Help for Start-Ups, Part 2: Loans for technology and other “high-growth, high-impact” businesses

This second blog article in a series catalogues government programs specifically targeted at technology startups and entrepreneurs (sometimes referred to as “high-growth, high-impact firms” or high-tech start-ups). In the first update, we looked at grant programs. This week, we’re featuring federally -sponsored loan programs.

Whether used for equipment, personnel, working capital or other start-up costs, a loan can provide the financing an entrepreneur needs to launch a new idea. However, getting credit can be difficult for an idea that exists only on paper, as banks and financial institutions may be reluctant to lend because of uncertainty about getting a return on their investment. An entrepreneur with a great business idea, solid business plan, and good-standing credit may still face challenges in getting financed.

The federal government can help. Federal agencies offer a number of loan programs designed to help start-ups get the capital they need to start, grow and succeed – by providing loan guarantees, direct financing, and other incentives to private institutions. In some cases, federal loan programs are tailored to fit certain types of businesses, business owners, and industry types that may not qualify as traditional borrowers.

Below is a list of several specific loan programs available to start-ups, high-tech businesses, and other small business owners:

7(a) Small Business Loan (SBA)

SBA’s 7(a) Loan Program is SBA’s broadest and most flexible loan program.? Under 7(a), loans are made by commercial lenders, mostly banks, with an SBA guarantee.? That means that if you default on the loan, SBA guarantees the lender that it repay up to 85 percent of the money it lent.? These loans can be used for almost any legitimate business purpose, including inventory, working capital, or real estate.? Because it’s such a flexible program, 7(a) also has a number of niche programs that support businesses with special requirements. For example, funds are available for loans to businesses that export to foreign countries, businesses that operate in rural areas, and for other very specific purposes.

Two new 7(a) programs this year, the Advantage programs, are targeted at businesses that need smaller loans and businesses in underserved communities that may also need technical assistance to make their success more likely:?

• The Small Loan Advantage Program is designed for small businesses requiring low dollar-amount loans (less than $250,000). SBA guarantees the loans, similar to other SBA guarantees, and paperwork and approval times are minimal.
• The Community Advantage program, a three-year pilot initiative by SBA, targets lenders such as community-based, mission-focused financial institutions. These lenders may have been previously unable to offer SBA-backed loans. As with Small Loan Advantage, loans given under Community Advantage are offered at a maximum of $250,000.

Microloan Program (SBA)

SBA’s Microloan program makes funds available to nonprofit, community-based lender organizations to extend small, short-term loans to small businesses. Under the program, lenders also provide management and technical assistance. The maximum Microloan amount is $50,000. Funds may be used to finance working capital, inventory, supplies or equipment. Because lenders have different credit requirements, loan terms will vary.

Rural Microentrepreneur Assistance Program (U.S. Department of Agriculture)

This program, sponsored by the U.S. Department of Agriculture (USDA) supports the development of rural microenterprises through microloan funds and technical assistance. A “microenterprise” is a small business or venture located in a rural area that has 10 or less full-time employees, as defined by the USDA. Loans are available to capitalize revolving microloans, and are offered at a maximum of $500,000. The program also awards grants to microlenders for technical assistance and loan enhancement.

The Indian Loan Guaranty, Insurance, and Interest Subsidy Program (U.S. Department of the Interior)

Sponsored by the U.S. Department of the Interior (DOI), this program helps individual American Indians obtain?financing from private sources. The program promotes business development initiatives on or near federally recognized Indian reservations, and can also apply to corporations that are majority-owned by American Indians or Alaska Natives, or federally-recognized tribes.

Additional Information:

• GovLoans.gov
• SBA’s Loan Program Page
• SBA Online Community Loans and Grants Discussion Page