Small Business Administration (SBA)

It is a United States government agency that works to assist small businesses.

The Small Business Administration (SBA) is a United States government agency whose mission is to strengthen the economy by assisting the country's small businesses. 

Small Business Administration (SBA)

Since its inception in 1953, the SBA's primary function has been to advise individuals who want to start and grow their businesses. Its website offers several tools to help new and existing small business owners and put them on the right track. 

Every state has at least one SBA office. The Small Business Administration provides extensive educational resources with a specific focus on assisting small businesses Looking to grow and expand.

As previously stated, the agency has numerous business tools available on its website, including a small business planner, information on loan options, and training programs.

Boxes

What Services does the SBA offer?

Do you have a business idea but don't know where to begin? The SBA's online and personal consulting resources can assist you in developing a business plan. The SBA can also provide valuable tools for a successful launch.

1. Finding Financing and Guaranteeing Loans

When a small business needs money, the SBA can provide information on various funding options, including SBA-guaranteed loans (the SBA's backing can make loans easier to obtain, with more flexible lending requirements). 

When it comes to financing, the SBA's goal is to connect small businesses with affordable lending options that meet various needs.

When business owners are ready, they go on SBA's LenderMatch website.

LenderMatch is a free online referral tool that connects small businesses with participating SBA-approved lenders.

2. Education and Advice

The SBA provides online courses as well as in-person consultations to help strengthen a business owner's entrepreneurial skills, emphasizing technical assistance and specific support for planning, managing, and growing your business.

And there are now platforms that can provide you with advice.

3. Government Contracting

According to federal law, the government should give 23 percent of contracting dollars to small businesses. The SBA assists small-business owners in connecting with government contract opportunities and guides how to win contracts.

4. Giving a Voice to Small Businesses

Through its Office of Advocacy, the SBA aims to give small businesses a voice in today's marketplace. This agency division conducts independent research on key issues and advocates for small businesses before Congress and other policymakers.

The Small Business Administration's Loan Programs

The SBA loan programs are among the most visible programs the agency offers. In addition, these loans offer longer repayment periods for small businesses. 

Calculator

Remember that the agency does not make loans except disaster relief loans. Instead, the SBA backs or guarantees loans made directly by lenders who follow the agency's guidelines.

The SBA guarantees the following loans:

a) Loan Guarantee Scheme

The 7(a) Loan Guarantee Program is intended to assist entrepreneurs in starting or expanding small businesses.

It is the most common loan program made available by the SBA. Small businesses can access capital through the program via bank and non-bank lending institutions.

Coins

The Small Business Jobs Act of 2010 increased the maximum size of these loans from $2 million to $5 million indefinitely. 

According to the SBA website, they can be used for short- and long-term working capital, debt refinancing, and purchasing furniture, fixtures, and supplies.
Some businesses, such as real estate investment firms (where the property is held for investment purposes), dealers in rare coins and stamps, and lending institutions such as banks, are ineligible for this program.

b) Disaster Loans Program:

On October 26, 2009, the SBA opened a Disaster Loan Center in Austell, Georgia. Long-term, low-interest loans are available to homeowners and renters to rebuild or repair a damaged property to pre-disaster condition.

Businesses can also get long-term, low-interest loans to help them recover from declared disasters.

Disaster

Loans for disaster relief are frequently approved within 21 days.

If a business with a disaster relief loan defaults on the loan and closes, the SBA will pursue the business owner to liquidate all personal assets to satisfy an outstanding balance. 

The IRS will deduct any tax refund to the former business owner and apply it to the loan balance.

c) Microloan Program:

The Microloan program makes direct loans to qualified nonprofit intermediary lenders, who then make "microloans" of up to $50,000 available to small businesses and nonprofit child care centers. 

It also offers microloan borrowers and potential borrowers help with marketing, management, and technical assistance.

Microloan

When the SBA guarantees loans, small businesses can obtain them more easily. In addition, the agency allows entrepreneurs to make lower payments over a longer period of time. 

The American Recovery and Reinvestment Act (ARRA) of 2009 and the Small Business Jobs Act of 2010 have also significantly improved the SBA's ability to make loans.

The Benefits and Drawbacks

Understanding the benefits and drawbacks of SBA loans can help you decide if their programs are right for your company.

Interest rate caps help keep costs affordable for small business owners, and an SBA guarantee reduces lender risk and increases the likelihood that your loan application is approved.

Pros and Cons

However, borrowers typically need good credit to qualify, and it can take months to receive funding after approval. On the other hand, working with a preferred lender can cut the funding time down to two weeks.

They typically have fewer requirements than traditional bank loans.

The SBA guarantee allows banks to offer more favorable loan terms and lend to businesses that would otherwise be unable to borrow money. Businesses can use these funds for a variety of purposes, including:

  • Purchasing fixed assets such as machinery, equipment, and commercial real estate
  • Existing debt refinancing
  • Purchasing another company
  • Increasing working capital

SBA loans typically require a lower down payment than traditional bank loans

Many small businesses struggle to raise enough funds to make the 20-30% (or sometimes higher) equity contribution on a traditional loan. 

Many SBA loans (including the popular SBA 7(a) loan) require as little as 10% equity contribution. This allows businesses to keep more money in their pockets rather than tying it up in fixed assets.

SBA loans typically have longer repayment terms than conventional bank loans

Businesses can save critical cash by extending the payment term over a longer period. 

There is no prepayment penalty if the loan term is ten years or less, so some SBA loans can be repaid sooner if cash flow allows.

Benefits

SBA loans are available to both new and established businesses

SBA loans can be used to either start or expand a business. Businesses in virtually any industry that meet the SBA's size requirements, including some franchise businesses, are eligible to apply.

Applying for an SBA loan requires a lot of additional paperwork.

The amount of paperwork must be completed depending on the SBA loan program. However, in all cases, business owners must complete:

  • Statement of personal finances (SBA Form 413)
  • Form for Borrower Information (SBA Form 1919)
  • Request tax transcripts (IRS Form 4506 T)

Borrowers must also submit business financial statements with their SBA loan application must, include historical tax returns, profit and loss statements, balance sheets, and, in some cases, projected revenue and expenses for the business.

Cons

To secure an SBA loan, collateral, such as a personal guarantee, may be required: personal guarantees and collateral are both methods of assuring a lender that you will repay your debt. Therefore, to obtain an SBA loan, you may need to provide both.

A loan is collateralized when it is tied to a specific asset, such as your company's inventory or your home, which the lender can seize if your company fails to repay the loan. 

A personal guarantee assures the lender that you will repay the debt with personal assets, but it does not specify how.

If you use a non-SBA Preferred Lender, the SBA loan approval process can be slow and inconvenient.

The SBA has granted certain banks that are high-volume SBA lenders special authority to approve SBA loans themselves, bypassing the SBA's loan review and approval process. 

These financial institutions are known as "SBA Preferred Lenders." Using a lender who is not an SBA Preferred Lender may cause delays and complications with your loan application.

How Can it Assist You with Starting a Business?

Do you have a business idea and need support? The SBA's online and personal consulting resources can assist you in developing your business plan. The SBA can also provide valuable tools for a successful launch.

Startup

To get financing for your small business, you must have a comprehensive business plan. A business plan can also help you map future expansion opportunities and outline the necessary development and financing. 

The SBA offers courses at the Learning Center that walk you through creating a detailed business plan.

1- Market Research and Data Statistics

From market research and competitive analysis to calculating and scoping out funding for your startup, SBA resources can provide you with the statistics and information you need to develop and implement your idea.

2- Classifying a Business and Finding Funding

Aside from assisting you in determining which business structure to use, the SBA may be able to connect you with specialized funding opportunities based on your situation. 

The SBA may be able to help you find specific opportunities for veterans, women, and minorities.

Funding

Understanding your funding options and knowing which business structure to use may influence how you finance your startup.

3- Tax Resources

Your small business will have to meet tax obligations. State and local tax laws differ, as do tax treatments and options based on your business structure. 

The SBA can help you find information and advice on how federal and state taxes affect your business.

Can it Help You Grow Your Business?

Even experienced business owners can benefit from the SBA's help to expand or change their operations. Here's what you can find if you're an established small business owner.

Business Growth

1. The Learning Facility

The SBA has an online learning center with free courses that can help you prepare to take your business global, write government contract proposals, and learn about your customers' needs.

2. Assistance with Business Analysis

Knowing how your company compares to its competitors in your industry can assist you in developing a long-term winning strategy.

The SBA's "Analyze Your Business" tool is intended to benchmark your company by giving you a guide to help you compare the performance of your business to similar businesses in the same industry.

It can assist you in learning about your customers, competitors, suppliers, and opportunities for advancement.

3. Marketing Help

The SBA has information online to help you organize and plan a marketing strategy to help your business grow. There are also courses in the learning center to help you improve your marketing knowledge.

4. Local Events

The SBA has many local district offices across the country. The agency also contributes to Small Business Development Centers, which are often hosted by universities and offer networking and training opportunities.

How Does it Get Its Funds?

The federal government approves the Small Business Administration's annual budget. This money is used for salaries, grant and loan programs, and administration costs. Keep in mind that the SBA does not make loans to small businesses.

Procurement of funds

The SBA guarantees most loans made to small business owners through SBA programs. Approved financial institutions and other lenders make these loans. This type of capital assists individuals in starting and growing their businesses.

Today, the SBA has at least one office in each state, employs over 6000 people, and has a 45.94 billion annual budget. In addition, the agency serves over one million entrepreneurs and small business owners every year. 

The SBA's Office of Government Contracting collaborates with other federal departments and agencies to ensure that small businesses receive 23 percent of prime federal contracts.

The federal government also tries to ensure that certain businesses receive a certain percent of contracting dollars, with at least:  

  • 5 percent going to woman-owned small businesses 
  • 5 percent going to small disadvantaged businesses
  • 3 percent going to service-disabled veteran-owned small businesses 
  • Three percent going to certified HUBZone small businesses.

Analysis

Small businesses received over $154 billion in federal contracts in 2021

This administration was represented in the Clinton administration's cabinet and every administration since and including the Obama administration.

On March 17, 2021, Isabella Casillas Guzman was sworn in as the 27th Administrator of the Small Business Administration. In President Joe Biden's cabinet, she represents the US 32.5 million small businesses and innovative startups.

What about Grants?

The Small Business Administration does not typically issue grants. However, it does issue grants to some organizations, specifically those that promote entrepreneurship in their communities. 

Grants

Nonprofit organizations, organizations that provide training and funding to their communities (known as "Resource Partners"), and educational organizations are examples of SBA grant recipients. 

If you want to apply for a federal grant or do business with the US Government, start with the information listed below. 

The first step in applying for government contracts is registering with the System for Award Management (SAM). 

The System for Award Management (SAM) is a federal payment tracking database listing approved organizations. It keeps track of where federal money goes and what it's being used for. 

Contracting Officers do not use the SAM database to find vendors. Instead, it is simply a database of organizations that the IRS and the DLA have approved to sell a product or service directly to the Federal Government. 

SAM registration is also required to apply for federal grants and other financial assistance.

Grants are not available to owners who want to expand an existing business or start a new one.

The Size Standards Table

The SBA's table of small business size standards assists small businesses looking to determine their business size.

The SBA's size standards tool will be available on the SBA website shortly. In the meantime, you can look up specific size standards in the attached tables.

Table

The table compares small business size standards to industries described in the North American Industry Classification System (NAICS), as amended by the Office of Management and Budget on January 1, 2017.

The majority of the size standards are expressed in either million dollars (those preceded by "$") or many employees (those without the "$"). 

A size standard determines the largest company can be while still qualifying for Federal Government programs.

The average annual receipts or staff size are typically used as size standards. 13 CFR 121.104 and 13 CFR 121.106 explain how to calculate a firm's average annual receipts and average employment.

Small Business Size Regulations, 13 CFR 121.201, also includes a table of size standards. This table includes size standards that have changed since 13 CFR 121 was last published.

size standard table

Important information about the size standard table

1. Businesses registered in the System for Award Management (SAM.gov) must update their SAM registration for their small business status to be updated based on

the new size standards will take effect on May 2, 2022. 

The SAM profiles will continue to display the small business status under the old size standards until the SAM registration is updated.

2. Following the SBA's recently issued guidance, all procurement professionals are advised not to use NAICS 2022 codes when preparing solicitations and awarding contracts until the SBA updates its small business size standards to NAICS 2022,

The SBA anticipates implementing the updated NAICS on October 1, 2022. Therefore, the NAICS 2017 codes should be used until the SBA updates its size standards.

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Researched and authored by Ranad RashwanLinkedIn

Reviewed and edited by Sara De MeyerLinkedIn

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