SBA Loans Provide Opportunity for Business Owners
The U.S. Small Business Administration (SBA) was created 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 our nation. Small business is critical to our economic recovery and strength, to building America’s future, and to helping the United States compete in today’s global marketplace. Although the SBA has grown and evolved in the years since it was established in 1953, the agency’s bottom line mission remains the same. The SBA helps Americans start, build and grow businesses.
The White House’s proposed FY 2014 budget contains positive news for the nation’s job-creating small businesses that will benefit from increased access to capital under SBA’s flagship 7(a) business loan program to start, build and grow their businesses. The SBA reported, “Small business loan guarantees are funded at levels above historical demand, but at a greatly reduced subsidy cost from the 2012 enacted level and the 2013 budget level, largely due to the improving economic forecast and lower estimated loan defaults.’’
This budget provides $810 million for the SBA, a decrease of $109 million from the 2012 enacted level, due primarily to the decreased estimated subsidy cost of its 7(a) Business Loan Guarantee Program. This funding supports $17.5 billion in 7(a) loan guarantees.
For the 7(a) program, the return to a zero subsidy rate removes the need to seek appropriations.
Government Believes SBA Loans Help Create Jobs
The U.S. government created the SBA loan guarantee program based on the belief that since small business create more jobs than major U.S. corporations, assisting small businesses with guaranteed loans would lead to job creation and a more vigorous economy.
The two main types of small business loans are the SBA 7(a) and the SBA 504. The SBA 7(a) is for people starting businesses; it works in a similar way to the government’s home loan program for American veterans. The 504 loan program provides financing for major fixed assets such as equipment or real estate.
The SBA does not actually fund the loan. You make your application with a lender and then the lender will determine if you are qualified to receive a loan. If you are qualified to receive the loan, then the lender will apply to the SBA for the guarantee.
This guarantee protects the lender in cases where borrowers default on the loan. If the borrower does not pay the loan back, then the SBA will pay the lender a certain percentage of the loan back to mitigate the lender’s loss.
This type of guarantee program encourages lenders to make loans to start-ups at favorable rates.
SBA 7(a) loan proceeds may be used to establish a new business or to assist in the acquisition, operation, or expansion of an existing business. Basic uses for 7(a) loan proceeds include:
• To provide long-term working capital to use to pay operational expenses, accounts payable and/or to purchase inventory
• To provide short-term working capital needs, including seasonal financing, contract performance, construction financing and exporting
• To provide evolving funds based on the value of existing inventory and receivables, under special conditions
• To purchase equipment, machinery, furniture, fixtures, supplies or materials
• To purchase real estate, including land and buildings
• To construct a new building or renovate an existing building
• To establish a new business or assist in the acquisition, operation or expansion of an existing business
• To refinance existing business debt, under certain conditions
Highlights in FY 2014
The proposed FY 2014 budget includes the following about SBA loans:
• Support for equity investments in underserved markets and help for small businesses to obtain early-stage financing, including increasing the total amount of financing available for Small Business Investment Companies.
• Waives fees on 7(a) loans that are less than $150,000, where analysis suggests the largest credit gap exists and because small loans are important for underserved communities.
• Expands refinancing opportunities for small businesses, similar to the White House’s plan to help responsible homeowners refinance their mortgages, so that small businesses can lock in lower interest rates for their commercial mortgage debt and get cash out to invest in their businesses.
• Creates a single, streamlined application for all Small Business Administration 7(a) loan products, which will reduce the time and cost for lenders to process loans and encourage lenders to make more loans.
• Small businesses would again be able to refinance 504 loans. The Small Business Jobs Act of 2010 allowed for refinancings only through Sept. 30, 2012. The proposal would extend the refinancing provision through Sept. 30, 2014.
• The State Small Business Credit Initiative, a program created in 2010 to help foster lending to small companies, would get $2 million to increase the assistance it gives to businesses.
• The SBA would get $4 million to hire 32 employees who would work with federal agencies to increase the number of government contracts with small businesses.
• The proposal provides for $1 billion to start a network of 15 manufacturing innovation institutes across the country. They would be modeled after one in Youngstown, Ohio. President Obama first proposed the creation of the network in his State of the Union address.
A SBA loan might be advantageous for your business. For more detailed information on SBA 7(a) loans, visit:http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans/sba-loan-programs/7a-loan-program.
Can an SBA Loan Assist You?
To discuss the advantages of SBA financing or to be connected with an SBA lender, please email firstname.lastname@example.org.