Getting a loan can be extremely difficult when you have no credit history or bad credit history. Despite a
bad credit history, sometimes there is no other way to pay expenses than by taking out a loan.
When you are in this bad credit situation it can be frustrating to believe that your only way to get
the needed money is through a high risk loan or payday loan. Those options are not always the best
when you need a larger amount of money for a longer amount of time. Depending on what your
circumstances and need for the loan are there are other options that are safer and longer term.
What is a Guaranteed Loan?
A guaranteed loan is a loan that is backed by a guarantor (in most cases the federal government). The
guarantor acts the third party in the loan agreement by agreeing with the lender to pay back the loan if
the borrower fails to pay or defaults. This way the government takes on the risk of the loan instead of
the lender, making it safer for the lender.
Why do Guaranteed Loans Exist?
Guaranteed loans were established to help people who would be turned down for traditional loans by
banks because of their bad credit. It is felt that despite the bad credit these borrowers have worthy
reasons for borrowing, but are unable to do so. Guaranteed loans give these borrowers an option. On
top of not needing good credit, borrowers do not need any type of collateral because the guarantor has
taken full responsibility for default.
Who Qualifies for a Guaranteed Loan?
Students and small start-up business are the most qualified for this type of loan. For the student loans
you must be enrolled in school and taking a certain amount of credit hours to qualify. For guaranteed
business loans there are more varied levels of qualifications depending on the business. The business
loans are given to launch new businesses, help business that were hit by disaster, or help minority
What Kind of Loans are offered to Businesses?
The federal government offers a variety of different loans for businesses through the Small Business
Administration (SBA). The Small Business Administration was established to help American businesses
grow and is the largest backer of small business loans in the United States. Most of the lenders that the
SBA works with are banks, but there are some non-bank lenders.
The federal government offers loans to businesses in rural areas and are in need of economic
development or an economic boost
Business loans are also offered for businesses that are trying to improve technology and energy through
the government. It is believed that these offering these loans to businesses will be an incentive to
There are also guaranteed loans offered to business people that are minorities, women, and members
of the military. These loans are meant to help groups of people that are not well represented in the
Guaranteed loans are also available for business owners that are trying to recover from uncontrollable
setbacks such as flooding and natural disasters. These loans are meant to be used as a short term relief
to get businesses back up and running as successfully as they were before disaster struck.
There are literally dozens of other loans that are available to business owners through the federal
government. For further listings of these loans you can go online to http://www.govloans.gov/loans.
How Do You Apply for a Guaranteed Loan?
Depending on what type of guaranteed loan you want there are different ways to apply. For guaranteed
student loans the initial application is through the federal government. You apply by filling out forms
with FAFSA. After that form is processed they decide what loan you qualify for and for how much you
qualify for. The most common guaranteed student loan is the Stafford Loan.
How Much Can I Get with a Guaranteed Loan?
Because guaranteed loans are given with the purpose of what it is for, the amount you can get with the
loan is also related to the use of the loan. For student loans it depends on the need of the student and
the price of the school you are attending. For business loans it depends on what type of business you
have and what the loan is to be used for.
How Much Is Interest for Guaranteed Loans?
Interest for student loans depends on when the loan was offered as opposed to the history of the
borrower. Recently Stafford Loans have been offered with an interest rate of 6.8 percent. Business loans
vary much more significantly.
How Do You Repay a Guaranteed Loan?
For guaranteed student personal loans like the Stafford Loan, you are not required to start repaying the
loan until after you have finished school. Business loans vary with repayment, but many ask for only 20
percent down for the total amount as opposed to the normal 30 percent down for traditional lenders.
It is important to remember that while these loans are backed by the government or guarantors the
loan is still administered by normal commercial lenders. Borrowers are just as responsible for paying
back these loans as any other loan, guaranteed loans just make getting the initial loan easier.
Not everyone or every business can easily get a loan when they need it. In a lot of these situations that
require a loan are legitimate needs and worthy situations for a loan. With regular loans banks will often
turn down requests for loans because of a bad credit history or no credit history. Luckily, guaranteed
loans have made it possible for these people and businesses to get the loans that most lenders will deny
With a guaranteed loan, a third party will agree with the lender to pay the borrowers loan of the
borrower defects. If you qualify for a guaranteed loan this is a great option for getting the cash you
need, but don’t always qualify for because of bad credit.