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You might not think of the government as a source of financing for your small business, but some recent federal and local initiatives might help you find a few dollars for your business.

            The Economic Stimulus Act of 2008 is the federal law that provides, among other things, stimulus payments. The first groups of taxpayers received their payments in May. If you haven’t received your economic stimulus check yet, you should be getting it soon. The payments went out in the order of the last two digits of taxpayers’ social security numbers. So if yours ends with 88 to 99 and you opted for a paper check instead of direct deposit, you should receive your check in the mail in July. (There are certain rules, such as you had to have paid your 2007 taxes on time.)

            Chances are you have not had to think much about what to do with your check. If you own a small business, you will likely put the money into the company. The extra money can come in handy for anything from a box of business cards to a new printer to a class on how to write a business plan.

The stimulus payments, which are about $600 per adult, are not the only help you might expect from the government during the current economic downturn. The legislation includes changes in small business expensing. If you buy equipment in 2008, you might be able to deduct more of the cost of your investment, sooner. A business placing up to $800,000 worth of equipment into service this year would be able to deduct, on 2008 returns, up to $250,000 of the investment. Under the old rule, called the Section 179 Deduction, the limit was $128,000. You’ll still have to wait for the equipment to depreciate over the years to deduct more. Certain rules apply, so check with your tax adviser.

Other Government Funding

According to OPEN from American Express Small Business Monitor, a semi-annual survey of business owners, 52 percent of business owners do not believe the economic stimulus package will help small businesses, and 30 percent believe it will help.

There are other government relief initiatives, separate from the Economic Stimulus Act. If you have a good credit history, you might be able to refinance your mortgage through a Federal Housing Administration initiative called FHASecure. This program, announced in August 2007, helps homeowners switch from a subprime loan to an FHA loan. The program is intended to help people with adjustable rate loans with interest rates and payment amounts that increased.

To qualify for FHASecure, you must have a history of on-time mortgage payments before the teaser rate ended and the loan reset, and the interest rates must have reset between June 2005 and December 2008. You must have three percent cash or equity in your home, a sustained history of employment, and sufficient income to make the payments.

FHASecure is not just for people who are close to foreclosure. In April, the agency reported that most of the people who refinanced through the plan were people who had not fallen behind on their mortgages. According to HUD, in first quarter 2008, people who refinanced through FHASecure saved $400 a month compared to the payments they had been making on their subprime mortgages. If you have lower loan payments, you might be able to put more money into your small business.

            The Federal Housing Administration has other products that might help you raise money for your business. If you are 62 or older and you own your home, you can apply for a reverse mortgage, a federally insured loan that lets you convert your home equity to cash. Instead of making payments as you would a regular mortgage, the lender makes payments to you, or you can draw from an amount the way you would with a home equity line of credit. A reverse mortgage is different from a home equity loan or line of credit because you do not have to repay the loan until you sell your home or permanently move out. When that happens, you or your estate will repay the cash you owe.

The Prime Rate

            There are other loans too. With the economic downturn, the Federal Reserve has been making a series of interest rate cuts. Most of the cuts have been a half or a quarter of a percentage point. Every time that happens, banks lower their interest rates for their best business customers, to encourage them to borrow more and expand their businesses. That could lead to lower rates for other loans such as home equity loans, credit cards, and car loans.

            If you have credit cards that you’re using to pay some of your business expenses, the interest rates probably will not automatically change when federal prime rate decreases. If you have a balance at a certain rate, the company isn’t going to lower the interest. Check the fine print on your credit card agreement. Shop around for other cards with lower rates. See if you can move the balance of your current card to a new card. If not, you can at least start using a new card with a lower rate for your future purchases, and that can save your business some money.

Shop around for low rates on home equity loans and lines of credit too. Beware of “setup fees” and other costs in the fine print. As always, be cautious about these loans, because you are using your home as collateral.

When the economy eventually improves, interest rates will go up again.

Small Business Administration

            Don’t forget the U.S. Small Business Administration (SBA). According to spokesman Mike Stamler, some small businesses don’t even want to borrow money now. “There are people who base a lot of their decisions on their confidence as to what will happen in the economy and their business,” he says. “Also, commercial lenders have tightened their loan standards.”

            As a result, the number of SBA-guaranteed loans has gone down this year. For the first six months of Fiscal Year 2008, which means October 2007 through March 2008, the number of loans was down 18 percent compared to the same period a year earlier. However the amount of each loan was up. The average loan amount was $155,800 for the first six months in Fiscal 2008, compared to $141,000 the same period the previous year.

            There are opportunities, though. “The truth is commercial lenders have plenty of money to lend, but they are just cautious,” Stamler says. “As far as the SBA is concerned, we have plenty of capacity. We are not going to encourage businesses to borrow money if they don’t want to, but we are prepared to respond to whatever the demand is.”

            His advice is if you are rejected by your bank for a regular business loan, ask the bank how you can instead apply for an SBA guaranteed loan. (Not all banks offer this.)

Local Efforts

            Some states and cities have programs that help small companies get loans and also business advice. The challenge is that these programs are hard to find. Some might be for specific types of businesses, such as technology or art. Others have to do with starting a business in an economically depressed neighborhood.

            Start with your state government. Visit its web site and do a search for “economic development,” “micro business,” “loan fund,” and similar phrases. Some states have programs that help local businesses expand. Check with your state treasurer’s office, department of commerce, and other business-related areas. Call and ask about loan programs for small businesses.

            Sometimes cities receive grants from state or federal funds, and the cities use the money to set up business advice centers and also to make loans to area businesses. As with any business loan, you will need to write a business plan that shows how you plan to pay back the loan and how your business will generate a profit over the next few years. You will also have to fill out an application, probably online. The loan decisions often take a few weeks.

Check also with your local small business development center. The counselors there might know about local programs that loan money to area small businesses. HBM

Nora Caley is a freelance writer based in Denver. She specializes in business articles.