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Small Business - Business plans for the small business and startup - seniormag.com |
The Small Business Administration (SBA) is a United States government agency that provides support to small businesses. The mission of the Small Business Administration is "to maintain and strengthen the nation's economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters." The SBA makes loans directly to businesses and acts as a guarantor on bank loans. In some circumstances it also makes loans to victims of natural disasters, works to get government procurement contracts for small businesses, and assists businesses with management, technical and training issues. The SBA has directly or indirectly helped nearly 20 million businesses and currently holds a portfolio of roughly 219,000 loans worth more than $45 billion making it the largest single financial backer of businesses in the United States.[3]
[edit] HistoryThe SBA was established on July 30, 1953, by the United States Congress with the passage of the Small Business Act. Its function was to "aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns." Also stipulated was that the SBA should ensure a "fair proportion" of government contracts and sales of surplus property to small business. This was accomplished primarily through the Small Business Innovative Research program and government "set-asides."[3][4] The SBA has survived a number of threats to its existence. In 1996 the then newly Republican-controlled House of Representatives planned to eliminate the agency.[5] It survived and went on to receive a record high budget in 2000.[6] Renewed efforts by the Bush Administration to end the SBA loan program have met congressional resistance, although the SBA's budget has been repeatedly cut, and in 2004 certain expenditures were frozen. [edit] Organizational structureThe SBA has an associate administrator for the following offices:
[edit] SBA loan programsThe most visible elements of the SBA are the loan programs it administers. The SBA itself does not grant loans with the exception of Disaster Relief Loans. Instead, the SBA guarantees against default certain portions of business loans made by banks and other lenders that conform to its guidelines. Disaster Relief Loans are issued directly from the SBA. Contrary to popular belief, these programs are not generally for persons with bad credit who can't get bank loans, nor are they primarily used for startup funding; rather, the primary use of the programs is to make loans for longer repayment periods and with looser affordability requirements than normal commercial business loans. Also, a business can qualify for the loan even if the yearly payment would be the same as the previous year's profit, whereas most banks would want payment for a loan to be no more than two-thirds (2/3) of the prior year's profits for a business. The lower payments, longer terms and looser affordability calculations allow some businesses to borrow more money than they could otherwise. One of the most popular uses of SBA loans is for commercial mortgages on buildings occupied by a small business. These programs are chosen because most bank programs, while having similar payments and rates, require borrowers to refinance every five years. Types of Guaranteed Business Loans through banking institutions include:
Homeowners are eligible for long-term, low-interest loans to rebuild or repair a damaged property to pre-disaster condition. Before making a loan, the SBA must establish the cost of repairing or rebuilding the structure (which is determined by SBA's Field Inspectors who visit the property), the applicant's repayment ability (determined by applicant's creditworthiness and income) and whether the applicant can obtain credit in the commercial market (called the credit elsewhere test). Applicants who do not qualify for disaster assistance loans may be referred to the Federal Emergency Management Agency (FEMA) for grants. Although SBA won’t decline a loan for lack of collateral, the agency is statutorily required to ask for whatever collateral is available including the damaged property, a second home or other real estate. Businesses are also eligible for long-term, low-interest loans to recover from declared disasters. Similar to the homeowner's loan program mentioned above, a small business owner must pledge any available assets and acquire a similar pledge from a spouse or partner in the case of any shared assets. If defaulted on the loan, the spouse or partner must surrender their value in the assets. The total value of an applicant’s assets is not considered by the SBA; therefore, a company may be approved for a loan regardless of whether that person has little or great net worth. Once an SBA loan is approved, the SBA mails closing documents to the applicant for signature. Disbursements include an initial unsecured amount of $14,000, and subsequent disbursements depending upon construction progress and continued insurance coverage. After final disbursement, the loan is transferred to one of the SBA's servicing offices for management, or to its collections office in the case of default. Disaster Relief Loans are often approved within 21 days. If a business which has a current Disaster Relief Loan defaults on the loan and the business is closed, the SBA will pursue the business owner to liquidate all personal assets. The IRS will withhold any tax refund expected by the former business owner and apply the amount toward the loan balance. [edit] SBA loan industryThe SBA loan industry can be divided into distinct categories:
[edit] Small Business Investment Companies (SBICs)One of the first steps toward a professionally-managed private equity and venture capital industry was the passage of the Small Business Investment Act of 1958. The 1958 Act officially allowed the SBA to license private "Small Business Investment Companies" (SBICs) to help the financing and management of the small entrepreneurial businesses in the United States. Passage of the Act addressed concerns raised in a Federal Reserve Board report to Congress that concluded that a major gap existed in the capital markets for long-term funding for growth-oriented small businesses. Additionally, it was thought that fostering entrepreneurial companies would spur technological advances to compete against the Soviet Union. Facilitating the flow of capital through the economy up to the pioneering small concerns in order to stimulate the U.S. economy was and still is the main goal of the SBIC program today.[7] The passage of the Small Business Investment Act of 1958 by the federal government was an important incentive for would-be venture capital organizations. The act provided venture capital firms structured either as SBICs or Minority Enterprise Small Business Investment Companies (MESBICs) access to federal funds which could be leveraged at a ratio of up to 4:1 against privately raised investment funds. The success of the Small Business Administrations efforts are viewed primarily in terms of the pool of professional private equity investors that the program developed. In 2005, the SBA significantly reduced its SBIC program and although SBICs continue to make private equity investments, the rigid regulatory limitations minimize the role of SBICs. [edit] See also
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