The U.S. Small Business
Administration (SBA) was originally founded in 1953 as an independent agency of
the federal government to Aid, counsel, assist and protect the interests of
small business concerns, to preserve
free competitive enterprise
and to maintain and strengthen the overall economy of the United States.
Although the SBA has grown
and evolved in the years since it was established in 1953, its bottom line
mission remains the same. The purpose of the SBA is to help Americans start,
build and grow businesses.
Through an extensive network
of field offices and partnerships with public and private organizations, the SBA
delivers its services to people throughout the United States, Puerto Rico, the
U. S. Virgin Islands and Guam.
The SBA is an independent
agency within the federal government that operates
under the authority of the
Small Business Act of 1953.
The SBA can makes loans
directly to businesses and acts as a on bank loans. In some circumstances it
also makes loans to victims of natural disasters, works to get government
contracts for small businesses, and assists businesses with management,
technical and training programs, some of which can be done on-line.
The SBA has directly or
indirectly helped nearly 20 million businesses and currently holds a portfolio
of roughly 219,000 loans worth more than $45 billion making it the largest
single financial backer of businesses in the United States.
The SBA has survived a
number of threats to its existence. In 1996, the then newly
Republican-controlled House of Representatives planned to eliminate the agency.
It survived and went on to receive a record high budget in 2000.
Renewed efforts by the Bush
Administration to end the SBA loan program have met congressional resistance,
although the SBA's budget has been repeatedly cut, and in 2004 certain
expenditures were frozen.
SBA Loan
Programs
The most visible elements of
the administration are the loan programs it administers. The SBA itself does not
grant loans. Instead, the SBA guarantees against default certain portions of
business loans made by banks and other lenders that conform to its guidelines.
Contrary to popular belief,
these programs are not generally for persons with bad credit who can not get
bank loans, nor are they primarily used for startup funding. The primary use of
SBA programs are to make loans
for longer repayment periods
and with looser affordability requirements than normal commercial business
loans.
Also, a business can qualify
for the loan even if the yearly payment would be the same as the previous year's
profit, whereas most banks would want payment for a loan to be no more than
two-thirds (2/3) of the prior
year's profits for a
business. The lower payments, longer terms and looser affordability calculations
allow some businesses to borrow more money than they could otherwise.
One of the most popular uses
of SBA loans is for commercial mortgages on buildings occupied by a small
business. These programs are chosen because most bank programs, while having
similar payments and rates, require borrowers to refinance every five years.
How Can I
Benefit From The SBA?
The Small Business
Administration (SBA) has created a program of government-guaranteed loans
designed to help give small businesses that may not otherwise qualify for credit
get the funds they need. SBA loans make it possible to qualify businesses more
easily and provide them with more flexible terms than conventional loan options,
letting you preserve working capital for other expenses.
Qualifying for an SBA loan
is easier than qualifying for other loans. First, the SBA allows higher
loan-to-value ratios. Depending on your loan request, you may be able to borrow
up to 90% of your financing needs. Second,
we consider the projected
income of your business, not just historical cash flows, when making a decision.
This may be especially advantageous if your business is growing rapidly.
SBA loans can help growing
businesses purchase or renovate real estate, acquire fixed assets such as heavy
machinery or specialized equipment, borrow working capital for ongoing financing
needs, or fund the acquisition
of new businesses.
Who are
SBA loans for?
SBA loans are for businesses
that are:
Owner-operated
For profit
Organized as a sole
proprietorship, corporation, or professional partnership
Within the size guidelines
designated by the SBA
Unable to secure other
credit under reasonable terms SBA Loan Industry
The SBA loan industry can be
divided into distinct categories:
The largest United States
Banks, such as Bank of America and Wells Fargo, generate the bulk of their SBA
loan volume by the loans, especially the express loan and business line of
credit, being offered to those who would be declined for a normal bank loan due
to factors such as length of time in business or slightly stricter affordability
factors. These banks have sophisticated computer systems that generally makes
this process seamless, and are quite different from other financial institutions
who utilize SBA lending for separate and distinct purposes.
SBA loans are used heavily
by banks of all sizes to finance the purchase or construction of business owner
occupied real estate (i.e. real estate purchased by a business). Many banks only
offer SBA loans for this purpose. In particular, they are using to finance
properties that the bank would consider too risky to finance on their own, due
to them being of a special or environmentally risky nature that can make their
resale value limited; these properties include Motels, Gas Stations, and Car
Washes.
SBA loans are also used to
allow individuals to buy existing businesses. Since, unlike in real estate
transactions, commercial lenders are allowed to pay a referral fee to business
brokers who help people buy and sell businesses, this segment of the industry is
dominated by smaller banks and standalone
finance companies who
engage in this practice.
Criticism
Businesses applying for SBA
loans are supposed to be ineligible for financing elsewhere, as the applicant
bank affirms. Designed to avoid direct competition with banks, this provision
allows the most promising projects to be
funded by the private
sector, leaving higher risk projects to be picked up by the government,
resulting in the government holding a higher share of non-performing loans.
Though it accepts higher
risk, most SBA borrowers pay their loans, the same loans that lenders affirm
could not receive credit elsewhere. The Agency has traditionally had a currency
rate on its loans of 90% or more, not
meaningfully worse than
banks.
The SBA is also one of very
few agencies that pays its own way and does not drain the treasury for its loan
programs. Price Waterhouse affirmed, some years ago, that the tax revenue
generated by only a handful of
SBA startup loans more than
paid all the operating expenses for the Agency.
One of the primary uses of
SBA funding is for business owners to get a loan to buy the property their
business occupies. Owning the property and having the business rent the property
from the owner is a form of a
tax shelter, so the SBA has
been criticized for aiding tax shelters. Of course, legally taking
advantage of tax law provisions is completely ethical.
Various banks are often
criticized for offering or writing fewer SBA loans proportionally than other
banks, which critics see as a sign of discrimination. However, others counter
that SBA loans are equivalent to or many times worse than what the banks offer
themselves, so a customer of that bank might choose the normal bank product more
often than their SBA product.
Overall, the SBA creates a
vast avenue of opportunity for companies looking for a relatively cheap source
of capital.
For more information on the
SBA and other excellent ways to secure a small business
loan, visit our website at
Small Business Loans.
Article Source:
ArticleRich.com
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