What Is Small Business Administration? [Learn How the SBA Can Help You]

There are all kinds of difficulties for small businesses – financing, getting the technology right, finding a working marketing approach, organizing your workload… the list goes on.

But you are not fighting this battle alone!

Let me ask you – do you know what Small Business Administration is?

The Small Business Administration is a US government agency, created to support entrepreneurs and small businesses.

Eager to learn more? Let’s get going then.

Fascinating Facts

• 82% of businesses fail because of cash flow problems.
• 45% of approved loans are between $350,000 and $2,000,000.
• Businesses that are 2+ years old account for 48% of total loan approvals.
• 27% of businesses weren’t able to receive the business funding they needed.
• In 2018, the SBA approved 60,353 loans amounting to nearly $25.4 billion.

History of SBA

The roots of SBA date back to the 1930s when US President Herbert Hoover created the Reconstruction Finance Corporation to help businesses get out of the Great Depression.

In 1952, the RFC became obsolete. The SBA, in its current state, was created on July 30, 1953. US president at the time – Dwight Eisenhauer, signed the Small Business Act with the main purpose of the organization being to “aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns.”

The following year SBA was already making direct business loans and guaranteeing bank loans to small businesses. In the next few decades, the Small Business Administration was updated with several programs, including the Investment Company Act of 1958, the Equal Opportunity Loans program of 1964, and the creation of the Office of Advocacy in 1976. All of them aimed to protect SBA programs and small businesses within the Federal Government.

In 1996, the House of Representatives, controlled by Republicans, tried to eliminate the SBA. The agency managed to survive, though, and even received record financing in 2000.

SBA expenditures were frozen in 2004 due to attempts from the Bush Administration to end the SBA loan program. Still, strong congress resistance managed to keep the Small Business Administration alive.

Between 2009 and 2011 President Obama took measures to strengthen the position of the SBA and in 2011, Obama announced SBA will double its current rate in rural small businesses to $350 million in the next 5 years.

SBA Today

Nowadays, having survived multiple crises and liquidation attempts, the SBA is stronger than ever. It is supported by the Trump Administration and continues to help small businesses throughout the nation.

The SBA has a mission to provide small businesses with the 3 C’s:

• Capital
• Counseling
• Contracts

Capital

The SBA has loan guarantee programs that encourage financial institutions to loan money to new and expanding businesses. The money can be used for multiple purposes, including working capital, exporting, building purchase and construction, equipment purchase, and even for buying a business or a franchise. And SBA loan volume has surpassed pre-credit-crunch levels.

Counseling

Not everything is money. Yeah, obviously, money is very important but sometimes some things are more important. Also, no money unless you know how to earn it. The SBA realizes these facts all too well and that’s why they organize counseling, training, and mentoring to small businesses nationwide. Knowing how to write a business plan can also help you out, especially if you’re just starting out.

It’s like giving you a caught fish so that you can eat today versus teaching you how to fish so that you can eat every day.

And this is obviously a well-liked practice since in FY 2017, nearly 1.46 million small businesses throughout the United Stated States took advantage of SBA counseling.

Contracts

Does your business have enough customers? Are you good at placing your products/services to potential buyers?

What if I told you the SBA could be your customer?

Yes. That’s right.

The US Small Business Administration helps businesses across the nation. The SBA is actually charged with helping the federal government meet its annual goal – directing 23% of its contracting dollars to small businesses.

What Else Is Small Business Administration Doing For SMBs?

Apart from the three C’s, US SBA offers other very useful programs aimed to help small business owners.

Loan Guarantee Program

This is one of the primary programs of the SBA. The SBA guarantee gives banks some room to approve loans or allow borrowers to repay loans over a longer period of time. It’s quite beneficial for SMB owners who want to take a loan with longer-term and lower payments. The program is also very good if you have restrictions or limited operating history.

The maximum loan amount allowed is $5 million. Loan terms can last up to 25 years for real estate, up to 10 years for equipment and around 7 years for working capital. SBA loans guarantee as much as 85% of loans up to $150,000 and 75% of loans of $150,000+.

It sounds good, but how do you actually get a loan from the SBA? Well, simply check out your local community bank. In addition, big banks like Wells Fargo are among the top loan contributors.

Disaster Loan Program

SBA provides low-interest disaster loans to businesses of all sizes. In the case of a disaster, SBA loans can be used to repair or replace your damaged or destroyed: real estate, personal property, machinery and equipment, inventory and business assets.

Keep in mind that you must be in an SBA declared disaster area to be eligible for SBA disaster assistance.

Microloan Program

Ever since 1992, the US SBA has been providing newly established and growing SMBs with microloans. The program was specially designed to help out people who might have difficulties finding funding in the private sector. This includes war veterans, minority groups, women and people with low income.

The average loan size within the program is about $13,500, while the maximum is $50,000.

The way this program works is that the SBA makes funds available to non-profit community-based lenders who then receive applications and all credit decisions are made on a local level. Of course, interest rates will vary, depending on the intermediary lender and costs to the intermediary from the U.S. Treasury.

How to Do It Right – Examples

Throughout the years, there have been numerous examples of companies that take the best out of what the Small Business Administration offers. And really, everyone can take advantage, so let’s take a look at some noticeable ones.

Federal Express

In 2019, the delivery service giant serves 220 countries and has more than 400,000 employees. It had an annual revenue of $65.45B for 2018. That wasn’t always the case, though. The company actually started way back in 1971 and benefited largely from the SBIC (Small Business Investment Company) the SBA offers.

Today, FedEx is a worldwide corporation, with even marooned islands being in its reach and all that was accomplished with the help of the US Small Business Administration agency.

Nike

It sounds hard to believe but Nike was also a small business once upon a time. And just like Federal Express, Nike took great advantage of the SBIC program.

Originally founded as Blue Ribbon Sports in 1964, in 2019 Nike is one of the most influential brands worldwide. Maybe none of that would be possible without the program, which helps small businesses access private debt and equity financing to grow.

Apple

Yes, SBIC strikes again! You never thought a technological giant like Apple could have ever needed Small Business Administration loans, right? Actually, the SBIC has a long history of directing capital to innovative technology companies like Apple.

What’s more, SBA’s SBIR (Small Business Innovative Research) Program funded the research for that handy fingerprint scanning technology on your iPhone.

Under Armour

This company is a perfect example of what SBA loans can achieve. Under Armour received support from the US Small Business Administration when it was still a small company, having earned only $17,000 in sales in their first year. Now it’s one of the fastest-growing firms in the United States.

SBA Loans: Advantages and Criteria

Small Business Administration loans come with quite a few benefits compared to regular bank loans. There are, of course, some factors you must take note of before starting. Here are some general guidelines before you apply for an SBA loan.

• $100,000+ annual revenue
• 620 points credit score
• In business for at least 2 years
• Business based in the US
• Lack of other financial options
• Profit-oriented
• Investment of personal time/money

Of course, you can still get approved for an SBA loan, even if you don’t match some of the criteria. For example, if you’re a startup, you can try the SBA Microloan Program.

Otherwise, the general criteria the SBA follows when deciding whom to finance is based on common signs that a business really needs help.

You’ve been running for 2 years, you have a 6-digit annual revenue, good credit score – those are all signs that work in your favor. It might come in handy to have a business credit card when you want to purchase something, too.

You have also been looking to increase your profit, but have already exhausted multiple financing options. You’ve invested your personal money and time towards your project. That helps a great deal as well.

The SBA then says – yeah, this person is worth financing. He has passion and energy for his business and only needs a little help from us. You can understand where they’re coming from since a lot of people would want to benefit from their assistance, even if they don’t really need it. And some would just want to take the easy money and disappear.

Generally, if you’re not exactly sure whether you comply or just want to ask a question, call your local small business bureau.

Summary

Having started back in 1953, the SBA has gone through a lot of tough times and survived multiple existential crises. But now hundreds of businesses have been revitalized and boosted by SBA payments. Big corporations like Apple, Nike and Under Armour might have never become what they are if it wasn’t for the Small Business Administration.

And it’s not all about the money. An SBA business plan could be as valuable as the dead presidents. Always remember that the US SBA can aid you in times of need – when a disaster strikes, for example. Don’t forget about the 3 C’s either. The Capital, Counseling, and Contracts program has proven its worth and efficiency.

In the event that you’re thinking of starting your own business, consider getting software for making business plans in addition to the tools you’re already using.

All in all, the SBA can help your business in almost any scenario and in no time you can be a prospering, multinational company.

By now you should know what Small Business Administration is and what SBA is, and all the benefits it can bring to your small business. Use the help of the Small Business Administration to take your small business to the next level. Years from now you can be a bright example of success.