What are Guaranteed Loans

Guaranteed loans are borrowing instruments backed by government agencies, undertaking to pay off the loan if the borrower defaults. The main types of guaranteed loans are business start up loans and student loans. The latter are extended to students who are unable to cover their education-related expenses, including their college tuition, textbooks, and room and board. Generally, these loans are offered at a low interest rate, like the Stafford loan and the Perkins loan. The recipient of the loan is not required to pay it off until the end of the study period. Payment begins after the student has completed his/ her education.

A guaranteed startup business loan is a government-backed type of loan which ensures that new businesses have the option to borrow money as to launch a company. Essentially, the government assumes responsibility for the borrower and concludes a contract with the lender. In case the borrower cannot pay the debt, the government does that on their behalf.

The loan guarantee program of the US Department of Energy covers multiple areas such as: nuclear power facilities, projects employing innovative technologies, energy efficiency and renewable energy, front-end nuclear facilities, and others. If applying for grants administered by the US Department of Energy, eligible projects are those carried out in the United States and employing significantly improved or new technology. If applying for the US Small Business Administration Guaranteed Loans, you can choose from a large variety of borrowing instruments. One can obtain financing that is available to minority business owners, women business owners, members of military communities like Spouse, Reservist, or Active Duty, etc. In case you are looking for startup loans, these are available through the Community Express loan program, the Microloan program, as well as in the form of small business loans.

The latter program offers small loans for newly established, start-up, or growing small businesses. The maximum loan amount is $35,000 and all decisions to grant credit are made on the local level. These guaranteed loans are offered to business owners who have no or limited access to the traditional sources of financing. Among the likely applicants are women and minorities as well, while loans are in the amount of up to $50,000. The Community Express loan program is intended for business owners in moderate or low income areas. Creditors are not required to take collaterals if loans are in the amount of $25,000 or less. The existing collateral policy of creditors may apply for guaranteed loans between $25,000 and $250,000.

There are loans for business owners seeking financing as to help recover their business after disaster. The emergency farm loans are intended to help producers recover from physical and production losses due to natural disasters, flooding, drought, and quarantine. These loans are available through the US Department of Agriculture. In addition, the America’s Recovery Capital Loan Program provides short-term relief to owners of small businesses who face financial hardship. The loaned amount is up to $35,000 and every business is limited to one guaranteed loan.

If your business is located in a rural community, you can apply for funding in the form of a Rural Business and Industry Guaranteed Loan. The total amount borrowed by a single person cannot exceed $10 million. These loans aim to improve the environmental and economic climate in rural communities. The funding may be used for the purchase of buildings, land, equipment and machinery, and related activities.