What is the Small Business Administration (SBA)?
By: Justin Farmer
As my first article on the Small Business Administration “Buying a Business is Easy: 5 Steps to Secure SBA Financing” received so much attention, it seems prudent to continue delving into this topic. This will therefore be the first in a small series on just that. Stay tuned.
The origins of the SBA began with Depression and WWII era economic institutions like the Reconstruction Finance Corporation (RFC) and the Smaller War Plants Corporation (SWPC). These direct lending programs were meant to bolster small businesses against the swelling wave of ‘big business.’ As these institutions fell out of favor, President Dwight D. Eisenhower proposed the SBA to replace them. Congress was favorable to the idea, and the SBA was created as part of the Small Business Act on July 30, 1953.
The original function of the SBA was to “aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns” in part by guaranteeing that small businesses received a “fair portion” of government contracts and sales of surplus property. That portion, nowadays, stands at exactly 23%.
Unlike its predecessors, the SBA is not a direct lending program (with the single exception of Disaster Relief Loans) and does not give federal grants. Instead, the SBA backs loans provided by lenders that adhere to its guidelines thus greatly reducing the risk to the lender. This allows entrepreneurs and small business owners to qualify for loans even when the minimum annual payments would exceed the standard two-thirds of the previous year’s profit. As stated on the SBA.gov website, “when a business applies for an SBA loan, it is actually applying for a commercial loan, structured according to SBA requirements with an SBA guaranty.” This guarantee is only available to borrowers without access to other reasonable financing opportunities. And deferential treatment is given to women, minorities and veterans.
Besides general financing, the SBA provides face-to-face and online counseling and training, aids small businesses in procuring government contracts, and engages in legislative advocacy. There are also several resources available via the SBA website, including instructional articles, actual online classes in the Learning Center, and the LINC tool that connects appropriate borrowers and lenders based on needs. If online isn’t your style, they have at least one office in every state (two in Washington) and an over-the-phone assistance line.
The SBA mission statement is to “aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.” The point is to give small business owners (and potential small business owners) a leg up when they might not otherwise have one.
Yet despite the size and breadth of the SBA, it remains a rather unfortunately well-kept secret. Many people are either not familiar with the SBA at all or not aware that they could qualify for its assistance. By acting to connect private practice owners with experienced lenders, I hope to remedy that fact. If there are any particular questions that you have about the SBA, please ask. I’ll do my best to answer you questions in turn, as I progress through this series.