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What Federal Loan Programs Increase Lending to Small Businesses

Posted on December 05, 2013 in Government Contracts

Getting a small business off the ground is no small feat. It can take months of planning just to put together the paperwork necessary to submit to lenders for start-up funding. Once the funding is in place, then there is the daunting task of trying to make the business successful. Every entrepreneur starts their business with the intention of being successful and making a lot of money. But there is years of work to be done before any profits can be realized. In the meantime, the business owner has to make sure that he always has the funding he needs to keep his dream alive and his business going.

The private sector has banks and lending institutions that offer financing opportunities to businesses that are just trying to get started, but being approved for that funding is not easy. If a bank won't help your business, then you may want to talk to venture capitalists who invest in businesses for a living. In the end, an entrepreneur is always better off looking for a source of funding that has just as much interest in seeing his business succeed as he does. The government needs small business to be successful, which is why there are so many federal loan programs that can help your company to get the kind of money it needs to get off the ground.

Small Business Administration

When you are looking for one of the primary federal government resources for small business loans, then you want to take a look at the Small Business Administration. The SBA is well-known for its general business loan, but it has other programs that can benefit small businesses as well. The SBA itself does not administer these loans. Instead, it has created a network of lenders that consists of banks and qualified community organizations that take care of the application process and distributing the funds. The SBA backs the funding, which makes it easier for banks to approve loans for the small businesses that need them.

SBA General Small Business Loan

The most common small business loan that the SBA utilizes is the General Small Business Loan Program. These loans have no minimum amount specified, but the program does have a ceiling of $5 million per borrower. In 2012, the average SBA General Small Business Loan was $337,000. These loans can be used for starting up a business, acquiring a business or as operating funds for an existing business. The application process does inquire into the fund usage plans of the business, so be prepared to outline how you intend to utilize these funds in detail. The application process is different for each lender but, in nearly every case, a comprehensive business plan is required.

SBA Microloan Program

Sometimes a small business just needs funding to fill in gaps where other sources of financing fall short. The Microloan Program was created to offer quick funds to small businesses that need them. The program has a maximum loan limit of $50,000, but no minimum. In 2012, the average microloan wound up being approximately $13,000. One of the unique aspects of this program is that it is not administered through banks. The SBA utilizes qualified community groups to take applications and distribute funds for this particular project. This program, just as the general loan program, can supply working capital for a variety of needs. The application process is condensed and the wait time for an answer is also much quicker.

SBA Capital Purchase Loans

The SBA Capital Purchase Program is also referred to as the CDC/504 program. This is a very specific kind of loan that can only be used to purchase real estate, develop real estate or purchase large equipment. With this kind of a loan, a small business can build a new building on a plot of land, remodel an existing building to make it more environmentally friendly or purchase large equipment to help expand operations. As with the other SBA loan programs, the small business owner will be asked to specifically outline his intentions with these funds and the use of these funds will be closely monitored by the lender and the SBA.

SBA Disaster Relief Funds

When disaster strikes, the government does what it can to help small business and home owners in the affected areas. The Disaster Relief Program is actually open to homeowners as well as small businesses. People can apply for property replacement costs and businesses can apply for lost revenue as well as replacing damaged or destroyed property. The one condition to this program is that it is only available in areas that the federal government has deemed to be a national disaster. If your business gets significant flood damage in a storm, but the White House did not declare your region a disaster area, then you will not have access to SBA disaster relief funds.

Patriot Express Loan Program

The SBA has a wide network of lenders who all understand that the goal of SBA lending is to encourage the success of small business. When military personnel get done with their assignments either overseas or at home, they often want to take what they have learned and use it to start their own business. The SBA recognizes the value of encouraging veterans to pursue their dreams of starting a business, which is why the Patriot Express Loan Program was started. This is a program that has been specifically designed to help military veterans get the start-up funds they need to get their businesses started. As the program evolves, it hopes to be able to identify and address the challenges that veterans face when they come home and try to get their own business ideas off the ground.

SBA Export Loan Program

In the years before the evolution of the Internet, doing business overseas was a complicated process and the SBA did not really have any programs to help facilitate the growth of that kind of business. But the Internet has made the world seem like a smaller place and more small businesses are starting to establish strong trade connections with customers in other parts of the world. The SBA Export Loan Program does its best to offer the kind of financing that small businesses need to remain competitive in the international market. This program is a bit limited in its scope, so a small business owner will want to look into the program fully before applying for funding. But it does offer an export financing option that had not been there previously.

SBA Export Express Program

The SBA's Export Express program is not quite as comprehensive as the main Export Loan Program, but it does offer financial assistance to small business exporters who need funds quickly. One of the unique features of this program is that it allows businesses to use their own forms to apply for funding in any kind of situation. This kind of flexibility makes it much easier for businesses to get the financing they need for transactions that can often happen in a matter of hours.

SBA Export Working Capital Program

The SBA works with its larger lenders to offer the Export Working Capital program to export businesses. The SBA will back 90 percent of financing up to $5 million for working capital arrangements to export businesses. The requirements for this program can be strict and the SBA does get intimately involved with the process. This is the ideal program when an exporter is thinking about doing a long-term expansion project, but it is not going to accommodate the exporter that needs funding in a short period of time.

International Trade Loan Program

The United States has been a leader in exports and imports for a very long time. But the country's position as a chief importer of products often makes it difficult for small businesses to compete against foreign companies. The International Trade Loan Program was created to help small businesses that have been negatively impacted by international trade laws or by conditions that make it difficult for the organizations to compete. This is one of the more complicated forms of federal funding offered to small businesses and it is offered through the SBA. If an exporter feels that it is having a difficult time finding a market due to import or export laws or other situations, then this program can help.

SBA Lender's Advantage Program

There are markets all over the country that do not have the kinds of small businesses they need to get good services and provide good jobs. Former basketball star Earvin "Magic" Johnson created a vast fortune by bringing businesses such as restaurants and movie theaters to inner-city areas. The SBA took note of that kind of success and decided to create the Lender's Advantage Program. This is a lending program specifically designed to help promote small business in inner-city areas. It can also apply to rural areas that are considered to be among the lower income regions of the country. It is a program that is attempting to help rebuild distressed areas by promoting the growth of small business. It is a program that mirrors the initiative started by Earvin Johnson.

SBA Community Advantage Program

This is a lending program created by the SBA that is designed to reach out to the community organization in inner-city regions and encourage them to become part of the Lender's Advantage Program. The SBA recognizes that it needs network lenders in the inner-cities if it is going to get funding to the entrepreneurs who need it. The lack of commercial lenders in those areas has forced the SBA to start reaching out to community groups that are already active in trying to rehabilitate a particular region.

BusinessUSA Website

Another resource that the federal government has to help small businesses get the lending they need is the BusinessUSA website. The website is monitored and updated by the U.S. General Services Administration's Office Of Citizen Services and Innovation Technology. It is a resource that helps small businesses to identify federal loan programs that they may benefit from and even supplies links to the websites used to apply for these loans. The site also has information to help lenders who are interested in investing in small businesses to find entrepreneurs looking for financing. It is a free service for small businesses and lenders, and it also has an extensive library on federal and state government grants for the small businesses which qualify for them.

Small Business Lending Fund

Each year, the U.S. Department of the Treasury sets aside $30 billion in funding for a specific network of lenders to offer in loans to small businesses. It is a program that is similar to the SBA's General Small Business Loan Program, but it is more focused on start-ups as opposed to small businesses that are already in operation. The network used for the Small Business Lending Fund is not the same as the SBA's network of certified lenders, so entrepreneurs will have to check to see if the lender in their area takes part in this program.

State Small Business Credit Initiative

The U.S. Department of the Treasury invests around $1.5 billion each year in providing funds to small businesses that have good credit, but still cannot get the financing they need. The Treasury Department works through various state agencies to distribute funds that are designed to spur banks to extend credit to small businesses and approve funding in the form of loans as well. The Treasury Department expects $10 billion in small business funding to be created each year through the use of this program.

D.O.T. Short-Term Lending Program

The U.S. Department of Transportation gets into the federal small business lending act by offering the Short-Term Lending Program, also known as the STLP. This program offers short-term loans to disadvantaged businesses involved in projects related in some way to transportation. The companies do not need to be working directly with the U.S.D.O.T., but they do need to be involved in recognized transportation projects to qualify for this funding.

B & I Guaranteed Loan Program

The U.S. Department of Agriculture's Business And Industry Guaranteed Loan Program is one of the more popular loan programs outside of the SBA. This is the program the federal government has set up to help farmers and other members of rural communities meet their financial obligations and run their businesses. The Department of Agriculture backs up to 90 percent of the value of loans that are offered through a network of certified lenders. The loans can be used for almost any purpose, including operating expenses, equipment purchases and land purchases. Unlike some of the other business loans that are backed by federal government agencies, the B & I loans can be used to help restructure debt and reduce the burden on farmers and rural business owners.

Intermediary Re-Lending Program

The U.S. Department of Agriculture understands the importance of strong rural communities to the success of farmers in the United States. The Intermediary Re-Lending Program was devised as a way to fund community organizations in rural areas with the financing needed to encourage development. Many rural areas suffer from severe poverty and require resources to try and create economic investment. This fund is utilized as a revolving funding system that provides money to individuals and entities that want to establish businesses in rural areas or offer services to those areas as a way of improving the quality of life.

The federal government can sometimes get a bad reputation when it comes to encouraging the success of small business, but there are many different programs businesses can use to get the funding they need. The SBA leads the way in acting as a resource for more information and as a way for small businesses to get important funding. But there are so many other federal loan programs available for small businesses that an entrepreneur really needs to sit down and examine his options before applying for government funding.