Small Business Administration

Independent federal agency chartered in 1953 to provide financial assistance to small businesses. The SBA makes direct loans to borrowers who are unable to obtain conventional financing, participates in loans originated by financial institutions, and also guarantees loans made by banks and other financial institutions. The SBA preferred lender program, allows businesses to get SBA-guaranteed loans by filing loan applications directly with designated financial institutions, significantly reducing the time needed to obtain SBA funding. Typically, the SBA guarantees 85% of a small business loan. The agency also provides disaster assistance to small businesses and financial counseling to minority-owned businesses. The SBA also licenses, regulates, and provides venture capital assistance to a Small Business Investment Company . The SBA guarantees bank-originated business loans up to $750,000 in loan principal.

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A federal government agency in Washington, D.C., that encourages small business.


Example: The SBA offers low-interest-rate loans to qualified businessmen and businesswomen.


Address:
Small Business Administration
409 3rd Street SW
Washington, DC 20416
202-205-6740
www.sbaonline.sba.gov

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The Small Business Administration (SBA), which was created in 1953, is an independent federal agency charged with aiding, counseling, and protecting the interests of American small businesses. The agency maintains a wide range of programs designed to address various aspects of this mandate. These programs, each of which seeks to assist small business owners in one or more areas of their enterprise, are maintained in the following areas: lending and investment; surety bonds; international expansion and development; disaster assistance; federal procurement contracts; minority small business assistance; veterans' assistance; research and development; business and training; and business information and counseling. The SBA also serves as an advocate for American small businesses in government.

Structure of the Sba

Most SBA programs and services are implemented through Small Business Administration district offices. District offices are maintained in all 50 states, as well as Washington, D.C., and Puerto Rico (some larger states, such as California, New York, and Texas, have as many as half a dozen offices). Personnel in these offices work directly with small business owners and various cooperating institutions to implement SBA programs.

These field offices report to regional offices of the SBA. In addition to their supervisory responsibilities, the regional headquarters are charged with educating small business owners, lending institutions, and others on issues that affect them; fostering regional economic development; and providing the Office of Field Operations (OFO) with information on SBA programs and small business developments at the district level. OFO is responsible for all aspects of the SBA's field operations, including communications, policy formation, and general performance. It reports directly to the SBA's chief administrator.

Collateral offices maintained by the Small Business Administration include administration; comptroller; personnel; external affairs; marketing and customer service; public communications, congressional and legislative affairs; Hearings and Appeals; Inspector General; Office of Information Resources Management (OIRM); Equal Employment Opportunity and Civil Rights Compliance; and Office of General Counsel.

Finally, the SBA maintains several departments devoted to providing advocacy services on behalf of American small business owners. The Office of Interagency Affairs oversees enforcement of the Regulatory Flexibility Act, analyzes small business issues, develops governmental policy options, and prepares testimony for use before various legislative and regulatory bodies. The Office of Economic Research oversees the SBA's research contracting program, and compiles and interprets various economic data on small businesses. The Office of Information publishes books and economic reports on small business issues, and serves as a distributor of advocacy publications and other materials. Finally, the Office of Advocacy attempts to evaluate the effect of proposed legislation and other policy issues on small businesses. The chief counsel for advocacy acts as the primary spokesperson for America's small business community and represents its views before Congress, local governments, and other agencies. The Office of Advocacy also utilizes regional advocates who work directly with local communities and small businesses, gathering information on policies and regulations that are helping and hurting small businesses and the communities in which they operate.

Small Business Administration Programs

LENDING PROGRAMS. The SBA provides a number of lending options to small business owners. The best known of these is the 7(a) Loan Guaranty, but there are many others that are widely used as well. In all of these cases, the loan is actually delivered through commercial lending institutions and other intermediaries. The SBA helps secure the loans, though, by consenting to cover the cost of the loan should the borrower be unable to pay. Lending institutions value this added protection very highly.

The 7(a) Loan Guaranty Program, which was authorized by the passage of the Small Business Act, is primarily designed to address the long-term funding needs of small businesses by guaranteeing loans to qualified enterprises. These loans can be used for all sorts of purposes, including inventory, working capital, equipment, and real estate. Maturities are up to 10 years for working capital and up to 25 years for fixed assets. The SBA can guarantee 80 percent of loans of $100,000 or less, and 75 percent of loans between $100,000 and $750,000. There are several other loan programs available through the 7(a) Loan Guaranty plan as well.

The Low Documentation Loan (LowDoc) program is a streamlined version of the 7(a) loan for businesses seeking less than $150,000. Limited to applicants with a strong credit history, LowDoc loans can be secured with a one-page application (in cases where the loan request is for $50,000 or less). The SBA has made a strong effort to improve response time under this plan, in large measure because it had long been criticized for the bureaucratic red tape associated with even the smallest of its loan programs.

The CAPLines program is an option designed to meet the short-term and cyclical working capital needs of small businesses. There are several different loan options available under this program, which replaced the SBA's earlier Green Line program. Loans under CAPLines are generally limited to $750,000.

The SBAExpress program is shaped to increase the capital available to small businesses seeking loans up to $150,000; it is currently offered as a pilot program, with a limited number of participating lenders.

SBA Micro Loans, meanwhile, are short-term loans of up to $25,000. Disseminated through nonprofit groups, Micro Loans are intended for the purchase of machinery and other equipment, office furniture, inventory, supplies, and working capital.

The SBA also offers several targeted lending programs for small businesses. These include the Defense Loan and Technical Assistance (DELTA) program, which provides financial assistance to defense-dependent small businesses impacted by defense cuts (maximum loan amount under the DELTA plan through the 7(a) Program is $1.25 million, usable for working capital, acquisition of assets, raw materials or inventory, capital improvements, or refinancing of current debt); prequalification pilot loan programs for women and minorities; the Export Working Capital Program (EWCP), which guarantees loans for qualified small businesses engaged in export transactions; the International Trade Loan (ITL), which provides long-term financing assistance to small businesses engaged in international trade and/or hurt by imports; and the Pollution Control Program, which gives loan guarantees to eligible small businesses proposing to design and install pollution control facilities.

The SBA also maintains a loan program known as the 504 CDC (Certified Development Companies), which makes available up to $1 million to qualified applicants. Under this system, long-term, fixed-rate financing is made available to small businesses interested in expanding or modernizing their operations through the purchase of new machinery, equipment, and/or real estate. DELTA loans are available through this program as well.

Another SBA loan program is the U.S. Community Adjustment and Investment Program (CAIP), created to help communities that suffered economic and workforce losses due to changing trade patterns following implementation of the North American Free Trade Agreement (NAFTA). According to the SBA, this program utilizes both the SBA 7(a) Program and the SBA 504 Program to "promote economic implementation of the adjustment [to NAFTA] by increasing the availability and flow of credit and [encourage] business development and expansion in impacted areas. Through the CAIP, credit is available to businesses in eligible communities to create new, sustainable jobs or to preserve existing jobs." Small companies interested in pursuing CAIP assistance should contact their local CDC for more information.

The Small Business Administration relies on lending institutions and other intermediaries (such as non-profit organizations, in the case of Micro Loans). But the SBA is careful about the banks and savings and loans companies with which it does business. The most reliable of these lending institutions are eventually designated as "preferred lenders." This status gives them increased powers of loan approval and processing (although the SBA still conducts a final review of loan applications). To become a preferred lender, an institution needs to have established a reputation for solid community lending (to small businesses and minority- and women-owned firms) and a strong history of being repaid by loan applicants.

INVESTMENT. The SBA also maintains investment programs for small businesses. The Main Street Investment Program, for example, is described by the SBA as "a public/private partnership between the SBA and state governments to make capital more available to lenders who, in turn, make loans to small businesses. Participating states invest tax revenues in community banks that agree to make LowDoc loans." Small Business Investment Companies (SBICs), meanwhile, are SBA-licensed investment firms who—armed with U.S. government-guaranteed debentures or participating securities—make investments and loans to small businesses. Indeed, SBICs exist for the express purpose of funding start-up companies. They operate under extremely stringent guidelines, however, and turn down many applicants. Similar to SBICs are Minority Enterprise Small Business Investment Companies (MESBICs), which provide funding to businesses owned or operated by minorities.

SURETY BONDS. In recognition of the fact that contractors to construction projects must post surety bonds on federal construction projects valued at $25,000 or more, the SBA established a program wherein they guarantee bid, performance, and payment bonds for contracts up to $1.25 million for eligible small firms unable to secure surety bonds through commercial lenders. Under this program, bonds may be obtained either via prior approval, in which contractors apply through a surety bonding agent; or preferred sureties, authorized by the SBA to issue, monitor, and service bonds without prior SBA approval.

INTERNATIONAL TRADE. The SBA's International Trade Loan Program is designed for small companies engaged or preparing to engage in international commerce. Under this program, the SBA guarantees up to $1.25 million for a combination of fixed asset financing and Export Working Capital Program (EWCP) assistance. The fixed-asset portion of the loan may not exceed $1 million, while the EWCP segment may not exceed $750,000. In order to qualify, the small business applicant must, according to the SBA, "establish that the loan will significantly expand or develop an export market, is currently adversely affected by import competition, will upgrade equipment or facilities to improve competitive position, or must be able to provide a business plan that reasonably projects export sales sufficient to cover the loan."

In addition to maintaining loan programs for small businesses engaged in international commerce, the Small Business Administration provides a number of other services to these enterprises. The Export Legal Assistance Network (ELAN), for instance, is the product of an agreement between the SBA, the Federal Bar Association, and the U.S. Department of Commerce. Under this program, trade attorneys provide free legal consultations to small business exporters.

The SBA also operates information centers called U.S. Export Assistance Centers (USEACs). As with ELAN, the USEACs are the product of an alliance between the SBA and other organizations (in USEACs' case, the Department of Commerce and the Export-Import Bank). These centers are designed to disseminate trade promotion and export financing information to small businesses engaged in international trade. In addition, the SBA maintains a computer database known as the Small Business Automated Trade Locator Assistance System (SBAtlas), which includes market data of interest to exporters.

ASSISTANCE PROGRAMS. The SBA makes available Physical Disaster Business Loans to businesses of any size that need to repair or replace business property to "pre-disaster" conditions. These loans, which can be used for equipment, fixtures, and inventory, are limited to $1.5 million and are not available to businesses who were insured for their losses. Economic Injury Disaster Loans (EIDLs), meanwhile, are targeted at businesses that have "sustained economic injury as a direct result of a disaster," said the SBA. "These working capital loans are made to help businesses pay ordinary and necessary operating expenses which would have been payable barring disaster." The maximum amount of an EIDL loan is $1.5 million, but small business experts note that businesses can receive no more than $1.5 million in combined EIDL and physical disaster business loans. An exception to this stipulation is made, however, for those places of business that qualify as major sources of employment. Under the SBA's Major Source of Employment (MSE) program, the $1.5 million loan limit is waived for those businesses that employ 250 or more people in an affected area.

FEDERAL PROCUREMENT. The Small Business Administration maintains several programs designed to help small businesses secure government contracts. These include:

• Breakout Procurement Program—promotes the breakout of historically sole-source contracts for open competition with the aim of aiding small businesses and effecting government savings.
• Prime Contracting Program—designed to help small businesses interested in securing federal contracts; services include support for small business set-asides, counseling, identification of new small business sources, and "assessment of compliance with the Small Business Act through surveillance reviews."
• Subcontracting Program—designed to aid small businesses in their efforts to secure federal contracts as suppliers and subcontractors.
• Certificates of Competency—appeal process that can be used by small businesses that have been denied government contracts because of alleged lack of ability to fulfill job requirements.

The most recent program in this area introduced by the SBA is the HUBzone Empowerment Contracting Program. This initiative, unveiled in 1997, provides federal contracting opportunities for qualified small businesses located in economically distressed areas.

MINORITY ASSISTANCE. The SBA has several programs intended to provide support to small businesses owned and operated by minorities. Programs maintained by the SBA's Minority Enterprise Development office include 8(a) Small Disadvantaged Business Development, which arranges federal procurement opportunities for minority- and disadvantaged-owned firms, and initiatives which provide management and technical assistance to those firms. The SBA also operates an Office of Native American Affairs (ONAA), which works to provide Native American communities with business development and job creation opportunities.

BUSINESS TRAINING AND COUNSELING. SBA-sponsored training and counseling services are available through the following programs:

• Small Business Development Centers—provides management and technical assistance to both current and prospective small business owners through an alliance of educators, the private sector, and federal, state, and local governments. All areas of business are covered, from market research and accounting systems to inventory control and cost-benefit analysis.
• Business Information Centers (BICs)—specializes in providing technology information to small businesses. Subjects covered include advances in telecommunications, software, and computers.
• Service Corps of Retired Executives (SCORE)—matches retired business executives with small businesses seeking advice on business issues. SCORE includes more than 12,300 members in hundreds of chapters around the country.

WOMEN'S BUSINESS OWNERSHIP. SBA programs specifically directed at women small business owners include the Women's Demonstration Program, which provides women with training and advice on all aspects of business ownership and management, and the Women's Network for Entrepreneurial Training (WNET), wherein established women business owners serve as mentors to other women entrepreneurs.

VETERANS' AFFAIRS. The SBA maintains several programs intended to provide information and training to veterans. These include the VET (Veterans' Entrepreneurial Training) Program, the Transition Assistance Program (TAP), and "business opportunity conferences," which helps veteran-owned companies previously reliant on the defense industry to secure other clients.

RESEARCH AND DEVELOPMENT. The two principal programs administered by the SBA in this area are the Small Business Innovation Research (SBIR) Program and the Small Business Technology Transfer (STTR) Program. STTR is a program that seeks to form research and development partnerships between small firms and nonprofit research institutions. It provides up to $100,000 to companies for the first phase of research, though there are stipulations attached to that figure. SBIR, meanwhile, provides financial rewards to small businesses who propose innovative ideas to problems faced by participating federal agencies. Initially established in the early 1980s, as a result of the 1982 Small Business Innovation Development Act, SBIR has been warmly received by many small companies with expertise in science and high-technology areas.

ONE-STOP CAPITAL SHOP (OSCS). The SBA expects to contribute to the Empowerment Zone/Enterprise Communities Program initiative headed by the Department of Housing and Urban Development and the Department of Agriculture through its "One-Stop Capital Shops." These centers, located in federally designated empowerment zones and enterprise communities, are expected to be headed up by local nonprofit organizations, but they are intended to include access to complete information on various SBA programs and offerings. "A One Stop Capital Shop is a partnership between SBA and a local community designed to offer small business assistance from an easy to access, retail location, all under one roof," explained the SBA. "Small business clients require a wide range of assistance, from the simple: accessing the Internet or gathering basic information on writing a business plan, to the complex: learning how to compete for a federal contract or applying for a city permit. Whether a small business needs information or has to complete a transaction, requires training or counseling, is applying for a loan or seeking a government contract, a One Stop Capital Shop is designed to make all those services available in one location…. No other SBA program or federal agency plays a more prominent role in generating economic revitalization in distressed communities than the One Stop Capital Shop Initiative."

BUSINESS INFORMATION SERVICES. A comprehensive range of business development booklets is published by and made available from the SBA. A diverse range of topics are covered in these brochures; sample titles include Strategic Planning for Growing Businesses, Budgeting in a Small Service Firm, Inventory Management, and Evaluating Franchise Opportunities. SBA also maintains SBA Online, a computerbased electronic bulletin board of small business information, and a toll-free answer desk for small business owners with questions about aspects of their operation. The Small Business Administration maintains a page on the World Wide Web at http://www.sba.gov.

Further Reading:

Barlas, Stephen. "Looking Ahead: Three SBA Programs Face Closer Scrutiny." Entrepreneur. January 1997.

Emerich, Amy, ed. Small Business Sourcebook. Gale, 1996.

SBA Profile: Who We Are and What We Do. Small Business Administration, 2000.

The Small Business Administration (SBA) was founded in 1953 to assist small companies, particularly those serving military interests. It traces its roots to 1932, when President Herbert Hoover established the Reconstruction Finance Corporation to provide loans for small businesses during the Great Depression. Ten years later President Franklin D. Roosevelt created the Smaller War Plants Corporation to bolster the ability of small companies to secure military contracts during World War II. The corporation was disbanded in 1946 but reinstated as the Small Defense Plants Administration during the Korean War. President Dwight D. Eisenhower and Congress then consolidated the Small Defense Plants Administration and the Reconstruction Finance Corporation into the SBA, which also took on responsibilities of the Office of Small Business in the Department of Commerce.

The SBA's initial role called for keeping an inventory of businesses that could serve a military purpose in peacetime, providing disaster relief and offering loans and technical assistance. The SBA oversaw a lending program for veterans who wanted to start or expand small businesses. The Equal Opportunity Act of 1964 expanded the SBA's role. The 1964 Equal Opportunity Loan Program allowed applicants living below the poverty line who had sound business proposals to meet credit and collateral requirements. The SBA also began including programs to assist minority-owned businesses. Members of minority races, particularly immigrants, women of all races, individuals with disabilities, and veterans have usually had more difficulty securing loans and credit to further business growth. In response to these problems and to growing pressure from advocates of civil rights, President Richard M. Nixon added a minority set-aside program known as the Philadelphia Plan, which allocated a share of federal procurement contracts for minority-owned small businesses.

Enterprises owned by women, the disabled, and Vietnam veterans benefited from Set-Asides that were designed to overcome past discrimination. But in 1989, in City of Richmond v. J. A. Croson Company, the Supreme Court struck down such a program and ruled that public officials would have to offer evidence of past discrimination to justify such policies. In 1995 the Court limited set-asides further when it concluded that the federal government must be subject to the same "strict scrutiny" as state and local governments when attempting to remedy discrimination. In Adarand Constructors, Inc. v. Pena, the Supreme Court rejected a federal set-aside program established in the Small Business Act to aid "socially disadvantaged individuals."

In the 1990s, the SBA assisted businesses specializing in high technology, environmental resources, and exports. Its constituency is made up of 21.5 million companies with fewer than five hundred employees, or 99 percent of all businesses in the United States, but directly serves only 1 percent of such businesses. Small businesses accounted for all of the job growth in the nation from 1987 to 1992 and are considered the engine for the national economy. Employing 54 percent of the workforce, they account for half the gross national product.

Bibliography

Bates, Timothy Mason. Financing Black Enterprise. Madison: Institute for Research on Poverty, University of Wisconsin, 1972.

Bean, Jonathan J. Beyond the Broker State: Federal Policies toward Small Business, 1936–1961. Chapel Hill: University of North Carolina Press, 1996.

Butler, Stuart. Enterprise Zones: Greenlining the Inner Cities. New York: Universe Books, 1981.

Parris, Addison. The Small Business Administration. New York: F. A. Prager, 1968.

This entry contains information applicable to United States law only.

The Small Business Administration (SBA) is a federal agency that seeks to aid, counsel, assist, and protect the interests of small business. The SBA ensures that small business concerns receive a fair portion of federal government purchases, contracts, and subcontracts, as well as of the sales of government property. The agency is best known for its loans to small business concerns, state and local development companies, and the victims of floods or other catastrophes.

The SBA was created by the Small Business Act of 1953 (67 Stat. 232 [15 U.S.C.A. § 631 et seq.]) and derives its present authority from this act and the Small Business Investment Act of 1958 (15 U.S.C.A. § 661).

Financial Assistance

The SBA provides guaranteed loans to small businesses to help them finance plant construction, conversion, or expansion and acquire equipment, facilities, machinery, supplies, or materials. It also provides them with working capital. Since 1976 farms have been considered to be small business concerns.

The SBA also provides loan guarantees to finance residential or commercial construction. The administration may finance small firms that manufacture, sell, install, service, or develop specific energy measures. In an effort to reach more businesses, the SBA provides loans and grants to private, nonprofit organizations that, in turn, make small loans and provide technical assistance to small businesses.

Through its Surety Bond Guarantee Program, the SBA helps to make the contract bonding process accessible to small and emerging contractors who find bonding unavailable. A bond is posted as a guarantee that the contracted work will be performed. If the work is not performed, the money pledged in the bond will be used to cover the contractor's default. The SBA program guarantees to reimburse the issuer of the bond up to 90 percent of losses incurred under bid, payment, or performance bonds issued to small contractors on contracts valued up to $1.25 million.

Disaster Assistance

The SBA lends money to help the victims of floods, riots, or other catastrophes repair or replace most disaster-damaged property. Direct loans with subsidized interest rates are made to assist individuals, homeowners, businesses, and small agricultural cooperatives without credit elsewhere that have sustained substantial economic injury resulting from natural disasters.

Investment Assistance

The administration licenses, regulates, and provides financial assistance to small business investment companies and section 301(d) licensees (formerly minority enterprise small business investment companies). The sole function of these investment companies is to provide venture capital in the form of equity financing, long-term loan funds, and management services to small business concerns.

Government Contracting

The SBA works closely with the purchasing agencies of the federal government and with the leading U.S. contractors in developing policies and procedures that will increase the number of contracts awarded to small businesses.

The administration has a number of services that help small firms obtain and fulfill government contracts. It sets aside suitable government purchases for competitive award to small business concerns and provides an appeal procedure for a low-bidding small firm whose ability to perform a contract is questioned by the contracting officer. The SBA maintains close ties with prime contractors and refers qualified small firms to them. In addition, it works with federal agencies in setting goals for procuring prime contracts and subcontracts for small businesses, especially those owned by women and members of disadvantaged groups.

Business Initiatives

The SBA is recognized for its longtime effort to provide education, counseling, and information to small business owners and prospective owners. It has increasingly relied on forging partnerships with nongovernment groups to deliver business education and training programs at low cost. For example, the Service Corps of Retired Executives (SCORE) provides one-on-one counseling free of charge.

The Business Information Center (BIC) program is an innovative approach to providing a one-stop location for information, education, and training. Components of BIC include the latest computer hardware and software, an extensive small business reference library, and a collection of current management videotapes.

The SBA also produces many pamphlets and publications about a variety of business and management topics. It has also established SBA Online, a toll-free electronic bulletin board for small businesses.

Minority Enterprise Development

Sections 7(j) and 8(a) of the Small Business Act provide for the Minority Enterprise Development Program, designed to promote business ownership by socially and economically disadvantaged persons. Participation is available to small businesses that are at least 51 percent unconditionally owned, controlled, and managed by one or more individuals determined by the SBA to be socially and economically disadvantaged. Program participants receive a wide variety of services, including management and technical assistance, loans, and federal contracts.

Advocacy

The Office of Advocacy serves as a leading advocate within public policy councils for the more than twenty-two million small businesses in the United States. The office, which is headed by the chief counsel for advocacy, lobbies Congress, the executive branch, and state agencies concerning the interests and needs of small business. The office also is a leading source of information about the state of small business and the issues that affect small business success and growth.

Women's Business Ownership

The Office of Women's Business Ownership (OWBO) provides assistance to the increasing number of women business owners and acts as their advocate in the public and private sector. It is the only office in the federal government specifically targeted to women business owners, assisting them through technical, financial, and management information and business training, skills counseling, and research.

The OWBO has established fifty-four training centers in twenty-eight states and the District of Columbia, which provide community-based training for women at every stage of their entrepreneurial careers. In addition, the office created the Women's Network for Entrepreneurial Training, a one-year mentoring program linking experienced entrepreneurs with women whose businesses are poised for growth. This program is designed to help women avoid the common mistakes of new business owners.

Small Business Development Centers

Small Business Development Centers provide counseling and training to existing and prospective small business owners. The 950 centers operate in every state, as well as in Puerto Rico, the U.S. Virgin Islands, and Guam. Each center is a partner with state government in economic development activities to support and assist small businesses.

Administration

The SBA has its headquarters in Washington, D.C. It maintains ten regional offices and has field offices in most major U.S. cities.

The Small Business Administration (SBA) is an autonomous U.S. government agency that was established in 1953 to promote and strengthen the overall economy by assisting small businesses. The SBA provides counseling to help people start and grow businesses. Their website (www.sba.gov) has tools to aid businesses, such as the Small Business Planner, and online training programs. Local offices throughout the United States and its territories provide in-person counseling services, such as assistance with business-plan writing or small-business loans.

Investopedia Says:

The SBA provides a great deal of information to assist with small-business startup and growth, as well as online educational events. Local offices provide support through counseling and special events. The SBA provides a network of professionals who have volunteered their expertise to aid small businesses.

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