Government funding for small businesses is a great way to give your company a low-cost cash injection. Generally, government business funding programs offer lower interest rates, more flexible repayment terms, and large guarantees from the federal government. Furthermore, these programs are often aim to help small ventures or entrepreneurs from minorities or disadvantaged communities. Therefore, it’s likely that there is a suitable program for your venture, whether you’re looking to stimulate growth or funding to start a business.
However, with so many different programs, it’s easy to get confused by all the options – especially as government websites are notoriously difficult to navigate! Some sectors are allocated specific departments, whereas others will be covered under the Small Business Administration. Furthermore, there are federal and state programs available, so you may have access to different funding sources depending on where you’re based. But don’t worry – if you’re starting to feel lost already, we’ve got you covered. Below, you can find out how to get a business loan from government programs with our crash course.
Government-backed business loans
Government-funded business loans provide financial assistance to entrepreneurs who may have issues qualifying for loans offered by traditional creditors. However, just to keep you on your toes, the federal government doesn't provide these loans directly – instead, third-party financial institutions grant and manage the programs. Therefore, when you’re looking for your loan, you’ll need to identify an organization in your state that participates in a government funding program.
Instead of lending the money directly, the government guarantees loans provided by third parties. This means that if the borrower defaults, the federal government promises to take on the debt. This guarantee enables participating creditors to offer better deals as the guarantee mitigates the risk. However, this isn’t to say that applying for these loans should be taken lightly. Having a delinquent debt to the government can be equally as damaging to your credit file as defaulting on a private loan – so make sure you understand the conditions.
There are various agencies and services that can help you find a government-backed loan that best suits your needs. Most of these programs are administered by the Small Business Administration, the government agency responsible for small business development.
Information about government guaranteed loan programs
• Small Business Administration (SBA) - The Small Business Administration offers assistance to a variety of small business owners, providing your company meets their definition of a small business. To find a participating lender in your area, check out the SBA’s Lender Match tool. The SBA also runs specific lending programs aimed at exporting and disaster assistance.
• US Department of Agriculture (USDA) - The USDA is your best bet for funding and advice if you run a farm or rural business. The USDA aims to support rural development, which means they are best placed to assist companies in the country. For information on their loan guarantee program, take a look at this fact sheet.
• GovLoans – GovLoans is a handy resource where you can research the different types of government funding for small businesses. Formatted in an easy-to-understand list, you can search for loans by category and learn more about how to apply.
Grants for small business
Generally, the federal government doesn’t offer grant funding to start a business or expansion of a private enterprise. However, you might be eligible if you run an organization with a focus on research, technology, or community development. For example, the SBA funds a number of grant programs focussed on developing businesses founded by veterans, such as their Boots to Business program. These programs are a great way for current and ex-military personnel to pursue entrepreneurial projects. However, as you would expect, these awards come with a lot of paperwork and monitoring as they use public money.
There are also grants available for medical, tech, and R&D organizations. For instance, the Small Business Innovation Research (SBIR) program awards money to businesses with a view to nurturing scientific excellence. From here, the project aims to encourage the private sector to invest in federally funded research. Although it’s definitely worth looking into if you’re running a tech firm, it’s important to bear in mind that the fund is extremely competitive.
The SBA also helps state international trade agencies to provide grants to small businesses involved in exporting American products. The State Trade Expansion Program (STEP) aims to encourage more small businesses to export, increase the value of their products, and stimulate the American economy through international trade. To find out more about your state’s initiative, contact your local department of commerce. You can find a full list of each department and the relevant contact details in this announcement.
A final word on small business grants and funding – usually, the funder will not agree to fund 100% of your project or venture. Generally, they’ll require that you match their contribution with other forms of financing, like a loan or an investor.
Other government funding for small businesses
Finally, here’s a couple more ways you can source government funding for small businesses. Both the federal government and individual states offer funding for entrepreneurs aside from loans and grants, such as matching enterprises with investors. See below for a quick summary: