What is the Small Business Administration?

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According to Entrepreneur magazine, there are many reasons why small to medium size companies should love the Small Business Administration (SBA). Not only does the SBA cost taxpayers nothing, but the SBA supports local businesses and the economy as a whole. The primary purpose of the Small Business Administration is to strengthen the economy through supporting small businesses and helping financially challenged communities recover after disasters. Therefore, they focus on helping individual entrepreneurs start their own companies and remain competitive against large companies.

A History of the SBA

The Small Business Administration was created in 1953 by an official act of Congress called the Small Business Act. The purpose of the legislation is to aid and protect the interests of small business owners across the country. The Small Business Administration guarantees that a defined amount of government contracts and resources are awarded to small business owners every year. Almost all services and programs are executed through the Small Business Administration’s district offices that are maintained in all states. Larger states, such as Texas and California, have four to six local offices. The offices of the Small Business Administration educate small business owners, provide resources to lending institutions, and foster local economic development.

What are the Primary Functions?

The Small Business Administration offers several lending programs to entrepreneurs, but they do not provide direct funding. Instead, they aid business owners through advocating, educating and preparing small business owners to apply for target financial programs through banks and credit unions. The goal of this mutually beneficial relationship is to empower small business owners to succeed while acting as guarantors for business bank loans. Under certain circumstances, the Small Business Administration will provide limited business loans or financing to victims of natural disasters. The Small Business Administration works with new businesses to secure government procurement contracts and train businesses how to successfully navigate complex legal guidelines. They also provide plenty of training, which includes face-to-face consultations, on-site demonstrations and a wide range of online modules.

Lending Programs

The Small Business Administration offers a wide range of lending options to small business owners. While the loan is delivered through commercial lending intermediaries, the Small Business Administration agrees to cover the cost of the loan if the borrower is unable to pay. Almost all lending institutions highly value this guaranteed protection. The most popular program is called the 7(a) Loan Guaranty, which provides long-term funding by guaranteeing loans to qualified companies. These loans can be used for all types of business purposes, such as equipment, inventory and renovations.
The Small Business Administration will guarantee 80 percent of loans that are under $100,000. The Low Documentation Loan program is a simplified version of the 7(a) loan, but is limited to applicants with excellent credit histories. The CAPLines program is for short-term capital needs and the SBA MicroLoans programs are available through non-profit organizations.

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The Small Business Administration also provides investment programs for small businesses, posts surety bonds on federal construction projects and helps small companies engage in international commerce.

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