aspects, like payroll, building improvements, refinancing debt, and establishing credit to attract future lenders. Focusing on why you need the loan, what you want it to do for your small business, and how you can pay it back can help you determine the best SBA loan for you.

Types of SBA Government Loans

Once you have decided on an SBA loan, there are still plenty of decisions to be made. One of the first steps is reviewing all options and deciding what this loan money will be used for. 

Some SBA loans are relevant only to certain expenditures or investments. Others, such as those housed under the Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) initiatives, reward companies actively participating in fundamental research that promotes the further economic development or competitive commercialization of the United States.  

Make sure you know what each loan can be used for before you apply. Touch base with the Small Business Development Center nearest you for details about funding options that may apply to your business. Learning common terminology utilized in the lending world before beginning applications is also highly advisable. A few key pieces of vocabulary are:

  • Loan maturity: This refers to the time frame in which your loan formally concludes. Loan maturity can occur at different intervals, depending on the lender and your financial situation, but loan maturity typically ranges between five and 20 years.
  • Interest rates: These percentage numbers represent the amount the lender charges for using the money you borrow.
  • Guaranty fees: These fees are paid to the issuer of a loan to cover administrative costs and reduce potential risk should something happen with your ability to repay. Guaranty fees may appear as a percentage of your total loan amount or be established as a fixed amount at the application stage.

Never assume that any of these terms will be the same from one loan to the next. Ensure you research the specific requirements of each loan before committing.

SBA 7(a) Loans

Taking its name from section 7(a) of the Small Business Act of the United States, this is the most broadly utilized loan in the SBA stable of funding options. One thing to note here is that these loans are for existing businesses, not individuals looking to launch them. The maximum loan amount of $5 million can be utilized for buying land, buildings, inventory, raw materials, and a host of other uses.

Eligibility is largely extended to for-profit businesses unable to acquire funding elsewhere. For example, suppose you are the head of a graphic design consultancy and would like to make lease improvements to your small business but have not successfully borrowed from private lenders or credit unions. In that case, an SBA 7(a) loan could be your ticket. Check out the program guidelines for the 7(a) loan to learn more about the qualifications and benefits of this type of business financing.

504/CDC Loans

Maybe you currently run a small furniture shop and are delighted to have your own business but looking to expand. The 504 Loan Program through the SBA provides borrowers with funds made available through Certified Development Companies (CDCs). This type of financing can only be used to buy or modernize real estate or acquire assets to make expansion possible.

For-profit businesses with net worth under $15 million and average less than $5 million over two standard fiscal years are eligible to borrow between $5 million and $5.5 million. These loans sport low down payments and fees that can be financed. As CDCs tend to be locally centered operations certified in certain areas, contact your SBA District Office for information on which CDC is best for your business idea.


As the name suggests, a microloan is a smaller disbursement of money, typically capped at $50,000. These funds are available to qualifying small businesses to get started and grow. Microloans are made available to purchase furniture, supplies, inventory, machinery, or as working capital.

Intermediaries handle the microloan program for the SBA, and interest rates range between 8% and 13%. While microloans have a maximum repayment period of six years, the fact that this program leverages support for businesses run by women, veterans, and minorities can be beneficial to many borrowers. 

Let’s say you own an at-home day care and experience serious and immediate cash flow problems in the wake of COVID-19. A microloan can see you through tough times without committing you to long years of interest payments.

Steps to Apply for an SBA Government Loan

There is not just one way to apply for SBA loans. Lenders will have different application processes. Make sure to visit the official websites of loan programs guaranteed by the United States government for accurate information. 

The websites worth trusting will always end in “.gov,” such as Grants.gov. Never favor third-party insights on any of these loans; do the legwork to seek out the lender sites so that you can learn what is available. However, the general steps to applying for an SBA loan are as follows:

  1. Get financial documents together
  2. Understand what you need the money for
  3. Understand how to qualify for government loans
  4. Research the needed documents

1. Get financial documents together

It’s important to understand all your financial planning and statuses when applying for any loans. You should know where you are spending money, how much each month, what areas are in trouble, and what parts represent your financial strengths. Consult closely with the SBA Loan Application Checklist before beginning your formal applications to ensure you have everything you need.

2. Understand what you need the money for

Knowing what you need to cover leads to the second step of knowing how you will use any loan money received. Applying for these loans takes time, so know what you need the money for to figure out what loan options are available and best for your small business. You can always refer to your business plan to obtain this information. Having a detailed and specialized business plan is an essential part of your company’s financial health in its startup days and beyond.

3. Understand how to qualify for government loans

When you know what you want to use the loan money for, you can see which loans you qualify for. There are also credit and capital requirements when applying for most types of funding, so looking into these factors will help you figure out where you can start applying.

4. Research the needed documents

Once you know all of the above, you can start gathering the documentation needed. Some lenders will need Articles of Organization or Incorporation, company bylaws, and more documents to support the specifics for their loans. If you’re unsure of what these are or if you don’t have these documents, contact your state division of corporations and state government officials for more information.

More Resources for Small Business Owners

While no one can say that founding a business is an easy process, getting the funding you need to realize your dreams doesn’t have to be difficult. Government resources are more readily available than you may think. Once you understand the loans available through the SBA and take a moment to evaluate the funds you need, you can begin your loan journey.

Always consult with a financial professional before deciding to borrow money for your business from any lender, government or otherwise. For trustworthy help in any aspect of starting or growing your business, ZenBusiness’s offerings and customizable business templates can save you time and stress as you start, run, and grow your business.

FAQs About Small Business and Startup Loans From the Government

  • Yes, the SBA guarantees loans directed at small business owners who may have trouble obtaining financing elsewhere or prefer the extra protections from government borrowing.

  • Some SBA loans apply to any expense associated with your small business, while others (such as those in the 504 Loan Program) can only be used for specific items, such as real estate expansion and other types of asset acquisitions.

  • There are 11 types of SBA loans currently available, although you should always check the SBA website for any updates.

  • Yes. While SBA loans feature an array of repayment options and loan terms, they are expected to be repaid in an established time. One place to start if you are seeking funding that won’t have to be repaid is Grants.gov. While not exclusively focused on federal grants, this is a resource for “free money.”

  • The application process for an SBA loan requires gathering all your business’s financial information, a careful assessment of what your business needs money for, a credit check, and several other key steps. All loan applications are different, but you’ll want to go over the SBA Loan Application Checklist for a general idea of what to prepare.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

zenbusiness logo

Written by Team ZenBusiness

Form Your LLC Today