SBA Loans

A Comprehensive Guide To Government Business Loan Options

Mar 31, 2023 • 10+ min read
small business shaking hands with government official
Table of Contents

      Researching how to get a government loan to start a business? Or have you heard that government business loans have some of the best rates? Government business loans do come with competitive rates, and some of them can even be used to cover startup costs. In fact, a government business startup loan may be the capital solution you’ve been looking for. 

      Learn the different types of government business startup loans, their pros and cons, and things you’ll want to consider when searching for the best loan product for your business.

      What Are Government Business Loans?

      A government business loan is a loan that is insured by the U.S. government. It is usually not a loan that the U.S. government itself disburses. Private lenders that disburse government business loans are compensated by the U.S. government if the lender defaults on the loan. Because there is less risk, interest rates are often lower than other loan products. 

      How Do Government Loans Work?

      A government loan works the same as any other type of loan. First, the borrower must meet the eligibility requirements in order to qualify for the loan. Some loans have more requirements than others—meaning the borrower might have to work and conduct business in a certain location or have been in business for a certain minimum amount of time. Once the application is submitted, an underwriter reviews the application to determine if the borrower qualifies.

      Interest and Fees

      All government loans charge interest and have fees. Interest rates are usually capped at a certain percentage. SBA loans, for example, have maximum interest rates lenders can charge borrowers, which is why they are some of the most sought-after business loans on the market. 

      Collateral Requirements

      Depending on the loan product, collateral may be required to secure the loan. If there are not enough assets within the business itself, lenders may require that the borrower sign a personal guarantee and pledge any of their personal assets. 

      Most lenders will not accept assets that have already been collateralized for another loan (such as a house for a mortgage). Lenders that will accept those types of assets likely already have a working relationship with the borrower and will still charge higher interest. Typically, lenders do not like to be the second lender in line for collateral, because it means they will be less likely to recoup any losses if the borrower defaults on payments. When a borrower defaults on one loan, they are more likely to default on another. 


      Like other loans, government loans have set repayment periods and require monthly payments to keep the account current. The length of the repayment period varies with the loan product and can range from a few months to 25 years. The longer the repayment period, however, the more the borrower will pay in interest over time. 

      Loan Funds

      One last thing to consider is that many government loans have specific purposes the money must be used for. Some are intended for large asset purchases and construction costs, while others are to be used solely for working capital, which covers any expense that helps or enables a business to generate revenue).

      What Are The Different Types Of Government Business Loans?

      There are many types of government business loans. Some of the more popular ones include:

      SBA Loans

      The Small Business Administration (SBA) is a government agency created to help provide resources to support small business growth and development. There are a variety of SBA loans on the market that may help your business. Borrowers often prefer SBA loans because of the favorable interest rates and repayment periods. 

      USDA Business Loans

      The United States Department of Agriculture has a few different types of loan programs aimed at helping businesses in rural areas. For example, there is the Business and Industry (B&I) Loan and the Rural Energy for America (REAP) loan. B&I can be used for working capital, construction, and business acquisitions, while REAP is intended to help companies invest in renewable energy. 

      Community Development Financial Institution (CFDI) Loans

      CDFI loans are intended for both individuals and small businesses operating in economically distressed areas. They are generally given by nonprofits to borrowers who are unable to get loans through traditional lenders.  

      Export-Import Bank Loans

      Shortened to EXIM, export-import loans can be used for working capital, but can also be used to cover both exporting and importing costs for both raw materials and finished products. 

      State and Local Government Loans

      Local banks, credit unions, and government websites may offer loans for small businesses. Not all locations offer them, so borrowers will need to conduct some research to see if there are any opportunities in their area. 

      Note: Business grants may also be an option. Just keep in mind that you will be competing with other business owners for the same money, and there will be stricter eligibility requirements you’ll have to meet to qualify. 

      How Many Different Types Of SBA Loans Are There? 

      The Small Business Administration offers a few different types of SBA loans business owners may want to consider. Each comes with its own terms, eligibility requirements, and loan amounts. 

      • 7(a) loan The most popular loan option for small businesses because the borrowed money can be used for a variety of purposes, such as working capital, refinancing, and purchasing necessary equipment 
      • Microloan For small capital needs up to $50,000 to help businesses get established or expand
      • 504 loan For businesses making large asset purchases, with loan amounts and repayment periods greater than those of other loan products 
      • EIDL Low-interest loans for businesses affected by COVID-19 and natural disasters 
      • SBA Express Offers loans up to $350,000 for approved borrowers, with an easier and faster application process compared to other SBA loans
      • International trade loan Intended for businesses that are expanding into foreign markets 

      What Are The Pros And Cons Of SBA Loans?

      Pros of SBA LoansCons of SBA Loans
      Interest rates are capped and lower than other loan products.Minimum time in business is two years.
      Capital can be used for a variety of purposes, including startup costs.Application process is longer compared to other loan products.
      They often require less collateral than other loans.They include restrictions to specific industries and other SBA-specific qualification criteria.
      Repayment periods are longer than other loan products.

      Overall, despite their cons, SBA loans are the loan of choice for many business owners. In general, all loan products have drawbacks. The trick is finding a loan with the strongest benefit. 

      Government business loans can help businesses cover startup costs and save money in interest. The key thing to consider is that the application and review process can take longer than a standard business loan, and the eligibility requirements may be more difficult to meet. However, if you are not in a financial emergency, the extra time may be well worth your while because of the money you’ll save. 

      Learn more about SBA loans today with Lendio. 


      No, the U.S. government does not offer grants for either such purpose. It currently only offers grants for either nonprofits or educational institutions. This does not mean you won’t be able to find a grant to help your small business, but if you do, it won’t be offered by the federal government. It will likely be a state grant or a private grant. 

      Small business state grants often require that the applicant combine grant money with a loan product. They may also require borrowers to match the grant amount. 

      Numerous private grants exist, too, but they may be more difficult to locate. To find them, you may have to speak with a local economic development authority. 

      Compared to other business loans, business loans are more difficult to get. They require more paperwork and proof of income than other loan products and can take longer to process. Borrowers facing an unforeseen financial emergency that is time-sensitive may have to secure capital from another source, such as from venture capitalists or through crowdfunding.

      It all depends on the loan and lender. Typically, SBA loans take between 30 and 90 days to process, but there is no set cutoff and the process may take even longer in some cases. 

      Quickly compare loan offers from multiple lenders.

      Applying is free and won’t impact your credit.

      About the author
      Lauren Ward

      Lauren Ward is a personal finance and tech writer with a passion to help consumers make smart financial decisions. Her work has appeared in a variety of publications, including Time and MSN. When she's not writing, she loves gardening and playing board games with her family.

      Share Article:

      Business insights right to your inbox

      Subscribe to our weekly newsletter for industry news and business strategies and tips

      Subscribe to the newsletter

      Subscribe to our weekly newsletter for industry news and business strategies and tips.