Small Business Administration
The U.S. Small Business Administration or SBA is a government agency that provides support to small businesses. The SBA was officially established in 1953. The U.S. Congress passed the Small Business Act of July 30, 1953, creating the Small Business Administration (SBA). The SBA's function was to "aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns." The charter also stipulated that the SBA would ensure small businesses a "fair proportion" of government contracts and sales of surplus property.
The SBA makes direct business loans and guarantees bank loans to small businesses, as well as makes loans to victims of natural disasters, works to get government procurement contracts for small businesses and helps business owners with management and technical assistance and business training. Nearly 20 million small businesses have received direct or indirect help from one or another of those SBA programs since 1953. In fact, SBA's current business loan portfolio of roughly 219,000 loans worth more than $45 billion makes it the largest single financial backer of U.S. businesses in the nation.
SBA Business Loan Programs
SBA administers three separate, but equally important loan programs:
- Basic 7(a) Loan Guaranty
- Certified Development Company (CDC), a 504 loan program
- Microloan, a 7(m) loan program
- 8(a) Program
The SBA sets the guidelines for the loans while SBA’s partners (lenders, community development organizations and microlending institutions) make the loans to small businesses. SBA backs those loans with a guaranty that will eliminate some of the risk to the lending partners. The Agency's Loan guaranty requirements and practices can change however as the Government alters its fiscal policy and priorities to meet current economic conditions. Therefore, past policy cannot always be relied upon when seeking assistance in today's market.
Federal appropriations are available to the SBA to provide guarantees on loans structured under the Agency's requirements. With a loan guaranty, the actual funds are provided by independent lenders who receive the full faith and credit backing of the federal government on a portion of the loan they make to small business.
The loan guaranty that SBA provides transfers the risk of borrower non-payment, up to the amount of the guaranty, from the lender to SBA. Therefore, when a business applies for an SBA loan, they are actually applying for a commercial loan, structured according to SBA requirements, which receives an SBA guaranty.
In a variation of this concept, community development organizations can get the government's full backing on their loan to finance a portion of the overall financing needs of an applicant small business.
SBA’s Investment Programs
In 1958 Congress created the Small Business Investment Company (SBIC) program. SBICs, licensed by the Small Business Administration, are privately owned and managed investment firms. They are participants in a vital partnership between government and the private sector economy. With their own capital and with funds borrowed at favorable rates through the federal government, SBICs provide venture capital to small independent businesses, both new and already established.
All SBICs are profit-motivated businesses. A major incentive for SBICs to invest in small businesses is the chance to share in the success of the small business if it grows and prospers.
SBA’s Bonding Programs
The Surety Bond Guarantee (SBG) Program was developed to provide small and minority contractors with contracting opportunities for which they would not otherwise bid. The U.S. Small Business Administration (SBA) can guarantee bonds for contracts up to $2 million, covering bid, performance and payment bonds for small and emerging contractors who cannot obtain surety bonds through regular commercial channels.
SBA's guarantee gives sureties an incentive to provide bonding for eligible contractors, and thereby strengthens a contractor's ability to obtain bonding and greater access to contracting opportunities. A surety guarantee, an agreement between a surety and the SBA, provides that SBA will assume a predetermined percentage of loss in the event the contractor should breach the terms of the contract.
- Directory of SBA State Offices - The SBA has at least one district office in each state.
- SmallBusiness.com Local Project Hub - Information on programs in each community, some of which are funded by the SBA.