Getting Beyond the Myths: Government Small Business Loans, Grants Explained

Government Small Business Loans, Grants ExplainedThe recession withstanding, government-backed small business loans account for billions of dollars in lending (valued at $711.3 billion in May 2009, the last time an SBA study was conducted). Yet many myths and misconceptions exist as to what government-backed business financing is and what it isn’t.

For example, many small business owners are quick to think that the government provides grants to small businesses to help them start their business.

This post explains away some of the myths about government loan and grants for small businesses and also helps build a picture of the available financing for which you might be eligible.

Can I Get a Government Grant?

First let’s dispel the myth that government grants are available to business owners. If you are a for-profit business, then you do not qualify for a government grant. This article on – “The Truth About Grants” – provides the official word on government grants, from the government.

Essentially, “Federal and state government agencies do not provide grants for starting a business, paying off debt or to cover operating expenses. Government agencies do not provide ‘special’ grants for women, minorities, veterans or disabled entrepreneurs.”

However, the government does provide grants to “…nonprofits, educational institutions, (and) associations … but rarely are these available to small businesses, and they are never available to cover startup costs, debt and operating expenses.”

What Are Government-Backed Loans and How Do They Work?

While the government does not actually lend business owners money, it does provide a guarantee to banks and lenders for money lent to small businesses (through the SBA). This loan guarantee mitigates the risk for banks and lenders and makes them more inclined to provide SBA-backed loans to small business owners who don’t qualify for traditional loans.

Whatever your capital needs are there are literally hundreds of government financing programs that can benefit your business – from very small loans for start-ups (known as microloans) to export assistance loans, energy efficiency loans, loans for veterans and loans for businesses needing disaster assistance.

How to Find the Right Financing for Your Small Business

There are quite literally hundreds of government-backed loans, administered by the SBA, each developed to suit the needs of your particular business – whether you need to finance your startup,  get help expanding into exports, are seeking disaster assistance funds, and so on. This SBA Loan Guide on explains the ins and outs of the most requested SBA loan programs.

To find the right loan for which you might be eligible, use this Loans and Grants Search Tool, developed by, which matches your business profile and objectives to potential SBA loan programs, as well as other non-government sources.

Applying for an SBA Loan

Although the SBA administers loan programs, the application and eligibility determination are handled by your bank or lender. Most lenders will ask for the same information from you. Before you apply for a loan, do your research to understand what kind of documentation you will need to back up your application. This SBA Application Checklist lists what you need to prepare in advance of your loan application. Read “How to Prepare a Loan Proposal” for more tips.

Additional Resources

  • Five Tips for Finding Small Business Friendly Banks
  •’s Small Business Loans and Grants Guide
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7 Reactions
  1. Yes, yes, yes thanks for this post. At the Arkansas State University Small Business and Technology Development Center we work with lots of start up and existing businesses especially in assistance with financing and we probably get 5 calls or e-mails a week from folks “when can I pick up my Government grant to start my business? I saw it on TV”

    We will retweet, post on our Facebook page and put a bill bill board up about your post maybe we will only get 4 calls a week after that. Great info thanks.

    • Herb, your comment is so funny and oh so sad at the same time.

      “Small business grants” is close to synonymous with Internet scams these days. And the prevalence of that term leads people to believe that there must be grants. I even get calls from people looking for grants. And it’s almost like they don’t believe you when you try to set the record straight, because there are so many spam websites and Google AdWords about small business grants that it leads people to believe “…they must out there.” Unfortunately, they are not.

      – Anita

  2. Hi Anita thanks for responding to my comment! You are absolutely right about them NOT believing you when you try to explain because they have a “friend” who got one. Of course they never can tell you what it really was, where it came from, etc. We also see a dramatic increase in the phone calls everytime the guy with the dollar signs on his suit coat running up and down the Capital steps selling his book hits our cable channels.

    We hold workshops on a variety of small business topics and one on Business Financing Options where we talk about government guaranty programs and other state or fed assistance programs but found we had a hard time getting people to attend. Changed the name to Government Grants and have to turn them away.

  3. SBA loans can be great, especially the Community Express loan. This is great for start ups seeking less than $50k.

  4. how does a person go about trying to get start up money for a business if there is so much internet scams out there, you don’t know who to trust or how to go about getting money in an honest
    way. The SBA will also pass you around to so many different people
    that you wonder are they trying to help me or what?