The U.S. Small Business Administration (SBA) is an independent Agency
of the Executive Branch of the Federal Government. It is charged with the
responsibility of providing four primary areas of assistance to American
Small Business. These are: Advocacy, Management, Procurement, and Financial
Assistance. Financial Assistance is delivered primarily through SBA’s Investment
programs, Business Loan Programs, Disaster Loan Programs, and Bonding for
Contractors.
SBA’s Business Loan Programs
SBA administers three separate, but equally important loan programs.
SBA sets the guidelines for the loans while SBA’s partners (Lenders,
Community Development Organizations, and Microlending Institutions)
make the loans to small businesses. SBA backs those loans with a
guaranty that will eliminate some of the risk to the lending partners.
The Agency's Loan guaranty requirements and practices can change
however as the Government alters its fiscal policy and priorities
to meet current economic conditions. Therefore, past policy cannot
always be relied upon when seeking assistance in today's market.
Federal appropriations are available to the SBA to provide guarantees on loans structured under
the Agency's requirements. With a loan guaranty, the actual funds are provided by independent lenders who
receive the full faith and credit backing of the Federal Government on a portion of the loan they
make to small business.
The loan guaranty which SBA provides transfers
the risk of borrower non-payment, up to the amount of the guaranty,
from the lender to SBA. Therefore, when a business applies for an
SBA Loan, they are actually applying for a commercial loan, structured
according to SBA requirements, which receives an SBA guaranty.
In a variation of this concept, community development organizations can get the Government's full backing on their loan to finance a portion of the overall financing needs of an applicant small business.
SBA’s Investment Programs
In 1958 Congress created The Small Business Investment Company (SBIC) program. SBICs, licensed by the Small Business Administration, are privately owned and managed investment firms. They are participants in a vital partnership between government and the private sector economy. With their own capital and with funds borrowed at favorable rates through the Federal Government, SBICs provide venture capital to small independent businesses, both new and already established.
All SBICs are profit-motivated businesses. A major incentive for SBICs to invest in small businesses is the chance to share in the success of the small business if it grows and prospers.
SBA’s Bonding Programs
The Surety Bond Guarantee (SBG) Program was developed to provide small and minority contractors with contracting opportunities for which they would not otherwise bid. The U.S. Small Business Administration (SBA) can guarantee bonds for contracts up to $2 million, covering bid, performance and payment bonds for small and emerging contractors who cannot obtain surety bonds through regular commercial channels.
SBA's guarantee gives sureties an incentive to provide bonding for eligible contractors, and thereby strengthens a contractor's ability to obtain bonding and greater access to contracting opportunities. A surety guarantee, an agreement between a surety and the SBA, provides that SBA will assume a predetermined percentage of loss in the event the contractor should breach the terms of the contract.
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