An Introduction to Government Loans

The government offers loan programs through different departments that support individuals, communities and businesses according to their varied and unique needs. These loans provide capital for enterprises deemed worthy by the government that might not qualify for a loan on the open market. Government loan programs aim for the following long-term benefits at the social and economic levels:

To improve the overall national economy as well as quality of life of its citizens. To encourage innovation and entrepreneurship. To provide protection against disaster and calamities. To improve on the country’s human capital. To reward veterans and their dependents for past contributions and present needs

Individuals and small businesses with little or no seed capital or collateral may find the conditions for a market rate loan unaffordable. Low cost government loans attempt to bridge this capital gap for deserving individuals and parties, thus enabling long term benefits for the recipients and the nation.

Government loans are usually offered at discounted interest rates compared to those offered by private lenders.

Other comparative benefits of government loans include fixed and subsidized interest rates, no credit history checks, allowing deferred payment, flexible income-based repayment plans, no pre-payment penalties, and partial loan forgiveness if the borrower chooses public service. For example, student loans in the U.S. may be forgiven after a period of years if the graduate works in the public or non-profit sector.

Because government loans often have more attractive terms than market-rate loans, demand for them is large. Consequently, selection criteria can be quite exacting. The application process is also time consuming, requiring paperwork and proof of financial need and deserving status on strict deadlines.



 

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