Government Loans for Small Businesses: What’s Available

Do you need inventory, equipment or employees? Would refinancing high interest debt decrease your monthly payments and free up cash flow? Your best bet to fund these business building initiatives is with a low-cost loan.


Sign up for Advisor. It's free!


Believe it or not, there’s a government agency that can help. The Small Business Administration’s (SBA) low-cost loan programs are helping small business owners across America expand and save money. After all, small businesses are vitally important to the U.S. economy, employing almost half of the nation's private sector workforce --that's 120 million people. For more information about the SBA, check out our infographic: Get to Know the SBA

Here is information on the three loan programs offered by the SBA. They have different requirements, rates and terms and use of proceeds so choose the one that’s the best fit for your situation.

The 7(a) Loan Program

This is the SBA’s most popular loan program because of low rates, long terms and very low monthly payments. Established small business owners with healthy credit scores are the best candidates for an 7(a) loan.

Most 7(a) term loans are repaid with monthly payments of principal and interest. There are also various fees associated with this type of government program. Insist on transparency so you won’t be surprised by added costs.

Even after fees, SBA7(a) loans are vastly cheaper than the majority of alternative financing and alternative lender options.


SBA 7(a) lenders may have slightly different requirements to qualify. In general, the following apply:


  • 2+ years in business
  • Owners must be U.S. citizens or legal permanent residents
  • Personal credit scores above 650
  • Cash flow to support loan payments


  • Bankruptcies or foreclosures in the last 3 years
  • Prior default on government backed loans
  • Outstanding tax liens
  • Loan proceeds cannot be used for unpaid taxes

Loan proceeds for an SBA 7(a) loan can be used in a variety of ways. Low cost funds can be used for working capital, to refinance existing high cost debt, for equipment purchases, hiring, marketing, commercial real estate purchases or refinance and more.

Considering an SBA 7(a) loan? Learn more about this low-cost funding option: SBA loans—the gold standard in small business lending


The CDC/504 Loan Program

This program is described by the SBA as a win-win-win for the small business, the community and participating lenders. Created to give small businesses low cost funds for expansion or modernization, up to 50% of project costs are funded by a lender backed by the SBA. CDCs (Community Development Corporations) typically fund up to 40% of the project cost. The final 10% is a cash down payment expected to come from the small business owner.

SmartBiz Loans does not offer SBA 504 loans.

The SBA sets the maximum interest banks can charge on CDC/504 loans. As of May 2018, the current rate ranges from 4.88% to 5.15%, depending on loan size and amount.

Here are the minimum 504 Loan Requirements:

  • For profit business
  • Must present a comprehensive business plan and show relevant management expertise
  • Operate your business in the United States or its territories.
  • Business net worth must be less than 15 million dollars
  • Business must have an average net income less than $5 million
  • Ability to repay the loan on time based on cash flow

The use of proceeds from 504 Loans must be used for fixed assets (and certain soft costs), including the purchase of buildings, land and land improvements, construction of new facilities or modernizing, renovating or converting existing facilities, the purchase of long-term machinery or debt refinance in connection with an expansion of the business.

For more information about the CDC/504 Loan Program, visit the SBA website here. For additional information on eligibility criteria and loan application requirements, contact your local Certified Development Company (CDC). You can locate your local CDC via an SBA online tool here.

The Microloan Program

The SBA Microloan Program is different than other Small Business Administration loans. The SBA loans money to intermediary nonprofit lenders who then fund business loans to startups and small businesses, up to $50,000. In 2017, the average microloan was approximately $14,000.

Many of these loans are granted to businesses run by women, minorities or veterans. If you need less than $50,000 with good credit and have a business plan, a microloan might be a fit to fund your business. If you need more than $50,000 or have poor credit, a microloan is not for you.

Proceeds from the Microloan can be used for working capital or buying inventory, equipment and more. Proceeds cannot be used to refinance debt or purchase real estate.

To be eligible for the SBA Microloan problem, here’s what you need:

  • Have a for-profit small business. Exception: non-profit childcare centers are eligible.
  • The average minimum credit score of borrowers is 575. Microlenders will work with business owners who have a short credit history or less-than-stellar scores. Bankruptcies or foreclosures can make qualifying more difficult. To make up for a bad credit score you can present good revenue, valuable collateral or a co-signer.
  • Ability to repay the loan.

Additional Details

  • The max amount of a microloan is $50,000. Some intermediaries offer loans as small as $500.
  • Repayments terms cannot exceed 6 years and you can work on a repayment schedule with the intermediary lender.
  • The average interest rate in 2017 was 7.5%.