Government Loans: The Ultimate Guide to SBA Lending

Amy Fontinelle
on June 19, 2017
Read in 5 min

Small business government loans through the SBA fall under several categories and while they all have slightly different requirements, there’s a few universal things that you should know.

Generally speaking most SBA government loans will require business owners to start by submitting the following:

  • A loan application
  • Personal background & financial statements
  • Business financial statements
  • and personal & business income tax returns

Plus, for the best SBA loan terms you’ll want to have credit score of 660 or higher and a credit history free of recent bankruptcies, foreclosures, and tax liens.

Loans are available to a wide variety of small businesses interested in purchasing real estate and equipment, acquiring seasonal inventory, or recovering from a natural disaster, just to name a few.

Qualifying for any of these loans starts with meeting the SBA’s size standards for your industry (in terms of number of employees or average annual receipts for the last three years.)

In addition, your business must:

  • Operate for profit
  • Not have access to other forms of financing
  • Be independently owned and operated
  • Not be nationally dominant in its field
  • Have a US location
  • and operate primarily in the United States.

NOTE: Certain types of businesses, such as those related to gambling, religious teaching, and political lobbying are ineligible for SBA assistance.

Meanwhile, other types of businesses can be subject to various special considerations.

Additional SBA loan requirements vary by business loan type – let’s explore these program specifications below:

1. SBA 504 Loan (also called SBA Grow Loan)

What are 504 Government Loans for:

SBA Grow Loans are for businesses looking to borrow up to $5.5 million to purchase real estate, equipment, or other major fixed assets.

Borrowers must meet job creation, public policy, or community development goals such as revitalizing a business district, expanding a minority-owned business, or contributing to rural development.

Small business owners should expect to offer the assets being financed as collateral and be able to repay the loan in 10 or 20 years.

How to Get an SBA Grow Loan:

Have your 10% down payment ready, and apply with a local Certified Development Company, a nonprofit corporation that works with participating lenders to provide small business financing.

2. 7(a) Loan (also called SBA Advantage Loan)

What are SBA 7(a) Loans for:

The SBA 7(a) loan program is perfect for SMBs needing to borrow up to $5 million for operational expenses, accounts payable, inventory, seasonal financing, contract performance, construction financing, exporting, equipment, machinery, furniture, fixtures, supplies, materials, real estate, renovations, startup costs, expansion costs, or debt refinancing.

SBA Express Loans for Business

One special loan available through the SBA Advantage Loan Program is called an SBA Express Loan.

The SBA Express Loan is great for small business owners borrowing $350,000 or less as a revolving line of credit. Special requirements include demonstrating an urgent need for funding and a willingness to repay the loan within 7 years.

How to Get an SBA Advantage Loan:

Make sure you’re current with all your existing business debts, set aside some funds for a down payment, and apply for an SBA Loan with a local SBA-approved Community Advantage lender.


RELATED:

Everything You Need to Know About SBA Loans

Why Small Businesses Don’t Get Loans From Big Banks

Do These 5 Things To Get Your Small Business Loan


3. CAPLines  Loan

What is the SBA CAPLines Loan Program for:

The CAPLines Loan Program is technically a sub-category of SBA Advantage Loans, but it’s very important for small businesses that need to borrow up to $5 million (for five years or less) for cyclical working capital.

CAPLines loan funds can be used to cover seasonal gaps in working capital, certain direct construction costs, and some purchase orders.

There are five types of CAPLine Loans for Business:

  • The Standard Asset-Based Line of Credit and Small Asset-Based Line of Credit programs are mainly for businesses that provide credit to other businesses and that need to finance cyclical growth, recurring, and/or short-term needs. When the business converts short-term assets to cash, it makes payments to the lender.
  • The Builders Line Program is for small contractors or developers who need funds for labor and materials to build or rehab real estate for sale to an unknown third party.
  • The Seasonal Line of Credit Program helps seasonal businesses with a history of at least 12 months to purchase extra inventory, labor, and materials.
  • And the Contract Loan Program provides financing for assignable contracts, subcontracts, and purchase orders.

How to Get a CAPLines Loan:

We recommend business owners pledge accounts receivable, inventory, contracts, or purchase orders to appeal to SBA lenders.

To find out which banks offer SBA revolving lines of credit, use the SBA’s find a lender tool. You can also reach out to the same lenders that participate in the SBA 7(a) loan program to find ones that offer CAPLines loans.

4. Small Business Administration Disaster Loan

What are SBA Disaster Loans for:

The SBA Disaster Loan Program exists to help small- to medium-sized businesses that must repair or replace real estate, machinery, equipment, inventory, or other assets damaged or destroyed as the result of a declared disaster (some examples include the Tennessee wildfires, Hurricane Matthew, and the Alabama floods).

There are two types of Disaster Loans for Business:

  • The Economic Injury Disaster Loan helps small businesses pay ordinary and necessary operating expenses of up to $2 million after a disaster disrupts regular operations.
  • Physical Disaster Loans offer loans of up to $2 million to repair or replace real property, machinery, equipment, fixtures, inventory, and leasehold improvements when insurance proceeds aren’t sufficient.

Qualifying businesses may apply for both types of loans, but note that the combined maximum is $2 million.

How to Get an SBA Disaster Loan:

Apply directly with the SBA online, in person, or by mail. 

You’ll have to pass a credit check of course, and authorise the IRS to inspect your tax returns.

Be prepared to coordinate with an SBA verifier to inspect your damaged property to estimate your total physical losses.

Plus, you’ll be assigned a case manager to help you meet ongoing loan conditions.

5. SBA Export Government Loans

What are SBA Export Government Loans for:

Export Loans as large as $5 million are available to provide financing for suppliers, inventory, or production of goods; to support long payment cycles for foreign accounts receivable; and to finance stand-by letters of credit.

Business owners can also finance activities that will expand their exports or improve their competitive position with respect to imports, such as renovating or improving facilities where they produce goods for international trade.  

How to Get an SBA Export Loan:

There are three types of export loans available through the government–

You can decide for yourself which is the best fit for your company’s needs:

  • the Export Express Loan Program
  • the Export Working Capital Program
  • and the International Trade Loan Program

If your small business is ready to apply for an Export Loan through the SBA, you contact an approved government lender, contact your local U.S. Export Assistance Center, or find an export lender near you, or submit a loan request here.

6. SBA Microloan

What are SBA Microloans for:

The Small Business Administration Microloan Program is ideal for the small business owner who can afford to put up collateral and offer a personal guarantee in exchange for loan proceeds of $50,000 or less to be used for working capital, inventory, supplies, furniture, fixtures, machinery, or equipment.

A unique feature of Microloans: Borrowers must be able to repay the loan in six years or less.

How to Get an SBA Microloan:

The easiest way to qualify for an SBA Microloan is to connect with a participating intermediary microlender serving your area.

These nonprofit, community-based organizations offer loans and even help with managing your business.

You may also need to fulfill business training or planning requirements as part of the government loans’ terms.

The Bottom Line

The SBA facilitates billions of dollars’ worth of small business loans every year.

If your business qualifies, you could join the ranks of the many small businesses that have benefited from the Small Business Administration’s government loans program.

Who knows… maybe an SBA loan can help your small business grow beyond even what you thought was possible!

Amy Fontinelle LendGenius Staff

Amy Fontinelle is a writer, editor, and personal finance expert.

Her articles have appeared at Investopedia, Bankrate, MassMutual.com, The Simple Dollar, Interest.com, Yahoo, Forbes.com, SFGate.com, Bankaholic, Mortgage-Calc.com, Saving Advice and other sites.

Amy’s clients include personal finance websites, financial institutions, public policy organizations, academic journals, and professional economists.

Featured

9 Ideas on How to Build Business Credit Fast

by Taylor Gordon on June 6, 2017
If you want to learn how to build business credit to access better financing options, this is the article for… Read more

Minority Business Loans – Discover 36 Opportunities Here

by Taylor Gordon on May 15, 2017
You may be searching for minority business loans because you have an idea for a great new business. Or perhaps… Read more

Small Business Loans for Women – Compare 38 Options in One Place

by Rebecca Hosley on May 15, 2017
When it comes to small business loans for women, knowledge is power. Women are not new to entrepreneurship, but they… Read more

Debt Service Coverage Ratio Explained in Acute Detail

by Amy Fontinelle on May 10, 2017
Sara owns a thriving restaurant, and she thinks the time is right to expand. Specifically, she wants to expand the… Read more

Microloans: What They Are & How To Take Advantage

by Eric Goldschein on May 1, 2017
Microloans refer to a category of financing where you can qualify for short-term working capital (or even start up capital) with low… Read more

How to Calculate ROI – Making Your Small Business Loan Count

by Dustin Clendenen on April 24, 2017
Here's a controversial thought: Not all debt is bad debt. Since not all of us are independently wealthy or particularly… Read more

Small Business Funding – Debt Financing vs Equity Financing

by Rebecca Hosley on April 22, 2017
Everything You Need to Know About Small Business Funding in 2017 Deciding to start your own business is a huge… Read more

Small Business Loans for Veterans – A Definitive Guide to VA Business Loans

by Eric Goldschein on April 7, 2017
Small business loans for veterans are available through various channels and are also often supplemented with business development tools. Business… Read more

EMV Compliance: The Good, The Bad, & The Ugly

by Amy Fontinelle on March 7, 2017
As a savvy business owner that accepts credit and debit cards, you should aleady know the dangers of failing to upgrade… Read more
Join For Free & Start Browsing Loans