Congress created the U.S. Small Business Administration (SBA) in 1953 to help America's entrepreneurs form successful small enterprises. Today, SBA offices in every state, the District of Columbia, the Virgin Islands and Puerto Rico offer financing, training and advocacy for small firms. The Agency also works with thousands of lending, educational and training institutions nationwide.
The SBA enables its lending partners to provide financing to small businesses when funding is otherwise unavailable on reasonable terms by guaranteeing major portions of loans made to small businesses.
The Agency does not currently have funding for direct loans nor does it provide grants or low interest rate loans for business start-up or expansion.
The eligibility requirements and credit criteria of the program are very broad in order to accommodate a wide range of financing needs. The most basic eligibility requirement for SBA loans is the ability to repay the loan from cash flow, but the SBA also looks at personal credit history, experience in the industry or other evidence of management ability, collateral, and owner's equity contributions. If you own 20 percent or more of the business, the SBA requires you to personally guarantee the loan.
When a small business applies to a lending partner for a loan, the lender reviews the application and decides if it merits a loan on its own or if it requires additional support in the form of an SBA guaranty. SBA backing on the loan is then requested by the lender. In guaranteeing the loan, the SBA assures the lender that, in the event the borrower does not repay the loan, the government will reimburse the lending partner for a portion of its loss.
By providing this guaranty, the SBA is able to help tens of thousands of small businesses every year get financing they would not otherwise obtain.
To qualify for an SBA guaranty, a small business must meet the SBA's criteria, and the lender must certify that it could not provide funding on reasonable terms without an SBA guaranty.
The SBA can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000. In most cases, the maximum guaranty is $1 million. There are higher loan limits for International Trade, defense-dependent small firms affected by defense reductions, and Certified Development Company loans.
The Office of Advocacy of SBA has ranked the nearly 10,000 banks in the country on a state-by-state basis to determine which banks are "small business friendly." The state-by-state directory helps small businesses locate which banks in their area are more likely to lend to small business.
The following are a few of the many specialized SBA loan programs:
- 7(a) Loan Guaranty Program:
- This is the SBA's primary lending program and was designed to meet the majority of the small business lending community's financing needs. In addition to general financing, the 7(a) program also encompasses a number of specialized loan programs.
- Low Doc:
- This SBA program is designed to increase the availability of funds under $100,000 and streamline or expedite the loan review process.
- An umbrella program from the SBA to help small businesses meet their short-term and cyclical working-capital needs.
- International Trade:
- If your business is preparing to engage in or is already engaged in international trade, or is adversely affected by competition from imports, the SBA has the International Trade Loan Program.
- Defense Loan and Technical Assistance is a joint SBA and Department of Defense effort to provide financial and technical assistance to defense-dependent small firms adversely affected by cutbacks in defense.
- Microloan Program:
- This SBA program works through intermediaries to provide small loans from as little as $100 up to $25,000.
- Certified Development Company (504 Loan) Program:
- This SBA program, commonly referred to as the 504 program, makes long term loans available for purchasing land, buildings, machinery and equipment, and for building, modernizing or renovating existing facilities and sites.
Information courtesy of the Small Business Administration.