The Small Business Administration

In this article we are going to focus on the small business administration, how the SBA operates, the types of loans are offered by the SBA and other issues as it pertains to business loans and other forms of financing. Specifically, the small business administration was founded as a vehicle to assist banks and other lenders with providing financing for small businesses. Primarily, banks are very reluctant in the traditional sense to provide business loans to smaller enterprises as the risks of launching a new entrepreneurial venture are extremely high. This is especially true for intend to operate a business in the traditional brick-and-mortar capacity such as a retail store. However, for some businesses such as professional service practices the risks are much lower and banks are willing to provide financing for these types of practices. However, again, banks are always very careful when determining whether or not to provide conventional business loans to businesses. As such, the small business administration was specifically founded to provide guarantees for the capital that banks loaned to new businesses, established businesses, and companies are expanding. The Small Business Administration was developed through an act of Congress. The organization was founded in 1953 through the Small Business Act. As it relates to the four functions of the SBA has been developed to aid, counsel, assist and protect, in so far as possible the interests of small business concerns."

 

A common misconception regarding the Small Business Administration is that that provides direct financing to small businesses. However, this is not the case. The Small Business Administration provides guarantees for traditional banks that provide the capital to small and medium-sized businesses. In those instances the Small Business Administration guarantees, for the lending bank, up to 85% to 90% of the total amount of the business loan that is provided to an entrepreneur or workgroup of entrepreneurs. As such, in regards to the complexities of obtaining an SBA loan - you'll not only need to show your work the credit risk also need to show the SBA that you are qualified to run the business. Additionally, it should be noted that the Small Business Administration is not only seeking for you to develop business but also seeking for you to provide new employment. This is one of the fundamental issues as to why he small business ration was created through the Small Business Act in 1953.

 

When you're applying for a Small Business Administration backed loan that you are seeking then you will need to develop your business plan while concurrently completing the initial loan application. Second, you also need to fill out additional documentation as it relates to receiving a SBA guarantee on the funding you need. It should be immediately aware that you also need to provide a personal guarantee for all of for the total amount of capital for the business loan. Even though your business may not do as well as anticipated, and then ultimately be reposed up to 85% of the money that they loan to you. You will still be responsible for the total loan amount. It is important to remember that the SBA is there to cover the losses on the bank should your business fail but they are not there to cover the amount in total that you borrowed. As such, the most common assets are hypothecated when seeking a SBA loan to your home, vehicles, retirement accounts, and other assets that you hold that can be used in the event that your business fails and you need to liquidate personal assets to repay the loan balance. Additionally, it should be noted that the business collateral that you are purchasing the funds can also be used during a sale should the business not go as planned. The most important things when applying for a SBA loan is that you should prepare for every contingency as it relates to if you have a business failure. This is often one of the things that are overlooked by many entrepreneurs as they only look at this potential success of the business and not the potential failure of the business. I know that that is a little off track as a relates for this discussion regarding the operations of the Small Business Administration, but it is important to remember as you progress through your business operations to always play on these contingencies.

 

The requirements for obtaining a SBA loan are to fill out the application by the bank, the SBA application which would provided to you by the bank, and a well developed business plan that could clearly showcases each individual operating facet of your business. For traditional business loans, the business plan is a less important factor as it relates to having financial institution lender lending decision. However the Small Business Administration requires that you had a well developed business plan in place that showcases the financials of your business for a five year time frame. Preferably, when developing a business plan for a Small Business Administration loan you should focus on developing a full five-year financial model that features a profit and loss statement, cash flow analysis, a balance sheet, a breakeven analysis, as well as other business ratios that showcase the collateral for loans value and other metrics that are frequently used by bankers when determining whether or not they should lend money to you and your organization.

 

Additionally, as per our discussion of what the SBA does, in addition to providing guarantees for business loans small business ministration also provides entrepreneurs with a tremendous amount of advice. As we stated above, as per the directive for the small business act, the agency employs a number of different consultants that can work very closely with you in all we discussing issues pertaining to receiving business loans as regards the general operations of the business. The Small Business Administration website has a number of different articles and pieces that have been developed that focus on the ongoing day-to-day issues as you develop and expand your business. We strongly recommend that you review the articles that have been produced by the small business administration as well as the articles on TheFinanceResource.com website that showcases the information at a slightly different capacity. However, it should be noted, that the demand among entrepreneurs to receive counseling from the small business administration is extremely high. This is primarily due to the fact that the small business administration does not typically charge for providing advice to new entrepreneurs. As such, you may want to find a very well-versed business consultant that can assist you in making a determination as to whether or not the Small Business Administration loan is in your best interest while concurrently with assisting you with developing the needed applications for you to secure this type of financing. In several additional articles we intend to focus heavily on it the use of SBA loan packagers cut as well as SBA document preparers as it relates to obtaining a business loan. In that specific piece will focus only on the benefits of using a small business loan advisor, but also the downside potential risks that you face as you work with one of these individual firms that specialize in devising the matters as it pertains to small business ministration and its related programs.

 

The programs that are available by the small business ration there are primarily for programs which most entrepreneurs use. Primarily, these consist programs all of the 7a SBA loan, the SBA 504 loan, the Patriot Express Loan, and Small Business Administration loans that are available for a number of different purposes. The Small Business Administration also provides certain certifications for your business if you intend to do business with any state, the federal government, where municipal government agency. If you are working with government agencies as relates to your business operations then you will be required that you have a certification by the small business administration for some the operations that you may conduct. If you intend to go down this road and it is the nature of your business, then you should absolutely focus on obtaining you put the accreditation from the Small Business Administration so that you can successfully bid on the contracts that you're seeking. Additionally, many government agencies are acquired by law to provide a certain percentage of their contractual bidding to small business owners. However, we will focus on this issue in a later piece.

 

For many mew entrepreneurs the only way to access the obtain financing through one of the programs that has been developed by the Small Business Administration. Again, banks are highly reluctant, especially in today's credit environment, to provide standard financing for their customers. However with programs are available by the Small Business Administration - banks are far more willing to place money with entrepreneurs that have economically viable programs and businesses that would not hold of provide valve as well as regular interest payments to the bank. When obtaining a loan is important to remember that the bank is not in the business of taking risks. Banks are in the business of lending money with a certain degree of certainty that they will receive all the other appropriate financing back in the form of regular principal and interest payments. As such, and as you develop your business plan for a SBA loan, you will need take a look at things from the view of the bank are especially as it pertains to the risks of your business. You will clearly need to show the financial institution that you are applying for credit with that you have thoroughly thought of all the contingencies possible in the event that the business does not go as planned. Additionally, the Small Business Administration representative who will prove or deny your application will also be thoroughly impressed a focused substantially on the potential risks of operating the specific business. Although the business plan that is required by the SBA does not address these matters specifically, we strongly recommend that you include a chapter in your business plan that only discusses risks, problems, and other liabilities that may occur to me ought to your business operations.

 

In conclusion, the Small Business Administration is one of the best things that has been developed and operated by the US federal government. The SBA not only provides entrepreneurs with the ability to raise the capital they need to launch new entrepreneurial ventures, but also provides a solid foundation for job creation within the United States. Although it is usually the major corporations that make headlines as it relates to employment and the progress of the US economy, vast majority of businesses within the United States are classified as small businesses by the Small Business Administration definition. If you are uncertain as to whether or not your business does qualify for a SBA loan strongly recommend that you review the SBA website will work with a qualified business consultant to make that determination. The SBA website has very clearly defined what he small businesses and which individuals, businesses, and other organizations can apply for a Small Business Administration loan. Thank you again for coming into our series of articles as it relates to the Small Business Administration and will continue our discussion pertaining to SBA loans and other business matters in a very short time.


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