How Does SBA Help Small Businesses in the United States?

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How SBA can help small businesses start and grow

How can SBA help small businesses in the United States?

What does the small business administration do to ensure that small businesses get their fair share?

And is there something future entrepreneurs can benefit from SBA in running their own successful startup in America?

Small businesses make up a large share of the US economy. According to statistics, there are more than 31.7 million small businesses in America, making up over 99% of all businesses. 

However, these small businesses face a myriad of challenges that can limit their growth. This is where SBA comes in. 

What Is the SBA and What Does It Do?

Small Business Administration (SBA) is an American agency founded under the small business act of 1953 that helps Americans start, grow and develop their small businesses.

If you’re an American looking to start, grow or develop a small business, here is how SBA can help you.

1. SBA Help Small Businesses Secure Business loans

One of the biggest challenges small entrepreneurs in the US face is financing their businesses. You may have a brilliant idea but you don’t have enough capital to transform the idea into a business.  

Banks offer loans but with strict requirements that many small business owners can’t meet. This limits most people from starting or growing their small enterprises. Funding options for small businesses in the United States would have been limited if not for SBA.

Fortunately, SBA offers various financial resources to small businesses.

Before we expound on this, it’s worth noting that SBA does not loan small businesses directly. Instead, they help businesses get loans from various lenders. Forget all the terrible myths about SBA loans that they offer quick loans.

SBA partners with credit unions, community development organizations, banks, micro-lending institutions, among other financial institutions to help small businesses secure loans. 

Eligibility Requirements for SBA loans

How do you know you are eligible to access SBA loans as a small business owner?

Your business will need to meet certain requirements to qualify for SBA loans. The requirements ensure that the funds are given to the right business/person and in the right amounts. The lender dictates all the eligibility requirements for the loans. 

Some of the requirements needed for a small business owner in the United States to access SBA loans include;

  • The business must be based in the USA. The agency only works with small businesses in the US and its territories. 
  • Invested in equity. As a small business owner, you must have invested both your time and money into the business. 
  • For-profit business. SBA only helps business owners whose goals are to make a profit out of their small business. The agency does not assist non-profit small businesses. 
  • The business must be legally registered to operate.
  • Exhaust financing options. SBA can only help you if you’ve tried getting loans from other sources with no success. 

The SBA mitigates the risk for the lenders while helping small businesses gain access to capital more easily.

SBA Loan Programs

The Small Business Association has three main loan programs;

a. 7(a) Loan

What is a 7(a) loan? This is a typical SBA loan program for small businesses, and it comes with special requirements. The maximum amount a small business can get from this program is $5 million. 

The eligibility requirements for a 7(a) loan are based on the business’s credit history, what it does to receive income, and its location. 

Primary uses of 7(a) loan according to SBA guideline include;

  • Long and short-term working capital;
  • Purchase of furniture, machinery, supplies, equipment, or materials;
  • Construction;
  • Refinancing existing business debt; and,
  • Real-estate purchase, including buildings and land.

b. 504 loans

What is the 504 loan program? This loan program provides long-term fixed-rate financing for the repair and purchase of equipment, machinery, real estate, and other assets. For significant fixed assets that promote job creation and business growth, the financing can be as high as $5 million.

The loans are obtainable through CDC (Certified Development Companies) and the SBA’s community-based partners. SBA certifies and regulates CDCs.

How can one qualify for the SBA 504 loan? To be eligible for a 504 loan, a business must have a net worth not exceeding $15 million. The loan repayment terms are different based on several factors.

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What are some of the things small business owners are forbidden to use the SBA 504 loans for? The 504 loan cannot be used for:

  • Inventory or working capital
  • Speculation or investment in rental real estate
  • Repaying, consolidating, or refinancing debt

c. Micro loans

Micro loans are available through SBA funding intermediaries, and they range from $13,000 to $50,000. The loans are aimed at helping small businesses start or expand. The lending and credit requirements vary between intermediary lenders. 

Microloans offered through the SBA loan program can be used as;

  • Working capital
  • Supplies
  • Inventory
  • Machinery
  • Equipment. 

Note: SBA microloans cannot be used to purchase real estate or repay existing debts.

Benefits of SBA loans

Here are some of the amazing advantages of SBA loans every small business needs to know:

  • Moderate requirements as compared to traditional bank loans
  • Lower down payment requirements
  • Longer repayment terms
  • No collateral for some loans
  • Counseling and education on how to use the loans properly
  • Competitive terms.

 2. SBA Helps SMBs to Win Government Contracts

When the government advertises contracts, it often attracts large companies/businesses. Small business owners are often shy and feel incapable of competing with the big fishes to land such contracts.

However, SBA works to level the playing field by providing a contracting guide to help small businesses learn and secure contracts from the federal government. 

The contracting guide offered to help small businesses win government contract has insights into:

  • Assessing your business
  • Basic requirements needed to win federal contracts
  • How to secure federal contracts
  • Types of contracts
  • Governing rules and responsibilities
  • Prime and subcontracting
  • Size standards.

Additionally, the agency offers various contracting assistance programs to help small businesses gain a competitive edge and win a fair share of federal contracts. The agency allows small businesses to qualify for exclusive sole-source and set aside contracts.

The programs also help small business owners to work with established contractors to win contracts.

SBA contracting assistance programs also provide education and mentoring to small business owners on how federal contracting works.

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It’s worth noting that the government works to ensure 23% of all federal contracting dollars goes to small businesses. The share is divided as follows;

  • Women-owned small businesses get 5% of the contracting dollar award
  • Small disadvantaged businesses also get 5%
  • Service-disabled veteran-owned small businesses get 3%
  • Small businesses in HUBZone get 3%

You must qualify as a small business through the SBA’s size standards to participate in SBA’S small business contracting assistance programs. The socio-economic programs require some certification.

Furthermore, SBA offers counseling and help to small businesses to help understand government contracting processes.

3. SBA Offers a Learning Platform to Small Businesses

Eligibility for accessing SBA loans in the United States

SBA’s digital learning platform is tailored to educate small business owners on entrepreneurial best practices and the best financing options. For every step you take as a small business in the US, the agency is there with you to offer education and empowerment. 

SBA offers face-to-face help, training, and information to small business owners. This includes;

  • Business plan writing

Every business requires a well-thought plan, especially in the initial stages. SBA  helps small businesses to write their business plan.

  • Marketing 

SBA helps small businesses conduct competitive analyses and in-depth market research. This helps companies gain a competitive edge to win more customers. You might as well pick up some innovative offline marketing strategies that will help you grow your business.

Final word

Small Business Administration has helped many small businesses in the US to start, grow and expand. SBA provides indirect funding through loan programs to help businesses sustain themselves. It also helps small business owners win federal contracts by educating them on the type of contracts offered by the government, government rules and responsibilities, and mentorship.

You can start your SBA loan application today if you think you met all the requirements even in the face of the coronavirus pandemic.

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