When business owners need money, they must consider their options between subsidized loans and unsubsidized loans. There are many loan programs available to small business owners, but knowing which ones are best can sometimes be a challenging task.
For instance, what are the benefits of a subsidized loan versus an unsubsidized loan?
What are the differences between these two loan types?
Who can qualify for a subsidized loan, and who for an unsubsidized loan?
To accurately assess what type of business loan is right for you and your situation, it’s vital to understand what subsidized loans and unsubsidized loans are. Let’s take a look at some of the details and differences between them so you can make a more informed decision.
Subsidized vs Unsubsidized: What does that mean?
In general terms, subsidized means that an organization can offer financial support or take part in the costs of the subsidized product to reduce its price. Unsubsidized, by contrast, is when the product is offered at its full price because there’s no third-party institution that can absorb certain costs.
When it comes to loans, subsidized refers to when an organization or government agency provides financial support to help people or businesses access the money they may not be able to access regularly through a private lender.
Subsidized loans have specific rules and regulations that determine whether a person or business will qualify in the first place, how much they may qualify for and what the money being borrowed can be used for.
Unsubsidized loans, then, are loans that are provided from a private lender directly to the borrower without any help, support, or assistance from a third entity.
Subsidized vs Unsubsidized: Student Loans
Perhaps the most frequently-used instance of subsidized loans and unsubsidized loans is with student loans that people use to fund the price of their college education.
What is the difference between subsidized and unsubsidized student loans?
Subsidized Student Loan
Student subsidized loans are part of programs that are provided by the federal government for undergraduate students. Interest doesn’t accrue on these loans while the student is attending college or if the loan is deferred for any reason following graduation. The federal government sets appropriate interest rates on student subsidized loans, and they are fixed rates.
The government also sets limits on how much students can borrow with subsidized loans, based on whether the government determines that the student meets specific financial need requirements.
Unsubsidized Student Loan
Unsubsidized loans, meanwhile, aren’t based on financial need.
Private lenders offer these loans, and most of the time, interest will accrue on the principal borrowed even while the student is in school, or if the loans are deferred following graduation.
Subsidized vs Unsubsidized: Business Loans
Just like student loans, there are subsidized loans and unsubsidized loans available for businesses as well.
Subsidized Business Loans
Different government agencies offer and support subsidized loans, to provide financial assistance to business owners who might not qualify for traditional private lending.
Subsidized loans may be given based on the size of your business, whether you are a minority or women-owned business and/or whether you are a low-income earner, for example. They also may be offered to small business owners who don’t have great credit or lengthy credit history.
Private lenders that partner with the government’s Small Business Administration offer most of the subsidized loans for businesses. Just like government-backed mortgages, these SBA subsidized loans provide more security to the private lender, which incentives them to offer the business loan to more people.
Some of the most popular subsidized loans offered through the SBA are:
- 504 Fixed Asset Program: given to businesses that have a mission of directly benefitting their community. These businesses do this by bringing services that are needed or providing jobs to an area designated as underserved. The maximum loan amount for this is $5 million.
- Disaster Assistance: given to business owners who have suffered damage to their business as the result of a natural disaster such as a hurricane, tornado, or other events.
- MicroLoan Program: short-term loans that provide support for purchasing items such as office furniture, technology, modes of transportation, and other goods. The maximum available loan amount for this is $50,000.
- 7(a) Loan Guarantee: given to small businesses to help them get off the ground or expand. The maximum loan amount here is $5 million.
Some of the pros of government-subsidized loans for businesses are that they provide extra assistance to people who may have trouble qualifying for a loan on their own through a private lender, with lower interest rates and potentially better terms.
Unfortunately, subsidized loans come with stringent requirements, and you must adhere to the rules, regulations, and guidelines of the program.
Unsubsidized Business Loans
On the other hand, most unsubsidized loans aren’t geared specifically to small business owners in need; they are available to everyone.
There are unsubsidized loans for small businesses that can accomplish the same thing as government-subsidized loans without all the strict rules and requirements.
The small business loans offered by Camino Financial provide you with similar benefits to subsidized loans without the stringent requirements. For example, we provide small business loans that:
- Don’t require collateral
- Can be financed as subordinated debt over an existing one
- Give you instant prequalification without affecting your credit score
- Allow you to pay at any time without penalties or extra fees
These are just some of the advantages of a Camino Financial loan.
Get The Money You Need When You Need It
When you need financial assistance to get your small business off the ground, take your business to the next level or support it through other means, you will have many choices to make on where and how to get this money. It’s always a great idea to research whether you qualify for any subsidized loans through the government, as these programs can assist when you need it most.
However, there are plenty of benefits to going the route of an unsubsidized loan for your business, mainly when a trustworthy lender provides that loan.
At Camino Financial, we live up to our motto of “No Business Left Behind” by providing some of the best loans for small business owners, which rival the benefits of the best subsidized-loan programs.
Find out how Camino Financial small business loans work to help you find funding solutions. We provide microloans up to $75,000 and small business loans for amounts up to $400,000. Plus, we offer benefits to business owners that other lenders never think about offering.
Why not apply for a loan today to have funds to invest in your business.