The Small Business Administration
The Financing Behind Many of America’s Small Businesses
By Florence Sherman

If you are looking to begin a new business, or improve your current one, and need some financial assistance, the U. S. Small Business Administration (SBA) is the best place to start.  The SBA offers many financing alternatives.

The SBA has been in operation since 1953 as an independent agency of the federal government and provides help in the form of financing, as well as training, for the small business entrepreneur.  The SBA has offices throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam.

SBA logoThere are many articles on LocationIsland.Com to help you start your business in this one; we will attempt to give you a condensed look at what the SBA has to offer in the way of financial assistance for starting or expanding your business. Our goal is to provide you with the information and links needed to get you started on your journey through the SBA network of financial opportunities available to you.
SBA provides a fairly large number of financial assistance programs for small businesses that have been designed to meet specific financing needs, including debt financing, surety bonds*, and equity financing.


Guaranteed Loan Programs

You should first be aware that the SBA does not make loans directly to small businesses. Rather, the SBA sets the guidelines for the loans, which are then made by private lenders, community development organizations, and even microlending institutions. SBA guarantees that these loans will be repaid, thus reducing the risk to the lending institutions. This means that when a small business applies for an SBA loan, it is actually applying for a commercial loan, structured according to SBA requirements with an SBA guaranty.

One very important factor to remember is that SBA-guaranteed loans may not be made to a small business if the borrower has access to other financing on reasonable terms. As part of the process, you will need to show evidence that you are not eligible for a standard commercial loan.

If you are not eligible for a loan through normal business channels, the SBA’s 7(a) Loan Program may be just the loan for you.  This is the SBA’s primary program to help start-up and existing small businesses obtain financing.

The loan is flexible, and financing can be guaranteed for a variety of general business purposes. Financing can be obtained for working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). The length of the loan can be up to 10 years for working capital (Basically, the money necessary for the day-to-day operation of your business) and up to 25 years for fixed assets (things such as your furniture, fixtures and equipment).

Other loans offered under this program include the CDC/504 Loan Program which provides long-term, fixed rate financing to acquire fixed assets for expansion or modernization; the Microloan Program which provides small short-term loans, up to $35,000, for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery or equipment; and the Disaster Assistance Loan Program which provides low-interest loans to homeowners, renters, businesses of all sizes and non-profit organizations to repair or replace assets that have been damaged or destroyed in a declared disaster.

For more information, and required applications, make sure to stop by the SBA’s Guaranteed Loan Programs portion of their website.


Bonding Programs for Small Business Contractors
(Enter the Surety Bonds*)

Are you a small business contractor who cannot obtain surety bonds through regular business channels?  The SBA’s Surety Bond Guarantee (SBG) Program is just the place to look for help.
The surety agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor is unable to successfully perform the contract, the surety assumes the contractor's responsibilities and ensures that the project is completed.

If the contractor breaches the terms of the contract, the SBA will assume a percentage of the loss.  This guarantee gives sureties an incentive to provide bonding to eligible contractors and strengthens the contractor’s ability to obtain bonding and greater access to contracting opportunities for small businesses.

SBA can guarantee bonds for contracts up to $5 million, covering bid, performance and payment bonds, and in some cases up to $10 million for certain contracts.

*A surety bond is a three-party instrument between a surety (someone who agrees to be responsible for the debt or obligation of another), a contractor and a project owner.
For more information on the SBA’s Bonding Programs, please see the Bonding Program portion of the SBA website.



Venture Capital Program

SBA’s Small Business Investment Company (SBIC) Program is a public-private investment partnership through which SBA provides venture capital to small businesses. SBICs are privately owned and managed investment funds, licensed and regulated by the SBA. With the private capital they raise and with funds borrowed at favorable rates through SBA, the SBIC provides financing in the form of debt or equity to small businesses.

SBICs are similar to venture capital, private equity and private debt funds in terms of how they operate and their ultimate objective is to generate high returns for their investors.  However, unlike those funds, SBICs limit their investments to qualified small business concerns as defined by SBA regulations. 

For more information about this program, please see: Venture Capital Program


SO...ARE YOU READY?

When you are ready to explore all the programs and services provided by the SBA, why not spend some quality time perusing the Small Business Administration’s website (SBA.gov).  You will be directed to the home page where you can explore the many tools and resources that the SBA offers.  Not only will you find many of the financing options that they currently offer, but also various useful tools for helping you prepare your business plan and ideas on how to manage your business going forward.  Currently under the “Spotlight” on their home page are the Economic Recovery Programs and ARC Loans and is updated daily with new and exciting programs. 

In closing, the prospect of obtaining financing for your business can be an intimidating and sometimes daunting task, but the folks over at the SBA are on your side and very willing to help the fledgling businessperson, quiet possibly making them one of nation’s greatest treasures!

 

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About the Author – Florence Sherman is a freelance writer and a legal professional specializing in commercial and residential Real Estate in the Southeast US. Her focus is mainly on financing, banking and the origination and processing of small business loans.   


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