What Is the SBA and What Do They Do?

The US Small Business Administration, or SBA for short, was founded in 1953 to help small businesses succeed. From granting millions of loans and guarantees, offering counseling sessions, government contracting, and business development assistance, this service has been a great resource for many new and established companies around the country. Helping preserve competitive enterprise, and strengthening/growing the economy little by little.

The government partners with various banks, credit unions, and other lenders to obtain the loan, and the government then provides the bank a guarantee on a part of the loan. After the economic crash in 2008, this guarantee was increased up to 90% to maintain access to capital for small businesses

With an office in nearly every state, services available today include:

Entrepreneurial / Business Development

There are different business centers for particular segments including a general small business center, a women’s business center, SCORE (service corps of retired executives), and veteran business outreach. Another program is called the 8(a) business development which assists with the development of businesses owned and operated by people considered socially and economically disadvantaged – women and minorities.

Contracting

There are various rules and regulations when it comes to becoming an eligible government contractor. While the competition is as fair as they can make it, their requirements are very particular and everything must be documented by the contractor to confirm they’ve fulfilled their end of the business transaction before they’re paid. Many small businesses are often unprepared for these extra rules they must follow which can become costly errors and legal problems. For more details about this visit the government contracting classroom.

Loans and Grants

There are many different loan opportunities, but because these are highly sought after, the loan processing time is generally longer. With an SBA Express loan, the available funds max out at $350,000 but you will get a response to your application within 36 hours. Interest rates are negotiated between you and a lender and cannot exceed SBA maximums. SBA will give a lender a guarantee up to 85% on a $150K loan, 75% on loans more than this, to a maximum amount of $3.75 million.

7(a) Loan Program

This was created to help entrepreneurs start or grow their businesses, including those with special requirements, has a maximum loan amount of $5 million, and you can only use them for these purposes.

Here is a list of eligible and ineligible uses, and special circumstances considered.

Microloan Program

These loans offer a maximum of $50K and are generally used for small businesses and certain non-profit childcare centers to start up and expand. Many lenders will require collateral along with a personal guarantee from the business owner.

Real Estate & Equipment Loans: CDC/504

These loans can be used for things like purchasing land, buildings, improvements, long-term equipment, and construction. Again, repayment terms, interest rates, and fees all vary based on loan amount, use of funds, and the lender. You can find these loans through some nonprofit community organizations. Occasionally you may be required to do training before an application is considered, especially for those just launching a business.

Discouraging Factors

It is often more difficult to land an SBA loan if you’re a startup unless perhaps you have industry experience. As well, lenders look for a good credit score – at least 600 usually. Some lenders require lower credit score minimums or based on the loan type may not look at credit score at all, and will take collateral or something similar instead.

 

Ok, so you don’t have enough collateral, then what? Even with the SBA backing 75% of the loan, the bank is still concerned about the 25%, and if you cannot support it with other types of value, your chances of landing it are smaller.

SBA loans often, if not always, require a personal guarantee. So, if the business fails and it cannot pay the loan back, you personally are responsible and the bank will be able to take your home, car, whatever it takes in the direst of circumstances.

Lastly, SBA financing is only available for certain industries, including life insurance, lobbying companies, some franchise types and types of health businesses, and more. Many private lenders borrow a wider range of businesses so do your research and find the deal that fits you best.

 

If you think your business has what it takes to be approved, here is an SBA application checklist. If your situation doesn’t apply to these types of loans, your business may be qualified through private loan providers like Worldwide Capital Management. Contact us, or fill out our quick application to find out if you would, in fact, be qualified for, say, business equipment financing, a merchant cash advance, a simple small business loan, or a line of credit.