How does the government assist small businesses?
The U.S. government provides assistance, benefits, and breaks to small, medium, and large-sized businesses. These benefits range from grants, contracts, protection, and deductions.
Many small business owners feel the government favors larger corporations. The media eats up headlines promoting this idea. For example, “Amazon paid $0 In federal income tax in 2018.” As another example, “Walmart receives an estimated $6.2 billion annual subsidies”.
Those numbers can give the idea the government doesn’t leave any meat on the bone. However, we're going to prove that there are resources for small businesses. We'll even share tangible examples. These can make a major impact on your business’s future, so listen carefully.
Why does the government care about small businesses?
The state of small businesses in the United States is strongly linked to our county’s economic health. Local governments rely on tax revenue to support their communities. Some of that revenue is generated by local small businesses. Small businesses also create an estimated 61.7 million jobs. This makes them the employers of 46.4% of the US workforce.
The government is keenly aware of this. They aim to promote small businesses in all sectors. Their efforts help to foster a fair business environment. One of the main ways the government does this is through the Small Business Administration.
The Small Business Administration
You may have come in contact with the Small Business Administration (SBA) during the Covid-19 pandemic. President Eisenhower founded the SBA in 1953. It became an independent agency of the federal government. They aim to aid, counsel, assist and protect the interests of small businesses.
The SBA assists small businesses in three main ways: financing, education, and contracting.
- Financing: The SBA offers grants, loans, disaster assistance, surety bonds, and grants. In 2023, the government granted the SBA a $14.21 billion budget. The SBA can also provide help outside of its own funding power. It also connects small business owners with investors and other funding sources.
- Education: The SBA offers business owners guides on how to start a business, apply for funding, pay taxes, and more.
- Contracting: In Fiscal Year 2021, the federal government spent about $637 billion on contractors. The SBA helps businesses find and win contracts with the federal government.
The SBA is one of many options small business owners have regarding government assistance. Let’s examine how the government helps small businesses.
Government-backed loans are a way to find funding for businesses. The SBA and other government-funded institutions offer a variety of loans for businesses. These options offer lower interest rates. The terms are also more favorable than bank and private loans. The Small Business Administration (SBA) guarantees some of these loans. We’ll also share loans from other avenues.
Five SBA-backed loans
- Microloans: The SBA microloan program issues loans from $13,000 to $50,000. Intermediary lenders administer these loans. You need to contact an SBA-approved lender to inquire about requirements. Data shows traditional lenders have denied minority businesses. SBA funding programs include those meant to support underserved communities.
- 7(a) Small Business Loans: 7(a) loans are the most common because they are more flexible. The maximum loan amount through the 7(a) loan is $5 million. In 2021, the SBA issued $36.5 billion in loans through the 7(a) program. The SBA typically takes 60-90 days to approve 7(a) loans.
- SBA Community Advantage Loans: The Community Advantage Program assists businesses in underserved markets. The maximum loan size is $350,000. This program is great for startups that don’t meet the standard 7(a) loan requirements.
- SBA Express Loans: SBA Express Loans are a variation of 7(a) loans. They have a lower funding maximum of $500,000. However, these loans have quicker processing. A 7(a) loan application may take between 60-90 days. An approval decision is guaranteed within 36 hours for an SBA express loan.
- SBA CDC/504 Loans: CDC/504 loans offer funds of up to $5 million. CDC/504 loans have stricter usage rules than other government small-business loans. Their primary use is for fixed asset purchases. These might include financing construction, real estate projects, or the purchase of long-term equipment.
All five of these loans are competitive and have strict requirements. Businesses seeking SBA loans must:
- Be a for-profit operation
- Be located in the United States
- Have an adequate amount of owner equity
- Have exhausted all other funding routes
- Demonstrate a reasonable need for the loan
Grants are financial awards from the government. These are given to business owners or companies. This funding's purpose is to provide public service and stimulate the economy. Unlike loans, grants do not require you to repay the money you receive. Instead, the government awards grants or distributes funds. Often these are made to an intermediary in a specific sector or on a local level.
Grants given by the federal government are known as discretionary grants. Other grants also exist. The federal government may give money to state or local governments. This money is then distributed to businesses. These are called formula or block grants.
Economic Development Administration (EDA) Grants
The EDA is a small agency within the US Department of Commerce. It makes it easier for businesses to start and grow. In 2022, the EDA made $45 million in federal funds available to startups.
Minority Business Development Agency
The MBDA is a federal agency. It is tasked with promoting the growth of minority-owned businesses.
SBA State Trade Expansion Program (STEP)
STEP provides financial awards to state and territory governments. These are meant to assist small businesses with export development. Over $200 million has been awarded to bolster small business exports. Export development is an attempt to sell products to a foreign market. Firms or governments encourage the growth of the value and volume of exports. In fact, the STEP program distributes federal funds through state entities.
USDA Rural Business Development grants
USDA Rural Business Development grants can benefit small businesses. Businesses in rural areas (populations under 50,000 people) may qualify. They must have fewer than 50 workers and make less than $1 million in gross revenue. These grants are awarded to towns, communities, nonprofits, and state agencies. They focus on developing industries. Examples include pollution control and economic development.
Department of Veterans Affairs
Veteran small business owners can apply for funding too. The Department of Veterans Affairs offers 80 different grants. Its Veterans Entrepreneurship Program helps eligible veterans start business ventures. The program also benefits existing businesses.
Tax credits are designed to reward certain beneficial behaviors. These might be actions that help the economy or environment. Credits are meant to encourage incentives the government deems important.
Employee Retention Credit
The Employee Retention Credit is for business owners with W2 employees. This refundable credit applies to certain businesses affected by the COVID-19 pandemic. Businesses that paid employees while closed or that had major declines in gross receipts can apply. Many business owners don’t realize you can still file for three quarters in 2020 and 2021. The deadline is April 15th, 2024, for 2020, and April 15th, 2025, for 2021.
Businesses can receive up to $28,000 per employee for 2021, depending on their situation.
Opportunity Zone Credits
The Tax Cuts and Jobs Act of 2017 established opportunity zones. These provided tax incentives for investment in designated census tracts. You may qualify for an opportunity zone credit through the federal, state, or local government. In fact, you should consider where your business is located. Moving may be worth qualifying for location-based credits and grants.
Credit for Small-Business Health Insurance Premiums
This credit came from the Affordable Care Act (Obamacare). This credit is for small businesses with fewer than 25 full-time employees. The employees must receive a health insurance benefit. Businesses must pay an average wage of less than $55,000 a year. They must also pay at least half of their employees’ premiums. If you qualify, this credit equals 50% of employer-paid health insurance premiums.
You have the resources available to succeed
The government has many initiatives to help small business owners thrive. Your business could get a competitive advantage with loans, grants, and tax credits. For a competitive edge over taxes, many small businesses use ComplYant.