The Small Business Administration's role in supporting entrepreneurship and small business development

Small Business Association

A) SBA's assistance to individuals in starting new business:

The recognition of small business as a separate entity dates back to 1950s with Congress extending the Small Business Administration -- SBA for two years in 1955 and, after a one-year temporary extension in 1957, converted the SBA as a permanent agency in 1958. In that year, Congress also initiated an important new program to extend equity and long-term capital for small business that, similar to the programs authorized in 1953, continued to be constituent of the SBA's aid portfolio during the 1990s. (Anglund, 41)

It is found that 'Small and Medium Enterprises' -- SMEs contribute 60% or more of the employment and 20-30% of the GDP in the advanced nations and maybe for more in the developing countries. Despite a fair share, SMEs are usually considered as poor cousins to bigger companies. It is impossible to ignore that all large companies started out as small businesses, many of them very recently. Examples include pharma major Pfizer in 1942, Honda in 1948, Intel in 1968, Wal-Mart in 1969, Microsoft in 1981 and Cisco in 1984. The bulk of the SMEs are viewed as remnants of the agricultural, craft-dominated past. The characteristics that lend coherence to SME are (i) personal ownership (ii) independence and the absence of market power. These features generate constraints on the management and financial resources which constitute an inevitable consequence of small scale. (Bannock, 27)

Officially, the U.S. Small Business Association -- SBA is considered to be an 'independent agency to the Executive Branch of the Federal Govt'. (SBA Program Office: SBA's Role) it is responsible for extending 4 basic arenas of support to Small Businesses in America. These include "Advocacy, Management, Procurement, and Financial Assistance." (SBA Program Office: SBA's Role) Financial Assistance is provided via the programs of investment of the SBA, programs relating to business purpose loans, programs relating to disaster loans and bonding with regard to contractors. SBA extends 3 distinct; however equal vital programs relating to loans. SBA concretes the guidelines in relation to the loans and the partners of SBA in turn comprising of the 'Community Development Organizations, Lenders, and Micro Lending Organizations' extends the loan to the small businesses. SBA supports those loans that a guarantee would remove few of the risk with regard to the partners of lending. The Loan Guarantee needs of the Agency and the practices could alter with the varying fiscal policy of the Government as also priorities in order to match the present economic situations. Federal appropriations are there for the SBA to provide guarantees on loans fixed under the Agency's needs. With a loan guarantee, the real fund are given by the independent lenders who get the complete confidence and credit backing of the Federal Govt. On a part of the loan they make to small business. (SBA Program Office: SBA's Role)

In an interview Steve Preston, SBA Administrator speaks about how SBA has been discharging its role in supporting individuals to start new ventures:

Christina: To begin Sir, can you share with us, how SBA supports individuals in starting new business.

Steve Preston: Sure. SBA has several programs of loan to support small business. It is pertinent to bear in mind that the role of SBA is basically that of a guarantor of the loans which are being created by private as well as by other institutions. We have a program known as 'Basic 7(a) Loan Guaranty' that functions as the main program of business loan of the SBA to support small businesses which are qualified to get finances when they would not be found to have eligibility for business loans via usual lending mediums. I must say that this is the most flexible of the business loan programs of the agency, as financing which fall under this program could be assured for several general business concerns. (SBA Program Office: Snap Shot)

Christina: Sir, what are the broad areas where the loan proceeds can be used and the duration of the loan.

Steve Preston: You see the money given under the loan can be used for most the majority of the good business purposed such as "working capital, machinery and equipment, furniture and fixtures, land and building, leasehold enhancements, and debt refinancing." (SBA Program Office: Snap Shot)

The tenure of the loan can extend up 10 years with regard to working capital and normally up to a period of 25 years in case of fixed forms of assets. (SBA Program Office: Snap Shot)

Christina: Sir, I believe you also have a Micro loan

Steve Preston: You are right. This is a 7(m) Loan Program under Micro loan that gives short-period loans of up to $35,000 for small businesses as well as for the not for the purpose of profit centers of child-care meant for the working capital or with regard to the purchase of machinery, furniture, supplies, inventory, or equipment. SBA either provides or makes guarantee of a loan to that of an intermediary, who would in turn, delivers the micro-loan with regard to the applicant. These institutions also give management as well as technical help. These loans are not offered the guarantee by the SBA. This program is accessible in specific areas in majority of the states. (SBA Program Office: Snap Shot)

Christina: What is the eligibility norm for availing the loan?

Steve Preston: In order to qualify for a SBA guarantee, a small type of business should fulfill the 7(a) criterions, and the lender should confirm, that is could not offer funding on reasonable level, save with regard to a SBA guarantee. The SBA could thereafter guarantee to the extent of 85% on the loans of up to $1, 50,000 as well as 75% on the loans above $1, 50,000. In major cases, the maximum amount of guarantee is about $1 million. The maximum amount of loan size which falls under the 7(a) program is about $2 million. (SBA Assistance: Financial Program and Other Assistance)

Christina: How does the loan work, Sir?

Steve Preston: First of all, you make a submission of a loan application with regard to a lender in order to have a firsthand review. In case the lender makes approval of the loan, depending on a SBA guarantee, an application copy as well as a credit analysis is sent by the lender to the SBA Office which is nearby. After the approval of the SBA, the institution of lending readies the loan and makes funds disbursal. The borrower makes loan payments on a monthly basis directly towards the lender. Similar to other loans, the borrower is responsible for repayment of the complete loan amount. "No balloon payments, prepayment penalties, application fees or points are permitted with the 7(a) loans. However repayment plans might be tailored to each business." (SBA Assistance: Financial Program and Other Assistance)

Christina: Sir, one last question before we wrap up. Could share some of the achievements of SBA Loan Program?

Steve Preston: I feel privileged to share with you that since 1953, about 20 million of the small businesses have accessible to direct or indirect assistance with regard to any of those of the SBA programs, starting from the period the agency has evolved to be the most feasible type of instrument of the government relating to the purpose of economic development. Hence the prevailing portfolio pertaining to business loan of the SBA is about 219000 of loans having a value of over $45 billion which qualifies it to be the single largest financial backer with regard to the U.S. businesses present in the country. For more details, I would request you to please log on to our website which is http://www.sba.govand check the various links for more details. (Overview and History: SBA Program Office)

Christina: Thank you Sir, for sharing some valuable information for the benefit of entrepreneurs looking forward to start new ventures and avail loans.

Steve Preston: It was so nice to talk to you. Thank you.