What is the SBA?
The U.S. Small Business Administration (SBA) is an independent government agency created by Congress to help small businesses develop. The SBA has more than 100 offices that offer small firms financial assistance through guaranteed loans, counseling services, help in getting government contracts, management assistance, and low-cost publications.
The SBA pays particular attention to those businesses owned by ethnic minorities, women, veterans, and others with special needs and circumstances. There are fact sheets available covering each of these and many more categories. The SBA publishes over 100 business booklets that address issues which concern prospective and existing small business owners. A free directory of Small Business Administration publications may be obtained from the SBA Answer Desk (1-800-8-ASK-SBA), or from any regional SBA office.
Getting an SBA Loan
SBA loans are available to small companies that have sought and been refused financing from other lending institutions prior to applying to the SBA for assistance. Most of the SBA loans are made through the guaranteed loan programs, in which the private lender agrees to loan funds to the small business and the SBA agrees to guarantee 90% of a loan under $155,000 and up to 85% of a loan greater than that figure, up to a maximum of $750,000. Although the interest rates on SBA guaranteed loans are negotiated between the borrower and lender, they are subject to SBA maximums and generally cannot exceed 2.75% over the New York prime rate.
The SBA also provides specialized loan guarantee programs which include:
- Pollution control loans
- Community development loans
- Lender incentives for small loans of less than $50,000
- Small general contractor financing
- Seasonal lines of credit
- International trade loans
- Export revolving lines of credit
Direct loans of up to $150,000 by the SBA are very limited in number and are available only to applicants unable to secure an SBA-guaranteed loan. Before applying, a small business owner must seek financing from his or her bank of account and, in cities of over 200,000, from at least one other lender. Direct loan funds are available to businesses located in high-unemployment areas, or owned by low-income or handicapped individuals, Vietnam veterans or disabled veterans. Interest on direct loans is calculated quarterly.
To qualify for SBA loan assistance, a company must be operated for profit and fall within size standards. It cannot be a business involved in the creation or distribution of ideas or opinions such as newspapers, magazines, and academic schools. It cannot be engaged in speculation or investment in rental real estate.
The SBA has other eligibility requirements that qualify a business as a small business:
- Special trade construction: average annual receipts may not exceed $7 million.
- Agriculture: average annual receipts range from $1 million to $3.5 million, depending on the industry.
- Construction: general construction average annual receipts may not exceed $9.5 to $17 million depending on the industry.
- Retailing: the average annual receipts may not exceed $3.5 to $13.5 million, depending on the industry.
- Services: the average annual receipts may not exceed $3.5 to $14.5 million depending on the industry.
- Wholesaling: the maximum number of employees may not exceed 100.
- Manufacturing: the maximum number of employees may range from 500 to 1,500 depending on the type of product manufactured.
Applying for an SBA Loan
- To apply for a loan, a small business owner must do the following:
- Prepare a current business balance sheet listing all assets, liabilities, and net worth. Start-up businesses should prepare an estimated balance sheet including the amount invested by the owner and others.
- Prepare a profit-and-loss statement for the current period and the most recent three fiscal years. Start-up businesses should prepare a detailed projection of earnings and expenses for at least the first year of operation.
- Prepare a personal financial statement of the proprietor and each partner or stockholder owning 20% or more of the business.
- List collateral to be offered as security for the loan.
- List any existing liens.
- State the amount of the requested loan and the purposes for which it is intended.
- Present the above items to a selected lender. If the loan request is refused, the business owner should contact the local SBA office regarding the guaranteed-loan program.
- If the guaranteed loan is not possible, other loans may be available from the SBA.