Top Ways the SBA Can Help a Start-up
The U.S. Small Business Administration (SBA) is an independent agency of the executive branch of the federal government. It is charged with the responsibility of providing 4 primary areas of assistance to American small business.
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The U.S. Small Business Administration (SBA) is an independent agency of the executive branch of the federal government. It is charged with the responsibility of providing 4 primary areas of assistance to American small business. These areas are advocacy, management, procurement, and financial assistance. Financial assistance is delivered primarily through SBA’s Investment Programs, Business Loan Programs. The SBA offers numerous loan programs to assist with starting of small businesses. Here are some ways they can assist the fledging business.
- Basic 7(a) loan guarantee
This serves as the SBA’s primary business loan program to help qualified small businesses obtain financing when they might not be eligible for business loans through normal lending channels. Loan proceeds can be used for most sound business purposes, including working capital, machinery and equipment, furniture and fixtures, land and building and leasehold improvements, and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets.
- Certified Development Company (CDC), a 504 loan program
This program provides long-term, fixed-rate financing to small businesses to acquire real estate, machinery, or equipment for expansion or modernization. Typically, a 504 project includes a loan secured from a private-sector lender with a senior lien, a loan secured from a CDC (funded by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost, and a contribution of at least 10 percent equity from the borrower. The maximum SBA debenture generally is $1 million (up to $1.3 million in some cases).
- Microloan, a 7(m) loan program
This program provides short-term loans of up to $35,000 to small businesses and not-for-profit child-care centers for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery, and/or equipment. The SBA makes or guarantees a loan to an intermediary, who in turn makes the microloan to the applicant. The microloan program is available in selected locations in most states.
- Loan pre-qualification
This program allows business applicants to have their loan applications for $250,000 or less analyzed and potentially sanctioned by the SBA before they are taken to lenders for consideration. The program focuses on the applicant’s character, credit, experience, and reliability rather than assets. An SBA-designated intermediary works with the business owner to review and strengthen the loan application. The review is based on key financial ratios, credit and business history, and the loan request terms. The program is administered by the SBA’s Office of Field Operations and SBA district offices.
- 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 vital participants in a partnership between the government and the private-sector economy. With their own capital and funds borrowed at favorable rates through the federal government, SBICs provide venture capital to both new and established small independent businesses. 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 they would not normally have. The U.S. Small Business Administration 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.
Source: SBA.gov is a U.S. government site that guides its visitors through the maze of government rules and regulations and provides access to services and resources to help them start, grow, and succeed in business: www.sba.gov.
