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Understanding Government Loans

Starting a small business is difficult, but anyone who has been in business for a year or longer knows that the challenges don't end just because you've opened your doors and established a customer base. Business expansions, hiring, renovations, and a number of other issues often require more money than a small business has on hand.

While most of us think of the IRS when we think of the government, there are a host of government loans and other programs available through the Federal, state, and local governments that can help you to better run and grow your business.

government loans

Who Qualifies for Government Small Business Loans?

The criteria for small business loan qualification are simple, at least on the surface; determining whether one's business qualifies can take some research. In short, the business should operate on a for-profit basis, should do business in the United States or its territories/possessions, should have invested equity, must demonstrate a need for the loan, must use the loan for business purposes, must not be delinquent in any government debts, and must have demonstrated that other financial resources and personal assets have been used before applying for assistance.

Certain classes of business do not qualify for loans. These include, but are not limited to:

  • Banks and other lenders
  • Absentee landlords/developers
  • MLMs and pyramid schemes
  • Gambling-based businesses
  • Private and membership organizations
  • Political organizations
  • Businesses whose content or product is sexual in nature
  • Religious institutions
  • Foreign-based businesses

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Federal Government Small Business Loans

Many Federal loans and grants are administered through the Small Business Administration (SBA), though the loans themselves typically originate from a bank. The SBA has its own requirements that can differ from those of your bank, and will often be subjected to an additional layer of paperwork as well as different rules and regulations. Click here for more information on the SBA and its programs.

However, there are other government agencies that provide small business assistance as part of their purview. The United States Department of Agriculture, Department of Labor, and Veterans Administration (among others) provide guidance on financial issues, lending, and a host of other business issues.

State Government Small Business Loans

While most small business owners think to turn to the Federal government first for business assistance, don't overlook your state government, since every state has programs to incentivize small business development and job growth. Those state-level programs are often augmented by additional resources at the regional, county/parish or local level. Additional resources are also available on a situational basis to help businesses cope with disaster recovery or other events (like the recession or the closing of a major industry) that have a significant business and economic impact.

Grants for Small Businesses

Grants can be a viable loan option for small businesses that meet certain criteria. Unlike loans, they don't have to be paid back. However, contrary to the popular perception, grants should not be thought of as "free money." There are strings attached. The criteria that must be met by small businesses in order to receive a grant are far more stringent than a loan of a similar amount would be.

The application process is rigorous (and sometimes expensive), and there are generally restrictions placed on how the funds may be used once they're disbursed. Unlike a loan, grants often have an accountability mechanism built in, and there may be penalties if the funds are misused or the promised results are not delivered. If you think your business may qualify for a grant, some research is in order. There are literally dozens of websites promising an inside track to a veritable treasure trove of grants and "free money," some of which are less than reputable. Depending on your level of experience, enlisting the help of a grant writer can also be helpful.


Not all small businesses will qualify for government loans. As with any business loan, there are the obvious business and credit concerns that will need to be taken into account. Federal loan programs typically target specific business sectors, such as clean energy and renewables, arts and cultural initiatives, travel and tourism, environmental remediation, urban development and redevelopment, job creation, health, science and technology, health, and disaster recovery.

However, if your business falls under one of these categories -- or if you're considering an expansion that might take you into one of these fields -- loans, grants and other kinds of financial incentives are available at the local, state and Federal levels to help sustain and grow companies that work to sustain and grow their communities.