What Is the SBA and Can It Help Your Small Business?
For many small businesses, thoughts of the Federal government conjure up images of tax bills and red tape. Is it possible that there’s a federal agency that can offer help versus headaches for entrepreneurs? Since 1953, the Federal government has had an agency, the Small Business Administration (SBA), whose mission it is to aid, counsel, assist and protect the interests of small business concerns. Today, this small, independent agency runs a variety of programs largely focused on three main areas – sometimes referred to as the 3 C’s – Capital, Contracting, and Counseling.
1. CAPITAL – The SBA does not directly loan money to small businesses (except in disasters), but for small businesses struggling to secure financing elsewhere, SBA guaranteed loans may offer a solution. While the paperwork may be more intensive than a traditional loan, many commercial banks offer SBA guaranteed loans. The most popular program is referred to as 7(a), which offers a guarantee of 85% for loans under $150,000 and 75% for higher loans, with a maximum loan limit of $5 million. Interest rates also vary by loan size – about 2.25% to 2.75% above prime. The SBA also helps small firms access equity financing, again, not directly, but by licensing Small Business Investment Companies (SBICs), who make the investment decisions, and offering leverage in the form of low-cost, government-guaranteed debt to supplement privately raised funds. Another popular program is the Certified Development Company (CDC) program that gives businesses access to long-term, fixed-rate financing for real estate, machinery, or equipment to expand or modernize. In the CDC program, the business contributes 10% the value of the project, a bank contributes 50%, and a CDC provides 40% by issuing a debenture that has a federal guarantee.
2. CONTRACTING – The Federal government spends almost half a trillion (yes, with a “t”) dollars on the procurement of goods and services. The SBA runs a number of programs to help small businesses compete in the federal marketplace. The first hurdle is actually figuring out if a business qualifies as “small.” There are size standards for different industries established by the SBA based on the number of employees and receipts. Federal procurement law allows set asides for small businesses and establishes a government-wide goal of awarding 23% of prime contracts to small firms. SBA programs are designed to assist certain classes of businesses such as women-owned businesses, small disadvantaged (economically and socially) businesses, service-disabled veteran-owned businesses, and businesses in historically underutilized business zones (HUBZones).
3. COUNSELING – The SBA works with a number of “resource partners” in local communities that offer assistance and advice to small businesses. For new or established small businesses, these resource partners, including Small Business Development Centers, SCORE (retired executives), Women’s Business Centers, and Veteran Business Outreach Centers can help entrepreneurs connect with SBA services, write a business plan, engage in exporting, get started in contracting, or conduct market research, among other things. In Northern Virginia, there are six SBDC offices, including one in Old Town at 625 North Washington Street.
For more information on SBA offerings, businesses can look to the SBA resource partners (#3 above) or SBA district offices.