Small Business Administration (SBA)

A U.S. federal agency catering to small businesses

Written by

CFI Team

Updated February 1, 2023

What is the Small Business Administration (SBA)?

The Small Business Administration (SBA) is a federal agency of the United States that serves small businesses. It provides financial assistance to small businesses that are unable to obtain funds on rational terms from the normal lending sources. Such assistance comes in the form of guarantees on the loans secured from the private lenders.

The Small Busines Administration helps people to start small businesses, win state contracts, and provides advice in the management and finance areas. It also offers a broad range of management services, such as consulting, publications, and courses. SBA also offers support services and special programs for economically and socially deprived people, including minorities and women.

Summary

• The Small Business Administration (SBA) is a federal agency of the United States that serves start-ups and small businesses.
• The SBA helps people to start small businesses, win state contracts, and provides advice in the areas of management and finance.
• There are several loan programs offered by the Small Business Administration, which companies can look at and apply after reviewing the eligibility.

Types of Small Business Administration Loans

Most of the Small Business Administration loans can be used to purchase equipment, renovate facilities, finance receivables, and also fund the acquisition of business facilities. The following are the basic categories of the loans backed by the federal agency:

1. 7(a) loan program

The 7(a) loan program is the frequently used loan program for helping start-up and small businesses obtain funds when they are unable to get them through usual channels. Named after section 7(a) of the Small Business Act, the loan program is flexible since it can be used for various purposes, such as buying equipment or machinery, working capital, and debt financing.

The loans for working capital have a maximum maturity term of 10 years and the maximum maturity term for the loans for fixed assets is 25 years. Although the maximum loan amount is $1.5 million, a business can borrow up to $2 million. It is because the SBA supports up to 75% of the loan. The following are the various types of 7(a) loans available to small businesses:

• Expert program: An expert program is an accelerated 7(a) loan program that assures a response within 36 hours of the loan application. Such loan programs provide a maximum guarantee of 50%.
• Export loan program: Export loan programs are designed specifically for helping small businesses that export with working capital and loans.
• Special purpose loan program: The special purpose loan program is intended to help businesses for special reasons, such as helping in the implementation of pollution controls.

2. Microloan program

The Microloan loan programs offer loans of small amounts – i.e., up to $35,000 – and short-term loans. The loans are basically for child-care centers and small businesses that require a small level of financing and technical assistance for starting or expanding businesses.

Several microloan lenders are designated to govern the loans. The lenders include non-profit organizations and those with experience in providing technical assistance to small businesses and funding small loans.

3. 504 loan program

The 504 loan program offers long-term and fixed-rate financing to small businesses – usually for purchasing real estate or equipment for modernization or expansion. A Certified Development Company, designed to assist in economic development, covers about 40% percent of the loan.

The lenders must agree to support up to 50% of the loan. And thus, the borrower should provide a minimum of 10% equity. The Small Business Administration can cover a maximum of $1.5 million for a business with goals related to community development or with an agreement related to job creation or retention.

Qualifying Criteria for the Small Business Administration (SBA)

1. Private financing turned down the business

The businesses must first try to secure loans from private lenders, banks, or other institutions. As per law, the Small Business Administration can guarantee a loan to a business that is capable of obtaining funds on its own. Hence, a business must apply for loans through usual channels and needs to be rejected to qualify for SBA loans.

2. The business must fulfill the size requirement

A firm must meet the size requirement to qualify as a small business before it can apply for an SBA loan. Additionally, different loan programs may impose different criteria. Hence, a business must also review the criteria before applying.

3. The business should meet qualifications set by lenders

When small businesses apply for loans, they do not secure it directly from the Small Business Administration. The loans are made available through vendors, and the lenders are provided a government guarantee by SBA. Some lenders are designated as preferred lenders who approve loans as representatives of the federal agency. The involvement of preferred lenders accelerates the process.

More Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful: