Todays Tip
Best Practice: Most capital through the government are loans not grants. Most loans are tied into creating jobs. See if it is right for you. 139
Todays Article: Access to Capital – Government Loans
Government loans can come from federal, state, county or city agencies. The federal government, the largest, provides access to capital through various federal agencies and through the Small Business Administration (SBA) that works as a guarantor with lenders in your area.
Advantages of a Government Loan
1. Open to start-up and existing businesses
2. Access to capital for businesses that may not qualify for a traditional bank loan
3. Capital available for qualifying veterans and minorities
4. Debt (loan) source of money is at a lower rate of interest than microloans or angel investing
5. Have a structured loan payback period over a number of years
6. Interest paid on the loan is tax deductible
7. Potential future funding
Disadvantages of a Government Loan
1. Debt that a business has to repay – creates more overhead in your business
2. Applicant needs to have good credit and requires running a credit report
3. Loss of collateral assets if loan is not repaid
4. Paying a higher interest rate or fees than a traditional bank loan
5. An outside lender is now involved in your company – choose wisely
6. Can take time to secure
Government resources for financing for your business! http://business.usa.gov/access-financing
Government Guaranteed Loans (Small Business Administration)
The Small Business Administration (SBA) works as a guarantor on loans to small businesses. If you are pursuing an SBA-guaranteed loan you should attempt to work with lenders in your area that partner with the SBA. Funds guaranteed or provided by the SBA may be used to build or start a business, not as a means of paying off creditors, to cash out investors, or for investment in real estate, among some other restrictions. Qualifications for an SBA loan change over time and with the nature of your business, but general guidelines for qualifying are listed below:
Your business must meet size limits set by the SBA
Business must be a for-profit entity
Business cannot be dominant in its field
Business must be independently owned and operated
SBA Loan Programs
Regular 7(a) Loan – utilizes the full SBA loan application
Preferred Lender Program (PLP) Loan – utilizes the full SBA loan application
SBA Express Loan – does not utilize an SBA loan application
504 Loan – Fixed asset financing similar to 7(a) using a Certified Development Co.
More details about SBA Loan programs.
For more information on the SBA call its Answer Desk at 800-827-5722.
SBA District Offices near you: http://www.sba.gov/tools/local-assistance/districtoffices
The SBA Microloan Program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start-up and expand. The average microloan is about $13,000.
Offices of Economic Development
Offices of Economic Development are state and local entities that provide financing and information on finding other sources of capital. Economic Development gives money to a lot of technology and manufacturing businesses, but programs change annually, so check with your local office. For example, if your town or city has high unemployment or low per capita income, you may be eligible for a loan because the state is encouraging businesses in your area.
Offices of Economic Development near you http://www.sba.gov/content/economic-development-agencies
Action Step: Research the government resources above for financing.
Additional Resources
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