How to Get a Government Loan: 6 Key Steps
You already know most of the ingredients for running a successful business - a competitive product, superior service, shrewd pricing, compelling marketing strategies, etc. One ingredient that may not be so obvious is knowing how to obtain the right financing when you need it. The fact is, knowing how to get a government loan for your small business can be essential to the growth and development of your company - or even to its very survival.
The following will detail some straightforward steps you can take to use government programs to find the right business loan for your needs.
How to Get a Government Loan
First of all, an important thing to understand about the term "government loan" is that they are usually not made by the government. Instead, they are business loans made through private lenders but backed (insured) by the Small Business Administration (SBA). That backing gives lenders the confidence to make loans they might not otherwise make, and helps keep the interest rates on those loans reasonable.
These business loans are widely available. In the 2014 fiscal year, the SBA's primary loan program accounted for nearly $20 billion worth of loans made to over 50,000 businesses. If you would like your business to be the next to benefit, follow these steps:
- Determine your need. Carefully assess what you intend to use the money for: new equipment, expansion, refinancing debt, or just general working capital. This will allow you to more accurately gauge the amount of money you will need, and what kind of return you expect to get on this investment.
- Match the need with the applicable program. There are a variety of SBA loan programs. including ones for general operations, major equipment or real estate purchases, and disaster recovery. Based on how you intend to use the money, determine which of these programs you should be researching. A tool from the government website BusinessUSA can help you match the loan program with your
- Determine your eligibility. Once you know what type of loan you are going for, you can determine whether your business and situation meet the eligibility requirements for that program. Look at this in detail, because even the SBA's definition of "small business" varies depending on what type of business you are in.
- Prepare thorough documentation. Get your supporting materials together - you are going to need them. This includes documentation of how much equity you have invested in the firm, cash flow history and future cash flow projections, working capital, and process for managing the firm. You will also need to support the valuation of any collateral you intend to provide, and prove that you have clear title to that collateral. At this point, you should also research the credit histories of yourself and the business, so you can spot any potential problems.
- Compare lenders. Now that you know the type and size of loan you want, you can start comparing the terms different lenders are offering for loans along those lines. There are a great many private lenders participating in SBA loan programs. and you can use this competition to get the best terms available.
- Make a winning application. As a business owner, you should already know the importance of selling people on the value of yourself and your organization. Applying for a business loan may prove to be one of the most crucial sales opportunities you will ever face. Do not treat the application process as a mere paperwork nuisance. Be thorough and conscientious in completing all application requirements, and go the extra mile to demonstrate that your business is reliable and worth the investment.
Government loan programs are an important support mechanism for small businesses in the United States. Knowing how to get a government loan can not only help your small business survive, but also grow to the point where it is no longer small anymore!
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