Whether you’re just thinking of starting a business or are a seasoned entrepreneur looking for a business loan to help grow your endeavor, you’ve probably heard of the SBA.
What does SBA stand for? It’s the Small Business Administration. And beyond their highly coveted, low-interest SBA loans, this government agency has much more to offer—from helping business owners secure government contracts and find business grants to grow their professional network and provide educational resources.
Let’s take a closer look at what the Small Business Administration is, what it offers today, and how it can help you start, manage, and grow your small business.
What Is the SBA?
The Small Business Administration is a government agency that was started in 1953 to help support small businesses and entrepreneurs. In its own words, the SBA works to “ignite change and spark action so small businesses can confidently start, grow, expand, or recover.”
Since its inception, the Small Business Administration has given its own loans, guaranteed bank loans, helped disaster victims, ensured government contracts, offered counseling and mentorship opportunities, established state and local offices, and much more.
Today, the Small Business Administration doesn’t make direct loans to small businesses, but it still helps entrepreneurs in a variety of different ways—from guaranteeing bank loans to facilitating government contracts, offering guides and educational videos, promoting local mentorship, and more.
What Does the SBA Do?
The most well-known purpose of the SBA is likely its mission to help small businesses acquire funding through its SBA loans. However, it also does much more than that. Broadly speaking, the SBA offers small businesses:
- SBA loans
- Guides, resources, and advice
- Equity financing
- Grants for science and technology
- Government contracts
- Networking and local assistance
Below, we’ll dive into the specifics of each of these offerings so you can learn more about how the SBA can benefit your business.
A common misconception of the SBA is that it loans money to businesses directly. While this was true at one time, the present-day SBA instead guarantees loans made by banks and other lenders so that small business owners can receive funding.
Why is this important? Small businesses typically have a harder time qualifying for traditional bank financing because of their smaller revenues and funding needs. By the SBA guaranteeing a majority of the loan, they are promising to repay the bank if the borrower defaults. This decreased risk makes banks more willing to work with small businesses.
SBA loans are famous for their low interest rates, long repayment terms, and large amounts of capital. In other words, SBA loans are some of the best loans around, and since they’re aimed at small businesses that might get rejected by banks, you don’t need to be perfect on paper to get one.
Of course, there are some downsides to SBA loans—they take a long time to apply for, require lots of documentation, and have pretty strict criteria compared to alternative, non-bank business loans. They’re not for everyone. But that doesn’t change the fact that, for many small businesses, an SBA loan could make a huge impact.
What Does It Take to Qualify?
First, you’ll need to be a small business (as defined by the Small Business Administration). This might seem obvious, but the definition of “small business” depends on a few different factors and depends on your industry—so double check.
Second, you can’t belong to the Small Business Administration’s list of ineligible industries. A few include:
- Lenders and banks
- Life insurance companies
- Foreign businesses
- Businesses reliant on pyramid schemes
- Gambling houses
- Private clubs with restricted membership according to race, religion, ethnicity, and so on
- Speculative businesses
- Religious businesses
Finally—although the Small Business Administration doesn’t mention this—your personal credit score will be a major part of your SBA loan application. The higher your score, the more likely it is that you can qualify for a loan.
With this in mind, let’s take a quick look at the SBA’s four most popular business loan programs.
1. SBA 7(a) Loan Program
The 7(a) program is the Small Business Administration’s most popular loan: Business owners can get large amounts of capital, with long terms, for low interest rates.
Plus, the SBA 7(a) program comes with very few limitations on how you can use the money. Whether you need to start a new project, expand to another location, or something else, the 7(a) loan could work for you.
Amounts: Up to $5 million
Fees: Based on your loan’s maturity and size, your guarantee fee may be included in the price of the loan. Sometimes your lender will pay this, but sometimes they’ll roll the fee over to you.
Rates: Generally, 6% to 13%
Terms: Seven years for working capital, 10 years for equipment, and 25 years for real estate—with monthly repayments
Uses: Short-term and long-term working capital, equipment, real estate, inventory, furniture, supplies, construction, renovation, acquisition, debt refinancing
2. SBA CDC/504 Loan Program
On the other end of the spectrum is the CDC/504 loan program, which limits your loan usage to fixed asset purchases like real estate or equipment.
But on the flip side, these loans often come with the lowest interest rates around. So if you’re looking to fulfill one of these use cases, then you should consider the SBA CDC/504 loan.
Amounts: Up to $20 million
Fees: You’ll generally need to pay 3% of the loan amount in fees. Plus, you will probably have to front 10% of your fixed asset purchase in order to secure this type of financing.
Rates: 5% to 6%
Terms: 10 to 25 years
Uses: Buying land, existing buildings, infrastructural improvements, new or renovated facilities, and long-term equipment or machinery. (You cannot use a CDC/504 loan as a debt consolidation loan or a way to refinance your existing debt.)
3. SBA Microloan Program
If you’re a new or young business looking for just a bit of capital to get started, then the SBA’s microloan program could be ideal. You’ll receive a smaller amount of capital than the SBA’s traditional loan programs, but with a lot of flexibility in terms of usage.
Amounts: Up to $50,000, with an average of $13,000
Rates: 8% to 13%
Terms: Monthly repayments for up to six years, depending on the size of your loan and use case.
Uses: You cannot purchase real estate or refinance debt with an SBA microloan, but you can use it for working capital, inventory or equipment purchases, and more.
4. SBA Disaster Loan Program
Finally, the Small Business Administration also offers disaster loans to households, businesses, nonprofits, renters, and more to cover damage done by economic or natural disasters.
If you’ve had equipment, inventory, real estate, machinery, or other business assets harmed or destroyed by a disaster, then consider looking at one of the SBA’s many disaster programs.
No two disaster incidents are the same, so there’s no standard measure of what a disaster loan would look like, but the SBA generally offers up to $2 million in disaster recovery funding, with rates of up to 4% if you don’t have credit elsewhere and 8% if you do, and terms of roughly 30 years.
You can use a disaster loan to recover your business to its pre-disaster state, but you cannot make improvements unless required by law.
SBA Guides, Resources, and Advice
Beyond financing, the SBA offers a staggering amount of guides, how-tos, walkthroughs, videos, online courses, and more on its website. In fact, if you have a question about owning or running a small business, the Small Business Administration probably has your answer.
All of these resources are broken down into four general categories. Here are just some of the topics you can find:
- Planning a business
- Writing a business plan
- Calculating startup funding
- Conducting market research
- Launching a business
- Choosing a business entity
- Registering your business
- Obtaining permits and licenses
- Managing a business
- Hiring employees
- Paying taxes
- Staying legally compliant
- Growing a business
- Obtaining funding
- Acquiring a new business
- Opening new locations
Finally, the Small Business Administration offers dozens of online courses on topics ranging from buying a business and crime prevention to small business financing, marketing 101, and starting a franchise.
So if you’re the type of learner who benefits more from videos, worksheets, and interactive material, make sure to check out this segment of the Small Business Administration’s website.
SBA Equity Financing
If debt financing isn’t what you’re looking for, then not to worry—the Small Business Administration can also help you find equity partners, too.
And it does so through a program created by Congress way back in 1958: the Small Business Investment Company initiative.
SBICs and the SBA
Small Business Investment Companies, or SBICs, partner up with the Small Business Administration to invest in small businesses with equity or debt.
These SBICs are independently owned and managed companies that the Small Business Administration licenses, regulates, and provides funding to. So while the SBA does provide the money, your business won’t actually be giving any equity to the government.
The SBIC program is fairly complicated, but generally speaking, it’s oriented more toward mature businesses with long and successful track records. While plenty of small businesses do qualify for SBIC loans and investments, larger companies also tend to attract this funding.
Here are a few examples of businesses that have secured SBIC funding:
- Sun Microsystems
- Outback Steakhouse
If you think you could benefit from an SBIC loan or equity investment, take a look at the Small Business Administration’s guide to applying. Essentially, you’ll need to put time and energy into meeting the right people and presenting your business plan to fund managers of the appropriate SBICs.
SBA Small Business Grants
Even better than an SBA loan is a small business grant, since grants are essentially free money for your business.
Unfortunately, the Small Business Administration doesn’t offer general business grants, since it’s a federal agency beholden to the taxpayers.
However, the SBA is connected to two important government programs that can offer you substantial grant money—if your small business involves scientific or technological research and development. These two programs are called the Small Business Innovation Research Program (SBIR) and the Small Business Technology Transfer Program (STTR) and, together, they’ve contributed tens of billions of dollars to small businesses across the country.
SBIR and STTR Programs
The point behind the SBIR and STTR programs (run by the Small Business Administration’s Office of Innovation) is to foster technological innovation that has commercial potential.
In other words, if your small business is developing some new kind of technology or aiming to make a big scientific breakthrough that other people want, need, and will pay for, then you have a shot at getting an SBIR or STTR grant.
And one of those grants could make a huge difference. Businesses that qualify for the first phase of the SBIR program can get $150,000 over six months with no repayments needed or equity lost. If you move on to the second phase, you could receive $1 million or more, and phase three involves lucrative government contracts.
If it sounds too good to be true, it’s worth noting that very few small businesses actually qualify for grants like these. If you’re looking for money to start a bakery or open a second restaurant location, the SBA can offer you a loan—but not a grant.
However, if you do fit into the category of science R&D with commercial potential, then you need to take a look at these two SBA grant programs. They could be the big push you need.
SBA Government Contracts
The United States government is the largest customer in the world, purchasing goods and services of all shapes and sizes each year. And since the government has a pretty vested interest in keeping small business alive and well, most federal agencies set some of their budgets aside for small business-specific purchases. That represents around $400 billion each year. Although it can be a complicated process, the government represents a great contracting opportunity for any small business lucky enough to get chosen.
The Small Business Administration plays three different roles when it comes to government contracts.
1. Ensuring Contracts
The Small Business Administration’s Office of Government Contracting and Business Development makes sure that at least 23% of dollars the government spends on contracts get sent to small businesses instead of their bigger competition.
It also helps the government’s departments grant contracts to:
- Small disadvantaged businesses
- Women-owned small businesses
- Service-disabled veteran-owned small businesses
- Small businesses in historically underutilized business zones
2. SBA-Guaranteed Surety Bonds
A surety bond is a promise between a contractor and a contractee that their agreed-upon project will be completed. To get this surety bond, contractors go to surety companies, who promise to either find a replacement contractor or front the costs of the project in case the contractor fails.
In other words, a surety bond is a sort of insurance for the project owner. Much like how the SBA guarantees loans made by banks, it also guarantees surety bonds made by surety companies for small business contractors.
This makes it easier for small business contractors to get surety bonds—and for them to then secure government contracts. You’ll need to apply for the surety bond yourself but check with the SBA to make sure they’ve got you covered first.
3. Counseling Services
Finally, the SBA offers the 8(a) Business Development Program. If your business is run by someone who the government considers socially or socioeconomically “disadvantaged,” then you could qualify for SBA counseling and assistance with government contracting opportunities.
These programs can last for years and lead to sole multi-million dollar contracts, as well as team bidding opportunities and a mentor-protégé program with other disadvantaged businesses.
SBA Networking and Local Assistance
Last but certainly not least, the Small Business Administration can also help you grow your professional network.
As a small business owner, you’re never done learning. That’s what being an entrepreneur is all about. And what’s a better way to learn than from other small business owners? They’ve been in your shoes, tackled your problems, and sold to your customers. Their tips and advice could push your business to the next level.
That’s why you should take advantage of all the networking and local assistance opportunities that the Small Business Administration offers. To start with, check their map for your local…
- Regional and district offices
- SCORE business mentors
- Small Business Development Centers
- Women’s Business Centers
- Veteran’s Business Outreach Centers
- Regional Innovation Clusters
- ScaleUp America Communities
Whether you’re looking for online or in-person business skill workshops, mentorship opportunities, business consulting and training, market research help, informative newsletters, or some other kind of assistance, check one of these local centers.
Plus, the Small Business Administration can connect you with resource partners (like certified development companies, which help fund their CDC/504 loan program) and local events (like their “Tax Season Survival Guide” class) on the same map.
The Bottom Line
From small business loans and contracting opportunities to grants, courses, advice, and networking opportunities, the Small Business Administration does it all. Whether you need money, work, or words of wisdom, make sure to check out the SBA’s website and see how your business can benefit.