How do I get a loan to start a business from the government?

The U.S. Small Business Administration (SBA) has a microloan program that can help new business owners get access to up to $50,000 in financing, which they can repay with terms ranging up to six years and lower interest rates.

Instead of originating the loans directly, the SBA provides insurance to loans originated by approved lenders, effectively reducing the risk the lender takes on.

SBA loan programs offer relatively cheap financing, with interest rates usually ranging from 5.5% to 8%. However, lenders determine the eligibility criteria, not the SBA. So it’s possible to get denied because you have no revenue or time in business.

Non-profit Organizations

Some non-profit organizations, such as Kiva , also provide financing to new business owners through microloans. If you go this route, the amount you can borrow is typically much lower than an SBA microloan, so it’s best only if you have small funding needs.

And instead of doing a traditional credit check, non-profits may choose other ways to determine your eligibility. With Kiva, for instance, you’ll need to prove yourself by first raising money within your community and circle of influence. If you’ve managed to meet the organization’s criteria, your loan request will be opened to the Kiva community of individual lenders.

Crowdfunding

If you have a great idea for a product or service, you may be able to turn to the public to get the money you need. Crowdfunding allows business owners to go straight to their potential customer base.

In exchange for small “investments,” future customers can gain early access to your product or service when it launches. Some crowdfunding campaigns may also offer special incentives, such as discounted pricing on bulk orders or limited-edition products.

Unlike a loan, crowdfunding allows you to get funding for what you need without requiring you to pay the money back. Instead, you’re working directly with people who want what you’re selling.

There are a few crowdfunding websites out there, including Kickstarter and Indiegogo , and some campaigns have been wildly successful, generating millions of dollars in funding. While those are major outliers, it’s possible to get the money you need if your product or service is good enough and you can present it in a powerful way.

Venture Capital

Enlisting the help of investors is another way to get the funding you need without setting up a creditor-borrower relationship. There are several venture capital firms that specialize in working with and funding new business ventures.

The only problem is that venture capitalists are extremely selective about which businesses they’re willing to work with. A venture capital firm’s top priority is to maximize its return on investment, so it’s essential to create a powerful pitch that highlights your product or service, business plan and the likelihood of success.

Even then, though, there’s no guarantee that you’ll get the capital you need, and very few business owners get funding this way. Even if you do, you’d likely need to exchange equity and even a measure of control for capital, which could make it difficult to take your business in the direction you want.

Frequently Asked Questions

The government doesn’t offer small business loans directly, but you may be able to qualify for an SBA 7(a), 504, or microloan, which is insured by the SBA, from an approved lender. You can find a list of lenders to compare on the SBA website .

How do I get a loan to start a business with bad credit?

If you have bad personal credit, you may have a hard time getting approved for many of the business financing options we’ve explored https://americashpaydayloan.com/payday-loans-ok/. Instead, it may be better to look at alternative funding options, such as crowdfunding, venture capital, and non-profit microloans.