Types of Government Small Business Loans, Requirements & How To Apply

Government small business loans are offered through two agencies, the Small Business Administration and USDA Rural Development. Between these two agencies there are 12 different government funding programs available for small businesses. If you are a small business owner seeking affordable financing, a government-backed loan may be the financing for you.

How Government Small Business Loans Work

The mechanics of government small business loans vary by the type of loan. Many government business loans are made by traditional lenders and backed by a government agency. When a business loan is backed by the government, the guaranteeing agency provides assurance to the lender that the loan will be repaid if the borrower defaults.

In other cases, some government loans are funded directly by the government; as is the case with government grants. A loan made directly by the government agency is repaid to the government, without the involvement of an outside lender. These loans are less common, but there are still government lending programs that operate in this manner.

Who Government Funding is Right For

Government small business loans and grants can be affordable sources of financing for many small businesses. Small businesses in good financial standing with the federal government, and with good credit are eligible for most loan offerings. Some government funding programs have additional qualification requirements.

Some of the businesses that government funding is right for include:

• Established businesses: Businesses with at least two years of business operations may qualify for SBA 7(a) loans and USDA B&I loans.
• Startup businesses: Small startup businesses, with less than 50 employees, may find that microloans provide enough funding to meet their financing needs.
• Rural businesses: All USDA business loans are targeted at businesses that are located in rural America. The business must be located in a city or town with a population of 50,000 or less.
• Nonprofit businesses: Nonprofit businesses are not typically eligible for government loan financing; however, most grant programs are open to nonprofits.

Types of Government Small Business Loans

There are 12 major programs that provide government small business loans and grants. These programs are offered through the Small Business Administration (SBA) and through USDA Rural Development. The exact rates, terms, and qualifications for each government funding program vary, but all have been created to assist small businesses nationwide.

The 12 types of government funding available to small businesses are:

1. SBA 7(a) Loans

SBA 7(a) loans are available in amounts up to $5 million. These term loans are to finance small, United States-based, for-profit businesses. With interest rates ranging from 7.75% to 10.25%, SBA 7(a) loans are good for businesses needing long-term capital to fund working capital, equipment purchase, or commercial real estate acquisition.

SBA 7(a) Loan Rates & Fees

Interest rates on SBA 7(a) loans are capped by the Small Business Administration and fluctuate based on the prime rate. In addition to interest, you may also pay a loan origination fee of 0.5% to 3.5% of the loan amount and/or a loan packaging fee of $2,000 to $4,000. In exchange for the loan guarantee, the SBA charges a guarantee fee ranging from 2% to 3.5% based on the amount of the loan.

The typical SBA 7(a) loan interest rates and fees are:

• Interest rates: 2.25% to 4.75% + prime rate, typically 5% to 10%, but you can check the current SBA loan rates)
• Origination fee: 0.5% to 3.5%
• Loan packaging fee: $2,000 to $4,000
• SBA guarantee fee: 2% to 3.5%

The interest rates on SBA 7(a) loans vary based on a number of factors, such as your credit score and the length of the repayment term, and whether the rates are fixed or variable. The SBA limits the rate that lenders can charge for an SBA 7(a) loan with a maximum rate set at 2.25% to 4.75% plus the prime rate.

SBA 7(a) Loan Terms

SBA 7(a) loans are available in amounts up to $5 million, with repayment terms of up to 10 years for most loans. Loans secured by commercial real estate can have repayment terms of up to 25 years. If approved, it can take up to 90 days from the date of application to receive funding.

The typical SBA 7(a) loan terms are:

• Loan amount: Up to $5 million
• Repayment terms: Up to 10 years (25 years for commercial real estate)
• Repayment cycle: Monthly
• Time to funding: 30 to 90 days or more

Small businesses considering an SBA 7(a) loan may want to use our SBA loan calculator to estimate monthly payments, based on the loan amount and repayment term of the loan being considered.

SBA 7(a) Qualification Requirements

SBA 7(a) loans are available to both startups and more established small businesses. Some SBA loan eligibility requirements are consistent regardless of whether your business is existing or a startup. These requirements include being a small business located in the United States able to demonstrate the need for the loan proceeds as well as your industry and the citizenship status of your owners.

To qualify for an SBA 7(a) loan, you will generally need to meet these minimum requirements:

• Credit score: At least 680 (check your score for free)
• Other SBA loan requirements: No recent bankruptcies, foreclosures or tax liens
• Collateral: Lenders are less likely to approve loans that aren’t backed by sufficient collateral; loans of less than $25,000 don’t need to be collateralized
• Down payment: At least 10% down payment if you are using the loan to purchase a business, commercial real estate, or equipment

Startups seeking an SBA loan will need to meet the above requirements, plus they should have:

• Demonstrated experience: Startups need to show the lender they have sufficient industry or business management experience and provide a strong business plan
• Larger down payment: Most SBA lenders will require startups to provide an equity injection or down payment of at least 20% to 30% of your total project costs
• Excellent credit: Generally, to qualify as a startup you will need a credit score of at least 700, high net worth and real estate with significant equity

How to Apply for SBA 7(a) Loans

If you’ve been in business for two or more years, have a credit score of at least 680 and are profitable, then you may qualify for an SBA 7(a) loan from SmartBiz, our recommended SBA loan provider. You can prequalify online in less than five minutes and get funded in as quickly as 30 days.

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2. SBA CDC/504 Loans

The SBA CDC/504 loan program combines two loans, one from a lender and one from a community development corporation (CDC) that can be used to purchase or refinance commercial real estate, and other fixed assets like equipment. The lender portion covers up to 50% of the loan, the CDC portion covers 40%, with the borrower providing the remaining 10%.

SBA CDC/504 Loan Rates & Fees

With an SBA CDC/504 loan, you can expect to pay low interest rates and minimum fees. In general, interest rates on the bank portion of the loan will range from 5% to 12% APR. The rates for the CDC portion of the loan are fixed and typically range from 4.5% to 6% APR.

The rates and fees you can expect with an SBA CDC/504 loan include:

• Interest rate: Typically 4% to 6%
• Underwriting fee: 0.375% to 0.4%
• Processing fee: Up to 1.5%
• Legal fee: $2,000 to $5,000
• Funding fee: 0.25%
• Guarantee fee: 0.5%

SBA CDC/504 Loan Terms

SBA CDC/504 loans are available in amounts up to $20 million for the purchase or refinance of owner-occupied real estate, and to finance business equipment. Repayment terms on SBA CDC/504 loans can be either 10 or 20 years.

The terms of an SBA CDC/504 loan are:

• Loan amounts: Up to $20 million
• Repayment terms: 10 or 20 years

SBA CDC/504 Loan Qualification Requirements

Qualifying for an SBA 504 loan is similar to qualifying for a traditional commercial real estate loan. You will need to have a credit score of at least 680, a debt service coverage ratio of at least 1.25x, and a down payment of at least 10%. Additionally, you will need to be able to demonstrate repayment ability, and have a clean financial history.

The qualification requirements for an SBA CDC/504 loan are:

• Credit score: At least 680 (check your score for free)
• Debt service coverage ratio (DSCR): At least 1.25x
• Down payment: At least 10% to 20% of the combined CDC/SBA loan amount
• Clean financial history: There should be no recent bankruptcies, foreclosures, or tax liens in your recent personal or business financial history.
• Net worth less than $15 million: Your business must have a tangible net worth less than $15 million and an average net income less than $5 million after taxes for the last two years.
• At least 51% owner occupancy: Existing buildings must be at least 51% owner occupied. For new construction, the building must be at least 60% owner occupied upon occupancy but gradually increasing to 80% owner-occupied by year 10.
• At least 10 year equipment life: Any equipment purchased with the funds must have at least a 10 year economic life (which rules out things like computers, software, etc.).
• Use of funds must create jobs or enhance SBA goals: You must show how the loan will help create new jobs or enhance public policy goals. For example, you can make existing facilities more energy efficient or increase your production of renewable energy.

How to Apply for SBA CDC/504 Loans

If an SBA CDC/504 loan seems like the government funding your business was looking for, we recommend working with Liberty SBF. If you have a credit score above 680, you’ve been in business for at least three years, are profitable, and need more than $1 million, speak with Liberty SBF today to see how much you might qualify to receive.

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3. SBA CAPLines

SBA CAPLines are best for businesses that need a revolving line of credit to make recurring payments or to prepare for unexpected expenses. The SBA CAPLines program has four SBA loan or line of credit products that are designed to provide up to $5 million to help small businesses meet their short-term and cyclical working capital needs.

SBA CAPLines Rates & Fees

The SBA CAPLines program has interest rates that mirror the SBA 7(a) loan program. However, ongoing servicing fees for an SBA CAPLine will be higher than with an SBA 7(a) loan. This is due to the fact that lines of credit are extended based on short-term assets like invoices and contracts, which require ongoing verification. For most of the CAPLines, the servicing fee is capped at 2%, but the fee can be higher for working capital lines.

The typical SBA CAPLines interest rates and fees are:

• Interest rates: 2.25% to 4.75% plus prime
• Origination fee: 0.5% to 3.5%
• Loan packaging fee: $2,000 to $4,000
• SBA guarantee fee: 2% to 3.5%
• Ongoing servicing fee: Up to 2%; may exceed 2% for Working Capital CAPLines

With a line of credit you only have to pay interest on what you borrow, and you’re not required to advance funds you don’t need. This makes it a great option for businesses with fluctuating cash flow needs.

SBA CAPLines Terms

SBA CAPLines are offered in amounts up to $5 million and have repayment terms that can extend up to 10 years. Builder CAPLines have a maximum repayment term of five years. Similar to the SBA 7(a) loan program, funding for an SBA CAPLine can take up to 90 days from the date of application.

The terms you can expect with SBA CAPLines are:

• Loan amount: Up to $5 million
• Repayment terms: Up to 10 years; five years for Builder CAPLines
• Time to funding: 30 to 90 days

SBA CAPLines Qualification Requirements

To qualify for an SBA CAPLine borrowers must have a minimum credit score of 680, with no recent bankruptcies, foreclosures, or tax liens appearing on their credit. Borrowers will also need to have a down payment of at least 10%, and will be required to provide a personal guarantee.

You will generally need to meet these requirements:

• Minimum credit score: 680 (check your score for free)
• Other SBA requirements: No recent bankruptcies, foreclosures or tax liens
• Collateral: Short-term collateral like invoices or project contracts
• Down payment: At least 10%
• Personal guarantee: Required

Additional requirements may vary depending on the SBA line of credit for which you are applying. For example, the SBA seasonal line of credit requires that your business must be in operation for at least one year and that you demonstrate the seasonal nature of your business.

How to Apply for SBA CAPLines

The application process for the SBA CAPLine program is similar to that of an SBA 7(a) loan. Lenders like banks and credit unions that participate in the SBA 7(a) program are likely to also participate in the CAPLine program. However, these lines of credit can be difficult to get as standalone products. Typically you’ll need to have a strong banking relationship with a lender to have them find underwriting an SBA line of credit to be worthwhile for the bank.

4. SBA Export Loans

SBA Export loans are offered in amounts up to $5 million, and are designed to help small businesses expand their export activities, engage in international transactions, and enter new foreign markets. Interest rates for these loans range from 6% to 12% based on the intended loan purpose.

SBA Export Loan Rates & Fees

The interest rates on SBA Export loans vary based on the purpose of the loan, and can range from 6% to 11.75% depending on loan type, and an SBA guarantee fee of 2% to 3.5% based on loan amount. In addition to interest, you may also be charged a loan origination fee that typically ranges from 0.5% to 3.5%, and/or a loan packaging fee of $2,000 to $4,000.

The rates and fees you can expect with an SBA Export loan include:

• Interest rates:
  • SBA Export Working Capital: Typically 6% to 10%
  • SBA Export Express: 9.75% to 11.75%
  • International Trade: 7.50% to 10.00%
• Origination fee: 0.5% to 3.5%
• Loan packaging fee: $2,000 to $4,000
• SBA guarantee fee: 2% to 3.5%

SBA Export Loan Terms

The loan terms on SBA Export loans vary based on the purpose of the loan. SBA Export working capital loans are available in amounts up to $5 million and have repayment terms of up to three years. SBA Export Express loans have a maximum loan amount of $500,000 and repayment terms of up to 10 years, while International Trade loans can fund up to $5 million with 10 year repayment terms.

The standard terms for SBA Export loans are:

• Loan amount:
  • SBA Export Working Capital: Up to $5 million
  • SBA Export Express: Up to $500,000
  • International Trade: Up to $5 million
• Repayment terms:
  • SBA Export Working Capital: Up to three years
  • SBA Export Express: Up to 10 years
  • International Trade: Up to 10 years
• Repayment cycle: Monthly
• Time to funding: 30 to 90 days

SBA Export Loan Qualification Requirements

Qualifications for an SBA Export loans for working capital closely resemble the requirements for an SBA 7(a) loan with a few variations based on which SBA Export loan you get. In general, you will need to have a personal credit score of at least 680 and sufficient collateral.

The general qualification requirements for the SBA Export loan program are:

• Credit score: At least 680 (check your score for free)
• Collateral: Short-term collateral like invoices or project contracts
• Personal guarantee: At least 20% guaranteed by owners
• Other SBA loan requirements: No recent bankruptcies, foreclosures or tax liens

The Export Express loan has the additional requirements that businesses be at least 1 year old and export products overseas. Your business doesn’t necessarily have to have a year’s history in exporting, so long as the business owners can show significant experience exporting.

The SBA International Trade loan program requires borrowers to show that they can develop new foreign markets, expand existing foreign markets or that the small business was adversely affected by imports and the loan will increase its competitiveness.

How to Apply for SBA Export Loans

You can apply for an SBA Export Loan through most SBA-approved 7(a) lenders. Finding a good lender is an important part of the application process. The top SBA lenders have experience with the requirements for an SBA loan, and know how to navigate the process.

If exports make up of some of your business but are not a major portion, an SBA 7(a) loan will offer almost all of the same benefits. We recommend working with SmartBiz for SBA 7(a) loans because its speed and efficiency make what can be a grueling process very easy.

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5. SBA Microloans

The SBA makes microloans of up to $50,000, available to small businesses through nonprofit lenders. Interest rates for SBA microloans range from 8% to 13%, with terms of up to six years. SBA microloans are available to startups and established businesses, and provide funding much faster than other SBA loan types.

SBA Microloan Rates & Fees

With an SBA microloan you can expect an interest rate ranging from 8% to 13%, though exact rates can vary by lender. Additionally, SBA microlenders may also charge an application fee that generally ranges from $25 to $50, and a loan processing fee of $100 to $150.

The rates and fees associated with an SBA microloan include:

• Interest rate: 8% to 13%
• Application fee: $25 to $50
• Loan processing fee: $100 to $150

SBA Microloan Terms

The maximum amount of an SBA microloan is $50,000. Repayment terms can extend up to six years, and payments are due monthly. In general, if you are approved for an SBA microloan, you will receive funding within 30 to 90 days of application.

SBA Microloan loan terms are typically:

• Loan amount: Up to $50,000
• Repayment terms: Up to six years
• Repayment cycle: Monthly
• Time to funding: 30 to 90 days

SBA Microloan Qualifications

SBA Microloan qualifications will vary from intermediary to intermediary. Unlike most of the SBA loan programs, the SBA leaves qualifications up to the intermediary, which sets all eligibility requirements and makes all credit decisions.

The basic requirements to qualify for an SBA Microloan are:

• Credit score: At least 640 (check yours for free)
• Collateral: Some required, but the amount varies by lender.
• Personal guarantee: Required

The intermediary lender in the SBA microloan program has a little more flexibility in determining your creditworthiness than large lending institutions. However, they still need to feel extremely confident in your ability to repay the loan.

How to Apply for SBA Microloans

To apply for an SBA microloan, you must work with an SBA-approved intermediary in your area. The SBA maintains a list of SBA-approved intermediaries. While SBA Microloans are smaller in size, they typically take just as long as SBA 7(a) loans to obtain, roughly 30 to 90 days.

6. SBA Disaster Loans

SBA Disaster loans are SBA loans used for recovery from a declared physical or economic disaster. Each Disaster loan can be used differently, and you can apply for multiple types of loans at the same time to meet your needs. SBA Disaster Loans are for businesses that have been negatively impacted by a disaster and can provide evidence of that impact.

SBA Disaster Loan Rates & Fees

The interest rates on SBA Disaster loans vary slightly depending on the type of disaster loan you are receiving. The interest rate on a business physical disaster loan can range from 4% to 8%, while economic injury or military reservist economic injury loans have interest rates of 4%.

The typical SBA Disaster loan rates are:

• Business Physical Disaster loan rates: 4% to 8%
• Economic Injury Disaster loan rates: 4%
• Military Reservist Economic Injury loan rates: 4%

SBA Disaster Loan Terms

SBA Disaster loans are available in amounts up to $2 million, and can have repayment terms of up to 30 years. Similar to other SBA loans, these loans require monthly payments until the debt has been repaid.

The typical SBA Disaster loan terms are:

• Loan amount: Up to $2 million
• Repayment term: Up to 30 years
• Repayment cycle: Monthly

SBA Disaster Loan Qualification Requirements

The qualifications for each type of SBA Disaster loan are slightly different. However, generally to be considered eligible for an SBA disaster loan your business must have been negatively impacted by an SBA recognized disaster. Additionally, you need to have a personal credit score of at least 660, and have demonstrated an ability to repay your loan.

The typical qualification requirements for SBA Disaster loans are:

• Credit score: At least 660 (check your score for free)
• Other SBA loan requirements: Applicants can show an ability to repay the loan
• Collateral: Required for loans above $25,000 (above $50,000 for Military Reservist Economic Injury loans)

How to Apply for SBA Disaster Loan

If disaster strikes and you need funds to cover gaps in insurance coverage or other assistance, you can apply for assistance directly from the SBA. Applying quickly enables your business to begin recovering sooner. Our article on SBA Disaster loans provides step-by-step instructions on the application and approval process.

7. USDA Business & Industry Loans

USDA Business and Industry (B&I) Loans are the most accessible of the business loans offered by USDA. The maximum loan amount for USDA B&I Loans is typically $10 million. Loan funds can be used for the modernization and development of an existing business, purchase of real estate/equipment, refinance existing debt, or acquisition that will preserve jobs.

USDA Business & Industry Loan Rates & Fees

The interest rates on USDA B&I loans range from 6% to 9%. You will also be charged a guarantee fee equal to 3% of the guaranteed loan amount when the loan is originated, and an ongoing annual guarantee equal to 0.5% of the remaining balance.

The typical rates and fees for USDA B&I loans are:

• Interest rate: 6% to 9%
• Guarantee fee: 3% of the guaranteed loan amount
• Annual guarantee fee: 0.5% of remaining principal balance
• Lender’s fees: Banks may charge loan origination fees, appraisal fees, and/or other customary fees

USDA Business & Industry Loan Terms

Repayment terms for USDA Business loans vary based on the intended purpose of the loan. Working capital loans are limited to a seven-year repayment term, loans for machinery and equipment can have terms up to 15 years, and real estate loans have a 30-year term.

The repayment terms you can expect with a USDA B&I Loan are:

• Working Capital: Not to exceed seven years
• Machinery and Equipment: Useful life or 15 years, whichever is less
• Real Estate: 30 years
• Maximum guarantee amounts: Maximum amounts of the loan guarantee vary by loan size as follows:
  • 80% for loans of $5 million or less
  • 70% for loans between $5 and $10 million
  • 60% for loans exceeding $10 million, up to $25 million maximum

All loans must be fully-amortized; balloon payments are not permitted

USDA Business & Industry Loan Qualification Requirements

The qualification requirements for a USDA B&I loan are similar to the requirements for an SBA 7(a) loan. The typical requirements for a USDA B&I loan include having a debt service coverage ratio of 1.25x or greater, a credit score of at least 680, and sufficient collateral to cover the guaranteed portion of the loan.

The primary qualification requirements for a USDA B&I Loan include:

• Repayment ability: The proposed operation must have realistic repayment ability, with a typical Debt Service Coverage Ratio (DSCR) of 1.25x or better
• Feasibility study: New enterprises will be asked to obtain a feasibility study, by a recognized independent consultant, based on your business plan
• Credit score: At least 680 (check your score for free)
• Personal and corporate guarantees: Required
• Collateral: Collateral must have documented value sufficient to cover the amount of the guaranteed portion of the loan; 80% loan to value or greater

How to Apply for USDA Business & Industry Loans

Applying for a USDA B&I Loan can be a very daunting process, and requires that a large amount of documentation be provided. The average duration from the submission of the initial application (by your lender to USDA Rural Development) to funding is 30 to 60 days, which means the overall process can take 45 to 90 days. Celtic bank is an experienced lender that can assist you with the process.

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8. USDA Rural Energy for America Program (REAP) Loans & Grants

The Rural Energy for America Program (REAP) provides guaranteed loans and grants to agricultural producers and rural small businesses to purchase/install renewable energy systems or make energy efficiency improvements. REAP loans, with interest rates ranging from 6% and 9%, can be obtained through participating lenders, while grants can be obtained directly through USDA.

These USDA business loans and grants can be used to replace old equipment with more energy efficient models, or various other energy improvement and energy efficiency projects.

Loan funds may be used for renewable energy systems (e.g., wind or solar), or for the purchase, installation and construction of energy efficiency improvements (e.g., high efficiency heating).

USDA Rural Energy for America Program Loan Rates & Fees

The interest rates on REAP loans typically range from 6% to 9%. A guarantee fee equal to 1% of the loan amount is charged when the loan is originated, and an annual guarantee equal to 0.25% of the unpaid balance is due annually.

The typical rates and fees for Rural Energy for America Program loans are:

• Interest rate: 6% to 9%
• Guarantee fee: 1% of the guaranteed loan amount
• Annual guarantee fee: 0.25% of remaining principal balance
• Lender fees: Banks may charge loan origination fees, appraisal fees, and/or other customary or third party fees

USDA Rural Energy for America Program Loan Terms

Repayment terms for REAP Loans vary based on purpose of the loan. Loans for working capital are limited to a 7-year repayment term, loans for machinery and equipment can have terms up to 15-years, and real estate loans have a 30-year term. Regardless of the loan term, the loan must be fully amortized over the course of the loan with no balloon payment at the end.

The repayment terms for REAP loans vary based on the intended use of the loan:

• Working capital: Not to exceed seven years
• Machinery and equipment: Useful life or 15 years, whichever is less
• Real estate: 30 years
• Combined equipment and real estate: 30 years

USDA Rural Energy for America Program Loan Qualification Requirements

To be eligible for a Rural Energy for America Program loan, you must be a rural agricultural producer with a debt service coverage ratio of 1.25x or greater, a personal credit score of 680 or greater, and have a completed technical report (detailed scope of work pertaining to the project) and a certified energy audit.

The primary Rural Energy for America Program Loan qualification requirements are:

• Agricultural producer: The borrower must be an agricultural producer or rural small business
• Repayment ability: The borrower must have realistic repayment ability as indicated by a debt service coverage ratio of 1.25 or greater
• Credit score: At least 680 (check your score for free)
• Technical report: Projects greater than $200,000 require a technical report detailing the scope of work, the technology being used, the location, and the site of installation
• Energy audit: Energy efficiency projects require an energy audit or assessment conducted by a certified energy auditor

Rural Energy for America Program Grant Requirements & Terms

REAP grant applications are competitively funded. All applications are ranked and scored based on a pre-described scoring criteria listed in the federal regulation pertaining to this program. The higher your application scores based on these factors, the greater the likelihood that your grant will be funded.

Grants through the Rural Energy for America Program are available in the following ranges:

Renewable Energy System Grants:

• $2,500 minimum grant
• $500,000 maximum grant

Energy Efficiency Grants:

• $1,500 minimum grant
• $250,000 maximum grant

How to Apply for USDA Rural Energy for America Program Loans & Grants

If your rural business could benefit from a renewable energy system, an upgrade to an existing renewable energy system, or energy efficiency upgrades you may be eligible for these programs. Applications for both the loan and grants program are accepted year-round. To obtain an application package contact your local USDA Rural Development State Office.

Grant applicants must meet the appropriate application deadlines for the grant type that they are applying for. Grant deadlines and application requirements for the Rural Energy for America Program can be found in the Notice of Solicitation of Applications for FY 2019 that was posted in the Federal Register Aug. 14, 2018.

9. USDA Value Added Producer Grants

The USDA Rural Development’s Value Added Producer Grant (VAPG) is targeted at borrowers in a niche market. Planning grants up to $75,000 and working capital grants up to $250,000, help agricultural producers enter into value-added activities related to the processing and/or marketing of their products. These grants are open to independent agricultural producers, agricultural producer groups, and cooperatives of farmers or ranchers.

Value-added products are defined by the USDA as having:

• A change in the physical state or form of the product (such as milling wheat into flour or making strawberries into jam)
• The production of a product in a manner that enhances its value (such as organically produced products)
• The physical segregation of an agricultural commodity or product in a manner that results in the enhancement of the value of that commodity or product (such as an identity preserved marketing system)

USDA Value Added Producer Grant Terms

The VAPG program offers Planning Grants up to $75,000, and Working Capital Grants up to $250,000. Applicants must be agricultural producers or farmer/rancher cooperatives. The applicant producer must supply at least half of the commodity needed for the project and demonstrate that the project will expand the customer base and increase revenues.

USDA Value Added Producer Grant Qualification Requirements

Grant funds can be used for planning or working capital expenses related to producing and marketing a value-added agricultural product. Examples of planning activities include feasibility studies and developing business plans for processing and marketing the proposed product. Examples of working capital expenses include processing costs, marketing and advertising expenses, and some inventory and salary expenses.

Matching funds equal to 50% of the total project cost are required, which may be in the form of:

• Cash or eligible in-kind contributions
• Up to 50% of the matching funds may come from the farmers’ own time and effort

How to Apply for USDA Value Added Producer Grants

Annually, USDA publishes a Notice of Funding Available (NOFA), or Notice of Solicitation of Application (NOSA), in the Federal Register inviting eligible applicants to apply for value-added producer grants. The NOFA/NOSA establishes the timeline for application submission, typically 60 to 90 days from the date of publication, as well as detailing all of the eligibility requirements.

Grant applicants must meet the appropriate application deadlines for the grant type that they are applying for. Grant deadlines and application requirements for the Rural Energy for America Program can be found in the Notice of Solicitation of Applications that is published annually.

10. USDA Rural Business Development Grants

Rural Business Development Grants are designed to support activities leading to the development or expansion of small and emerging rural businesses. Eligible business activities for these grants are separated into enterprise type or opportunity type grant activities. Enterprise grants typically range from $50,000 to $500,000, while Opportunities grants offer a maximum grant amount of $50,000.

Small and emerging private rural businesses (including minority owned businesses) are defined as businesses that have fewer than 50 employees, less than $1 million in revenues, and are located in rural areas.

USDA Business Development Grant Terms

For Rural Development Business Grants that fall under the “enterprise” grant category there is no maximum grant amount; however, smaller grant requests are given higher priority. Grants in this category typically range from $50,000 to $500,000. For grants that fall under the “opportunities” grant category the maximum grant amount cannot exceed $50,000.

USDA Business Development Grant Qualifications

USDA Rural Development grant recipients must be nonprofit corporations, rural cooperatives, towns/communities, or state agencies/authorities located in a rural city or town. Enterprise grants can be used for acquisition, construction, renovation, and purchase of machinery and equipment. Opportunities grants can be used for community economic development activities, feasibility studies, creation of business plans, and strategic planning.

All applications are evaluated based on evidence of local job creation, percentage of non-federal funding committed, economic need in the area, consistency of the proposal with local economic development priorities, and the grantee’s experience with similar efforts.

Enterprise grants can be used for:

• Training and technical assistance such as project planning, business counseling/training, market research, feasibility studies, professional/technical reports, or product/service improvements
• Acquisition or development of land, easements, or rights of way; construction, conversion, renovation of buildings; plants, machinery, equipment, access for streets and roads; parking areas and utilities
• Pollution control and abatement
• Capitalization of revolving loan funds, including funds that will make loans for startups and working capital
• Distance adult learning for job training and advancement
• Rural transportation improvement
• Community economic development
• Technology-based economic development

Opportunity grants can be used for:

• Community economic development
• Technology-based economic development
• Feasibility studies and business plans
• Leadership and entrepreneur training
• Rural business incubators
• Long-term business strategic planning

How to Apply for USDA Business Development Grants

RBDG grant funds are allocated to the USDA State offices annually and announced to the public through a Notice of Solicitation of Application. The application deadlines for the Rural Development Business Grant vary by state. Interested parties should contact the business programs staff to find out the application deadlines in the state where your project is located.

While your small business may not be eligible to apply for these grants directly through USDA, you could still benefit if an agency or organization in your area received grant funding through this program. You can inquire with your local USDA Rural Development office to find out who the recent USDA Rural Development grant recipients were, and if the scope of their grant proposal included funding that may be beneficial to your business.

11. USDA Intermediary Relending Program

The Intermediary Relending Program (IRP) provides low-interest loans to nonprofits, and public bodies, that then re-lend those funds to local businesses and communities to stimulate economic and community development in rural areas. USDA business loan funds under the IRP program can be used for the acquisition, construction, enlargement, or repair of a business or business facility, particularly when jobs will be created or retained.

Rural businesses can apply to the Intermediary for loans up to $250,000. Interest rates for this type of USDA business loan are set by the lender (referred to as the “Intermediary” by the USDA) and range from 0% to 6%. The maximum repayment term is 30 years. Borrowers must be in a rural area, in good standing with the government, unable to obtain credit elsewhere, and have no interest/authority in the Intermediary.

USDA Intermediary Relending Program Rates & Fees

The interest rates charged on loans through the Intermediary Relending Program are set by the intermediary re-lender. In general, interest rates range from 0% to 6%. The intermediary may charge additional lender fees at their discretion, and those fees will vary by lender.

The typical rates, fees, and terms for Intermediary Relending Program loans are:

• Interest rate: 0% to 6%
• Lender fees: Intermediary re-lender may charge loan origination fees, appraisal fees, and/or other customary / third party fees

USDA Intermediary Relending Program Terms

Loans to individual businesses through the Intermediary Relending Program can be made in amounts up to $250,000. These loans can have repayment terms of up to 30 years, with terms set by the intermediary.

The terms you can expect with a loan through the Intermediary Relending Program are:

• Loan amount: Up to $250,000
• Repayment term: Up to 30 years

USDA Intermediary Relending Program Qualification Requirements

Eligible borrowers may be individuals, public or private organizations, or other legal entities, whose business’s majority ownership is held by US citizens or permanent residents. Additionally, you will need to have a clean credit history with no delinquent debt owed to the government, and be located in a rural area as defined by USDA Rural Development.

Eligible borrowers must meet the following requirements:

• No delinquent debt owed to the federal government
• Unable to obtain affordable commercial financing for the project elsewhere
• Located in an eligible rural area
• No legal or financial interest or influence in the intermediary

How to Apply for a Loan Through the USDA Intermediary Relending Program

If your small business is an eligible borrower through this program, contact the IRP lender in your area directly to find out about their application process. To find out which organizations in your state are currently operating an Intermediary Relending Program you can contact the USDA Rural Development State Office for the state where your business is located.

12. USDA Rural Microentrepreneur Assistance Program

The Rural Microentrepreneur Assistance Program (RMAP) provides funds to approved nonprofits, referred to as Microenterprise Development Organizations (MDOs). The MDOs then make small loans of up to $50,000 to micro-businesses for working capital, refinancing of existing debt, the purchase of equipment and/or supplies, or to improve the business’s facilities. Interest rates typically range from 5% to 8%, with loan terms up to 10 years.

Micro-businesses are defined as rural businesses with 10 or fewer full-time employees. To be an eligible micro-business, the business must be located in a city or town with a population of 50,000 or less.

USDA Rural Microentrepreneur Assistance Program Rates & Fees

Rural Microentrepreneur Assistance Program loans have a maximum loan amount of $50,000. The interest rates for these loans are set by your lender. You will receive a fixed interest rate, typically ranging from 5% to 8%. Loan terms under this USDA business loan program may not exceed 10 years.

The rates and fees associated with an RMAP loan include:

• Interest rate: 5% to 8%
• Lender fees: MDO may charge loan origination fees, appraisal fees, and/or other customary fees

USDA Rural Microentrepreneur Assistance Program Terms

Rural businesses receiving a microloan through the Rural Microentrepreneur Assistance Program can receive loans up to $50,000. Repayment terms on these microloans cannot exceed 10 years.

The terms you can expect with an RMAP loan are:

• Loan amount: Up to $50,000
• Repayment term: Up to 10 years

USDA Rural Microentrepreneur Assistance Program Qualification Requirements

To be eligible for a microloan funded by the Rural Microentrepreneur Assistance Program businesses must be located in an eligible rural area (a city or town with a population of 50,000 or less) and have 10 or fewer full-time employees. Additionally, a minimum down payment of 25% of the total project cost is required.

The qualification requirements for the USDA Rural Microentrepreneur Assistance Program include:

• Location: Located in a rural area as defined by USDA Rural Development
• Business size: 10 or fewer full time employees
• Down payment: At least 25% down payment/equity

How to Apply for the USDA Rural Microentrepreneur Assistance Program

If your small business is an eligible borrower through this USDA business loan program, you can contact the Rural Microentrepreneur Assistance Program lender in your area directly to find out about their application process. To find out which organizations in your state are currently operating under the Rural Microentrepreneur Assistance Program contact the USDA Rural Development State Office for the state where your business is located.

Government Small Business Loans vs Government Grants

A government small business loan operates in the same manner as an installment loan from a traditional lender. In fact, many government loans are offered through traditional banks, and guaranteed by a government agency. As such, when you receive one of these loans, you will make monthly payments over the term of the loan until the loan funds have been repaid.

A government small business grant is a small amount of money given to a small business without the expectation or requirement to repay the funds. Government grants are competitive, have strict deadlines, and are offered to foster growth in an intended industry or sector. If you receive a government grant, you will typically have to send reports to the government agency quarterly regarding the progress of the proposed grant project.

Pros & Cons of the Government Small Business Loans

Government small business loans offer advantages such as lower interest rates, longer repayment terms, and lower down payment requirements when compared to other financing options. However, they can be difficult to qualify for, the process is time consuming, and funding is not always available for all of the government funding programs.

Pros of Government Funding

Some of the benefits of government small business loans include:

• Interest rates are lower: In general, the interest rates on government small business loans are lower than those you would be charged by other lenders.
• Longer repayment terms: The longer repayment terms offered on government loans make monthly payments more affordable.
• Lower down payment requirements: Government small business loans have lower down payment requirements than traditional business loans; often only requiring a down payment of up to 10%.

Cons of Government Funding

Potential drawbacks of government small business loans include:

• Qualifying can be difficult: Government small business loans can be difficult to qualify for, they require solid credit and demonstrated repayment ability. It can be difficult for startups and other small businesses to meet these requirements.
• Funding is not always available: If you are trying to apply for a government grant, you can only do so at certain times during the year. The deadlines for grant applications are firm, and if you miss the current deadline you won’t be able to apply until next year.
• The process takes time: Whether you are applying for an SBA loan or a USDA Rural Development loan, the process can take months before you receive funding. If you need financing faster you may want to consider an alternative financing option.

Alternatives to Government Small Business Loans

While government small business loans can be an affordable source of financing for your small business, the qualification requirements are somewhat restrictive and it can take months to receive funding. If your business does not meet the general qualification requirements for government funding, or you need a faster source of capital, you may want to consider an alternative source of financing.

If government funding is not the right fit for your business, some alternatives include:

Rollover for Business Startups

If you have an existing 401(K), a rollover for business startups (ROBS) allows you to utilize funds from your retirement account to provide funding for your business. You can use a rollover for business startups without paying any early withdrawal penalties or taxes on the funds used from your retirement account. If you have retirement savings you are willing to invest in your business, you may want to contact a ROBS provider.

Alternative Small Business Loans

If you need to receive funds quickly, you may be able to receive a quick decision from an alternative lender. Further, alternative business loans often have more flexible credit terms, so you may be able to receive financing not otherwise available from either the SBA or a traditional bank. Alternative lenders can often provide funding in seven days or less, making them an exceedingly faster source of funding than a government small business loan.

Personal Loans for Business

It can sometimes be challenging to get a business loan, in which case a personal loan for business might be your best financing option. If your business isn’t generating annual revenues yet, it can be difficult to qualify for a conventional business loan. Qualifying for a personal loan is based on your personal credit and finances, which can often make it easier to obtain financing. Some of the best personal loans for business are easy to apply for and provide fast funding.

Government Funding Frequently Asked Questions (FAQs)

How do I get a small business loan from the government?

The most common government business loan is the SBA 7(a) loan, which is a guaranteed loan issued by an SBA approved lender, and backed by the SBA. You can apply for an SBA loan through an approved lender. If you qualify, and are approved, you can receive funding in 30 to 90 days.

What grants are available for small businesses?

There are a number of grants for small businesses offered by various government agencies, lenders, and other organizations. Many grants are offered to a defined demographic such as rural businesses, grants for minorities, grants for women, and grants for military veterans. Grants.gov provides a comprehensive list of all current government grant offerings.

How do I get a government grant to start a business?

Unfortunately, there are no government grants offered for the purpose of starting a business. However, through the Small Business Administration and USDA Rural Development, there are opportunities for startup businesses to receive loans. These loans have lower interest rates, and longer repayment terms than a conventional business loan, making them more affordable for startups.

Bottom Line

The two primary sources of government small business loans are the Small Business Administration, and the United States Department of Agriculture Rural Development. Together, these two agencies offer 12 different loan and grant products geared specifically toward small businesses. Each program meets a specific small business need, and has its own set of requirements.

If you are interested in receiving a government small business loan, SmartBiz offers SBA 7(a) loans in amounts up to $350,000. The SBA 7(a) loan is one of the most versatile government small business loans available. SmartBiz has streamlined the application and approval process, making it possible to receive funding in as little as 30 days.

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