Randa Kriss is a small-business writer who joined NerdWallet in 2020. She previously worked as a writer at Fundera, covering a wide variety of small-business topics including banking and loan products. Her work has been featured by The Washington Post, The Associated Press and Nasdaq, among others. Randa earned a bachelor's degree in English and Spanish at Iona College.
Ryan BradyLead Writer | Auto insurance, life insurance
Last updated on September 6, 2024 Sally LaucknerSally Lauckner has over a decade of experience in print and online journalism. Before joining NerdWallet, Sally was the editorial director at Fundera, where she built and led a team focused on small-business content. Her prior experience includes two years as a senior editor at SmartAsset, where she edited a wide range of personal finance content, and five years at the AOL Huffington Post Media Group, where she held a variety of editorial roles. She has a master's in journalism from New York University and a bachelor's in English and history from Columbia University. Email: slauckner@nerdwallet.com.
✅ Fact checked and reviewed Government-backed business loans offer favorable terms but have tough qualifications. See Your Loan Optionswith Fundera by NerdWallet
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Government small-business loans are highly desirable — they offer relatively 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.
With several government small-business loans available, it’s not always clear which is best for your business. We’ll dive into the various government small-business loans, who they’re best for, how they work and what you’ll need to qualify.
Best government small-business loan category SBA 7(a) loan SBA Express loan SBA Microloan SBA CAPLines of credit SBA CDC/504 loan SBA Economic Injury Disaster LoanNerdWallet's small-business loans content, including ratings, recommendations and reviews, is overseen by a team of writers and editors who specialize in business lending. Their work has appeared in The Associated Press, The Washington Post, MarketWatch, Nasdaq, Entrepreneur, ABC News, MSN and other national and local media outlets. Each writer and editor follows NerdWallet's strict guidelines for editorial integrity to ensure accuracy and fairness in our coverage.
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SHOW ALL MAX LOAN AMOUNT EST. APR MIN. CREDIT SCOREOverall 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.
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Max Loan Amount Min. credit score Pros & Cons Product Details7(a) loans are issued by private lenders and backed by the SBA. They offer long repayment terms and low interest rates.
Min. Credit score
7(a) loans are issued by private lenders and backed by the SBA. They offer long repayment terms and low interest rates.
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SBA Express loans offer up to $500,000 and can fund faster than other SBA loan options.
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Max Loan Amount Min. credit score Pros & Cons Product DetailsSBA 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.
Min. Credit score
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.
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Startups or 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 or if you're a newer business.
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Max Loan Amount Min. credit score Pros & Cons Product DetailsSBA microloans are small-sized loans funded by the U.S. Small Business Administration and issued through approved intermediaries, typically nonprofit and community lenders.
Min. Credit score
SBA microloans are small-sized loans funded by the U.S. Small Business Administration and issued through approved intermediaries, typically nonprofit and community lenders.
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Lines of credit
The SBA CAPLines program offers four credit line options that can be used for a variety of business purposes.
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Max Loan Amount Min. credit score Pros & Cons Product DetailsThe SBA CAPLines program offers four lines of credit that can help businesses meet short-term and cyclical working capital needs. These credit lines have competitive interest rates and repayment terms.
Min. Credit score
The SBA CAPLines program offers four lines of credit that can help businesses meet short-term and cyclical working capital needs. These credit lines have competitive interest rates and repayment terms.
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SBA CDC/504 loans offer low-cost, long-term financing that you can use to purchase, renovate or construct buildings and facilities.
SBA 504 loans are designed to promote business growth and job creation through the purchase or upgrade of major fixed assets.
Min. Credit score
SBA 504 loans are designed to promote business growth and job creation through the purchase or upgrade of major fixed assets.
Government loans after a disaster
SBA Economic Injury Disaster Loans provide emergency funds of up to $2 million for businesses in declared disaster areas that have suffered substantial economic injury.
SBA Economic Injury Disaster Loans (EIDLs) provide working capital to small businesses that can’t pay for their typical operating expenses as the result of a disaster.
Min. Credit score
SBA Economic Injury Disaster Loans (EIDLs) provide working capital to small businesses that can’t pay for their typical operating expenses as the result of a disaster.
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 default on the loan, the government will 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 small-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.
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:The 7(a) program is the primary type of SBA loan, with more than $26 billion in loans issued so far in fiscal year 2024 [0]
U.S. Small Business Administration . 7(a) & 504 Lender Report. Accessed Sep 6, 2024.. 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 lines of credit.
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.
Short for “capital lines of credit,” SBA CAPLines offer eligible small-business owners lines of credit to help with short-term gaps in cash flow. Lines of credit work similarly to credit cards: you take out money on an as-needed basis up to a specific limit. CAPLines can be used to finance seasonally high inventory or labor costs, build or rehabilitate property, cover expenses related to carrying out a contract or serve as general working capital.
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.
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. According to the U.S. Small Business Administration, the average microloan amount for the 2024 fiscal year is about $16,500 [0]
U.S. Small Business Administration . Microloans Summary Report. Accessed Sep 6, 2024.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: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.
This financing can help you repair or replace damaged real estate, equipment, machinery or other physical assets.
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.
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 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 rural businesses with 10 or fewer full-time employees.
Rural Economic Development Loan Program. Offers loans to fund projects that will create or retain rural jobs.
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.
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 in turn invest in small businesses in exchange for a share of ownership. 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.
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.
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.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, use the lender match tool on the SBA website. The SBA also maintains a list of current intermediaries participating in its microloan program.
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.
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.
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.
NerdWallet Assigning Editor Ryan Lane contributed to this article. Last updated on September 6, 2024NerdWallet’s review process evaluates and rates small-business loan products from traditional banks and online lenders. We collect over 30 data points on each lender using company websites and public documents. We may also go through a lender’s initial application flow and reach out to company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.
Read more about our ratings methodology for small-business loans and our editorial guidelines.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.
See Your Loan OptionsThe U.S. Small Business Administration only lends directly to businesses that have been impacted by disasters. Otherwise, the SBA and Department of Agriculture partially guarantee loans that banks and financial institutions make to small-business owners. These loans typically have longer terms and lower interest rates than any other kind of financing.
Can you borrow money from the government to start a business?The government doesn’t typically offer loans for you to launch a new business. For startups that are already operational, however, SBA microloans will likely be the best government-backed business loan option.
Can you get a government business loan with bad credit?Most government business loans require that you have good to excellent personal credit. SBA Microloans and USDA rural business loans may be available to business owners with fair or poor credit, however. These programs are designed to provide funding to traditionally underserved communities and tend to have less stringent qualification requirements.
Meet the editorial team
Lead Writer | Small business
Randa Kriss is a lead writer and NerdWallet authority on small business. She has nearly a decade of experience in digital content. Prior to joining NerdWallet in 2020, Randa worked as a writer at Fundera, covering a wide variety of small-business topics and specializing in the lending and banking spaces. Her work has been featured in The Washington Post, The Associated Press, MarketWatch and Nasdaq, among other publications. She has also hosted a webinar as part of the SBA's 2024 National Small Business Week Virtual Summit. Randa is passionate about helping small-business owners make educated financial decisions, especially when it comes to affordable funding. She is based in Chicago.
Education: B.A. in English and Spanish from Iona University (formerly Iona College) Awards: 2024 Xana Fellowship from the Society for Advancing Business Editing and Writing Previous experience: Fundera, Serendipity Magazine, American Kennel ClubLead Writer | Small business, Insurance
Ryan Brady is a lead writer at NerdWallet and authority on small-business lending and insurance. Ryan enjoys simplifying complex finance topics to help small-business owners make smarter financial decisions. His work has appeared in TechCrunch, MarketWatch, Yahoo, Nasdaq and more.
Before joining NerdWallet, Ryan was a senior writer and principal researcher at Gartner. He is based in Fort Myers, Florida.
Education: B.A. in communication from Florida Gulf Coast University Previous experience: Researcher, GartnerAssigning Editor | Small business
Sally Lauckner is an editor on NerdWallet's small-business team. She has over 15 years of experience in print and online journalism. Before joining NerdWallet in 2020, Sally was the editorial director at Fundera, where she built and led a team focused on small-business content and specializing in business financing. Her prior experience includes two years as a senior editor at SmartAsset, where she edited a wide range of personal finance content, and five years at the AOL Huffington Post Media Group, where she held a variety of editorial roles. She is based in New York City.
Education: B.A. in English from Columbia University, M.A. in journalism from New York University Previous experience: Fundera, SmartAsset, HuffPost, AOL NerdWallet Home Page Finance Smarter Credit Cards Financial Planning Financial News Small BusinessDownload the app
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