The US Federal Government has been the nations largest provider of financial assistance for small businesses. The Federal Governments Small Business Administration (SBA) has helped Small businesses succeed right from its startup to the numerous stages of its growth.

Many renowned organizations like Apple, Compaq, Intel, Nike, AOL, etc have borrowed money from the Federal Government.

The Federal Government offers various types of loans suiting the requirements of small businesses. One has to choose the right kind of loan to cater to his requirements. The US Federal Government provides the following types of loans:

1. 7(a) Loans: This is the primary business loan program from the SBA. This type of loan is generally used for most business purposes such as start up, expansion, purchase of equipments, working capital, inventory, real estate acquisition, etc.

The U.S. Government's Small Business Administration (SBA) is Congressionally mandated to assist the nations small businesses in meeting their financing needs. The SBA works with private-sector banks & corporations, non-profit groups, and various Federal Government agencies to provide small business loans, grants, & venture capital to small businesses that might not qualify through normal small business financing channels.

Small businesses need access to capital in the form of loans, lines of credit, grants or investment capital. Yet most small businesses often don't have the collateral or credit history to qualify for financing through normal lending channels. That's where the U.S. Government and the Small Business Administration comes in.

All SBA small business loans must be used for sound business purposes. A small business may use SBA-guaranteed small business loans to:

Expand or renovate facilities;

Purchase machinery, equipment, fixtures and leasehold improvements;

Finance receivables and augment working capital

Refinance existing debt (with compelling reason)

Finance seasonal lines of credit;

Construct commercial buildings; and/or

Acquisition of land or buildings.

The SBA guarantees a loan up to $750,000 of a private-sector loan. Interest rates for 7(a) loans are negotiable between the applicant and the lender.

2. Low Documentation Loan: This loan is also called as SBALOWDOC. This is a small business loan of about 1,50,000 $ or less based on the requirement of the businessmen.

3. SBA Express: This loan encourages lenders to make more small loans to small businesses. Lenders approve loans of up to $150,000. Lenders can also offer revolving lines of credit to borrowers.

There are few similarities between the SBA Express and SBCLowDoc Loans. The following are the common characteristic features of both the loans:

• The loan amount is given upto 1,50,000 $

• The response is 3 days or less

• Both Long term and short term business loans are available

• One page application

Terms

Like most SBA small business loans, the maturity term of an SBAExpress or SBALowDoc loan is usually five to seven years for working capital and up to 25 years for real estate or equipment, subject to the economic life of the equipment. The termination date for revolving credits must be no later than five years after the first disbursement.

4. Community Express: The Community Express program is designed especially for the economic development and job creation in rural and inner city communities by providing loans and technical assistance. These loan proceeds may be used for most business purposes, including start-up, expansion, equipment purchases, working capital, inventory or real estate acquisitions.

Eligibility

To be eligible for this loan, the existing or prospective small businesses must be part of the SBAs New Markets. Under this program, New Markets are defined as current and prospective small businesses owned by minorities, women and veterans who are underrepresented in the population of business owners compared to their representation in the overall population.

There are few similarities between the Community Express and SBA Express Loans. However they differ from each other in the following features:

Differences between the Community Express and SBA Express Loans:

Community Express focuses on pre-designated geographic area that primarily serves the New Markets.

The maximum loan amount given under Community Express is $250,000.

The SBAs guaranty, under this scheme, is 80% for loans up to $100,000 and 75% for loans between $100,000 and $250,000.

Community Express lenders, together with the National Community Reinvestment Coalition, provide hands-on technical training and support, both before and after loan closings, through community-based, nonprofit NCRC member organizations.

5. SBA Loan Pre-qualification Program: This loan is offered to armed forces veterans, minorities, women, exporters, rural small business owners and business owners in certain specialized industries, this program enables the SBA to prequalify an applicant for a 7(a) loan guaranty before the applicant goes to a bank. The maximum loan amount under this scheme is $250,000. The application will focus on the character, credit, experience and reliability of the businessman rather than the assets.

The Minority Pre-qualification Loan Program and the Women's Pre-qualification Loan Program use intermediaries (only nonprofit organizations) to assist minority and women owned small businesses in developing viable small business loan application packages and securing small business loans.

Maximum Amount of Loans

For most Small Business Administration loans, there is no legislated limit to the total amount of loan. However, the maximum amount that the SBA can guarantee under this scheme is 750,000 $. Thus, with a loan applicant requesting the maximum SBA, guarantee of 75%, the total loan under this program would be limited to 1 million $.

Eligibility

Small businesses at least 51% owned, operated and managed by minorities or women

Small businesses with average annual sales for the preceding three years that do not exceed $5 million

Small businesses that employ fewer than 100, including affiliates

6. Micro Loans: Under the Microloan Scheme, the SBA makes funds available to qualified nonprofit organizations, which act as intermediary lenders. The intermediaries use these funds to make loans of up to $35,000 to new and existing small businesses. The intermediaries also provide management and technical assistance to help ensure success. The Microloan Program combines the resources and experience of the U.S. Small Business Administration with those of locally based nonprofit organizations to provide small loans and technical assistance to small businesses

Eligibility

Generally, any type of small business is eligible for the Microloan Program. The form of the business, whether a proprietorship, partnership or corporation, is not a determining factor.

Use of Loan Funds

Microloan funds may be used for working capital or to purchase inventory, supplies, furniture, fixtures, machinery, equipment, etc. The maximum Microloan is $35,000. The average-sized loan is around $10,500.

The maximum term allowed for a loan is six years. Terms may vary according to the size of the loan, the planned use of funds, the requirements of the intermediary lender, and the needs of the borrower. Microloans are direct loans from the intermediary lenders and are not guaranteed by the SBA. The interest rates also vary, depending upon the intermediary lender.

Credit Requirements

A Microloan applicant must meet the credit requirements of the local intermediary lender. Generally, the applicant will be expected to have good character, a strong commitment to his/her business idea, and a credit history that provides reasonable assurance that the loan will be repaid. In addition to this, the applicant should have some management expertise or should be willing to participate in training designed to strengthen management skills.

Collateral Requirements

Apart from the credit standards, the collateral requirements for the Microloan Program, are set by each local intermediary lender. In most of the cases, loans are at least partially collateralized by equipment, contracts, inventory or other property. Lenders may also ask for personal guaranties.

7. Cap Lines: This program features five types of loans for financing the short-term and cyclical working capital needs of small businesses: Seasonal, Contract, Builders, Standard Asset-Based, and Small Asset-Based. The SBA can generally guarantee up to $750,000 of a loan.

Short Term Loans and Revolving Lines Of Credit

CAPLines is the U.S. Small Business Administration's (SBA) umbrella lending program that helps small businesses meet their short-term capital needs. CAPLines can be used to:

Finance seasonal capital needs;

Finance the direct costs of performing construction, service and supply contracts.

Finance the direct cost associated with commercial and residential construction without a firm commitment for purchase; and Finance operating capital by obtaining advances against existing inventory and accounts receivable.

There are five distinct short-term working-capital loan programs under the this scheme:

Seasonal Line

Finances anticipated needs during seasonal upswings in the business cycle. Repayment is made from the sale of inventory and collection on receivables created during the season. The Seasonal Line can be revolving or non-revolving.

Contract Line

Finances the direct labor and material costs associated with performing assignable contract(s). One contract line can finance more than one contract.

Builders Line

Finances the direct labor and material costs for small general contractors and builders that construct or renovate commercial or residential buildings. The building project serves as the collateral; Builders Line loans can be revolving or non-revolving.

Standard Asset-Based Line

Provides financing for cyclical, growth and recurring short-term needs by advancing funds against existing inventory and accounts receivable. Repayment comes from converting short-term assets into cash and remitting this cash to the lender. Businesses continually draw and repay as their cash cycle dictates. This line of credit is generally utilized by businesses that provide credit to other businesses. These loans require periodic servicing and monitoring of collateral, for which additional fees are usually charged by the participating bank.

Small Asset-Based Line

Provides up to $200,000 under an asset-based revolving line of credit similar to the Standard Asset-Based Line, except that some of the stricter servicing requirements are waived (provided that the business can consistently show repayment ability from cash flow for the full amount).

Loan applicants must:

Demonstrate the capability to convert short-term assets into cash;

Demonstrate sufficient management ability, experience and commitment necessary for a successful operation;

Demonstrate the capability to perform, and collect payment for that performance;

Have a feasible business plan;

Have adequate equity or investment in the business;

Have the capability of providing required updates on the status of current assets;

Pledge sufficient assets to adequately secure the loan; and

Be of good character.

8. 504 Loan Program: The 504 Program provides long-term, fixed-asset financing through certified development companies. The maximum SBA debenture generally is $750,000 (up to $1 million in some cases).

The U.S. Small Business Administrations 504 Loan Program, also known as the Certified Development Company Program, provides affordable long-term, fixed-rate business loans to help small businesses grow. The loans are for acquiring long-term fixed assets, such as land, buildings, machinery and equipment, or for building, modernizing, renovating or restoring facilities.

Advantages of 504 Loans

When a conventional business loan is not possible, a 504-business loan may be the answer. The SBAs 504 Loan Program gives small business owners access to the same low-cost, fixed-rate, long-term financing large businesses have through bond markets. Other borrower advantages include:

Lower down payment;

Below-market, fixed-rate financing

A longer repayment term

504 Certified Development Companies

CDCs are nonprofit organizations, often sponsored by state and local governments, established to promote economic development in their communities. CDCs help small businesses with financing for fixed-asset projects by assembling, analyzing and making recommendations on loan packages, submitting their analyses and recommendations to the SBA for approval, and closing and servicing the 504 loans. Typically a 504-loan project includes:

A loan secured with a senior lien from a private-sector lender (covering a percentage of the total cost);

A loan secured with a junior lien from a CDC (a 100% SBA-guaranteed debenture), covering up to 40% of the total cost; and

A contribution of at least 10% equity from the borrower.

9. Defense and Technical Assistance Program (DELTA): This is a joint effort of the U.S. Small Business Administration (SBA) and the Department of Defense and is created for defense-dependent small firms that have been adversely affected by defense cuts; the maximum DELTA loan is $1.25 million.

Uses of DELTA loan are:

Working Capital

Acquisition of assets

Raw Materials or Inventory

Capital Improvements (renovation, leasehold improvements, plants expansion, replacement, retooling, etc.

Refinancing of current debt

Eligibility:

Derived at least 25% of its revenue from DoD or Defense related Department of Energy contracts in support of defense prime contracts in any one of five prior operating years

Meets at least one of the programs policy objectives like

• Job retention retains defense employees

• Job creation creates job opportunities and new economic activities in impacted communities

• Plant retooling and expansion modernizes or expands the plant and enables it to remain available to DoD.

10. Physical Disaster Business Loans

Up to $1,500,000 ($1.5 million)!

Any business that is located in a declared disaster area and has incurred damage during the disaster may apply for a loan to help repair or replace damaged property to its pre-disaster condition. If your business has suffered physical damage as a result of a disaster, you may be eligible for financial assistance from the U.S. Small Business Administration.

Uses of the loan:

Repair or replacement of real property, machinery, equipment, fixtures, inventory and leasehold improvements may be included in the loan. In addition, disaster loans to repair or replace real property or leasehold improvements may be increased by as much as 20% to protect the damaged real property against possible future disasters of the same type.

SBA loans will cover uninsured physical damage. If you are required to apply insurance proceeds to an outstanding mortgage on the damaged property, you can include the amount applied in your disaster loan.

Collateral Requirements:

Loans of $10,000 or less do not require collateral. Loans in excess of $10,000 require the pledging of collateral to the extent it is available. Normally the collateral would consist of a first or second mortgage on the damaged business property. In addition, personal guaranties by the principals of a business are required. The SBA will not decline a loan for lack of collateral, but you must pledge available collateral.

11. Community Adjustment & Investment (CAIP): CAIP loans are intended to create new, sustainable jobs and preserve existing jobs in businesses at risk due to changing trade patterns with Canada and Mexico.

12. Export Working Capital Program (EWCP): The EWCP provides short-term loans to small businesses for export-related transactions. Under the EWCP, the SBA can guarantee up to 90 percent of a secured loan or $750,000.

13. International Trade Loan (ITL): This program offers short and long-term financing to small businesses involved in exporting. The SBA can guarantee up to $1.25 million for a combination of fixed-asset financing and working capital

Small Business Grants by US Federal Government

The Small Business Innovation Research (SBIR) Program provides up to $850,000 in early-stage R&D funding directly to small technology companies (or individual entrepreneurs who form a company) and $600,000 in early-stage R&D funding directly to small companies working cooperatively with researchers at universities and other research institutions

Small Business Innovation Research (SBIR) Program Under the Small Business Innovation Research (SBIR) program, 10 federal agencies having annual external research and development requirements of more than $100,000,000 ($100 million), must reserve 2.5% of these funds for award to small businesses.

Federal agencies with extramural research and development budgets over $100 million are required to administer SBIR programs using an annual set-aside of 2.5% for small companies to conduct innovative research or research and development (R/R&D) that has potential for commercialization and public benefit.

Currently, ten Federal agencies participate in the SBIR program:

• Departments of Health and Human Services (DHHS),

• Agriculture (USDA), Commerce (DOC)

• Defense (DOD),

• Education (DoED),

• Energy (DOE),

• Transportation (DOT);

• Environmental Protection Agency (EPA),

• National Aeronautics and Space Administration (NASA),

• National Science Foundation (NSF).

To date, over $10 billion has been awarded by the SBIR program to various small businesses.

Small Business Technology Transfer (STTR) Program Under the Small Business Technology Transfer (STTR) program, five agencies with annual external research and development budgets of more than ($1,000,000,000) $1 billion, must reserve .15% of these funds for award to collaborative efforts between small businesses and non-profit research institutions.

The STTR program was established by the Small Business Technology Transfer Act of 1992 (Public Law 102-564, Title II). The STTR program was established by the Small Business Technology Transfer Act of 1992 (Public Law 102-564, Title II), reauthorized until the year 2001 by the Small Business Reauthorization Act of 1997 (P.L. 105-135), and reauthorized again until September 30, 2009, by the Small Business Technology Transfer Program Reauthorization Act of 2001 (P.L. 107-50).

Federal agencies with extramural R&D budgets over $1 billion are required to administer STTR programs using an annual set-aside of 0.15%. The set-aside will increase to 0.3% in 2004.

Currently, 5 Federal agencies participate in the STTR program:

• Defense (DOD)

• Energy (DOE),

• Departments of Health and Human Services (DHHS),

• National Aeronautics and Space Administration (NASA),

• National Science Foundation (NSF).

The Small Business Investment Companies (SBIC)

SBICs provide equity capital, long-term loans, debt-equity investments and management assistance to qualifying small businesses. They make these venture-capital investments with their own funds plus funds obtained by borrowing at favorable rates with an SBA guaranty. The incentive for the SBICs is the opportunity to share in the success of the funded small business as it grows and prospers.

Small Business Administration loan programs are generally intended to encourage longer term small business financing but actual loan maturities are based on the ability to repay the loan, the purpose of the loan proceeds, and the useful life of the assets financed. However, maximum loan maturities have been established: 25 years for real estate and equipment; and, generally 7 years for working capital.

Small business loans for working capital purposes will not exceed 7 years, except when longer loan maturity (up to 10 years) may be needed to ensure repayment. The maximum maturity of loans used to finance fixed assets other than real estate will be limited to the economic life of those assets but in no instance to exceed 25 years. The 25-year maximum will generally apply to the acquisition of land and buildings or the refinancing of debt incurred in their acquisition. Where business premises are to be constructed or significantly renovated, the 25-year maximum would be in addition to the time needed to complete construction.

The U.S. Small Business Administration (SBA) is Congressionally mandated to assist Americas small businesses in obtaining small business loans and other financing. SBAs small business loan programs enhance the ability of lenders to provide long• and short-term business loans to small businesses that might not qualify through normal lending channels. Under the SBAs loan-guaranty programs, the borrower applies to a lending institution, not the SBA. The lender applies to the SBA for a loan guaranty, if it determines this is necessary to approve the loan.