The government of the United States offers loan programs through various different departments for supporting the needs of businesses, individuals, or even communities. These provide capital for those who cannot qualify for the required loan from any private lender. In short, Government small business loans can help in putting your business within reach.
Reason for choosing Government Loans
Lenders for profit are normally hesitant to approve loans to those who do not have a strong credit report or financial history as per the requirement. It is easier to get a small business loan from the government. However, a decent credit report is required and you need to follow the different guidelines for the repayment and the interest rate set by the government. Interest rates by the government are lower as compared to those of the private lenders.
How does the US Government define a Small Business?
A small business is defined by the SBA in terms of the average number of employees The SBA defines small business based on the average number of employees since the previous year or the average of annual receipts over time. In addition to this, the SBA defines a small business as a concern organized for profit.
The Working of government loans in the U.S.
The loans not only provide benefits to the borrowers but also to the US Government as the lender. These can make the capital available to those who need it and the initial capital of the government is returned with the interest. The government may not fund these loans but all of these secured or guaranteed government loans. The government provides loan capital when it funds the loan. The money is originated from the taxpayers.
The government cosigns with the borrower on funds when it only secures a loan. GSE (government-sponsored enterprises) or banks provide the funds. This means if the borrower defaults on the repayment of the loan, the government will have to pay this.
Working of the SBA Loan
You have to submit the loan application to the lending institution when you are applying for an SBA loan. The lender applies to the SBA for a guarantee of the loan. This means, if the loan repayment is not done, the SBA will have to make the payment. The maximum amount that the SBA guarantees are 85% of the loan, which is up to $150,000, and 75% for loans that are more than $150,000.
An unconditional personal guarantee is another requirement by the SBA from every business owner with a minimum of 20% stake of ownership. This puts not only your assets but also you, on the hook for the payments in case the business is not able to make them.
The lender can close the loan only after the approval, after which the proceeding is disbursed. Payments are made to the lender on a monthly basis.
SBA loans are used to start businesses, expand operations, manage expenses, or even increase safety nets.
Find the different small business loans available and ensure the one you decide on, meets your requirements.
