Small Business Administration Explained

What is the Small Business Administration?

The Small Business Administration is a fundamental government agency within the United States Federal Government responsible for providing assistance and support to small businesses.

The primary missions of the Small Business Administration, according to the agency, are “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recover of communities after disasters.” Through this definition it can be observed that the Small Business Administration focuses on the ‘smaller side of business’, meaning the individual or micro entrepreneur and his or her effect on the local community.

What does the Small Business Administration do?

The Small Business Administration does not provide direct funding through the issuance of loans to small businesses; however, the Small Business Administration does aid these businesses by educating and preparing small business owners to apply for funding through a financial intermediary, credit union or bank. As a result of this relationship and function, the Small Business Administration acts as the sole guarantor for small business bank loans.

In some circumstances the Small Business Administration also helps to procure small business loans or other forms of financing to victims of natural disasters, such as floods or hurricanes. The Small Business Administration works to secure government procurement contracts for small businesses while assisting owners with management decisions, training strategies and various technical issues.

Through these primary functions, the Small Business Administration has directly or indirectly aided nearly 20 million businesses with funding or educational support. In 2008, the Small Business Administration managed a loan portfolio of nearly 220,000 loans that totaled more than $84 billion. This figure makes the Small Business Administration the largest single financial backer and intermediary of businesses throughout the United States of America.

History of the Small Business Administration:

The Small Business Administration was created on July 30, 1953, by the United States Congress through the passing of the Small Business Act. Through its creation, the Small Business Administration’s primary goal was to aid, counsel, assist and protect the interest of the Small Business and its owners. Furthermore, the Small Business Administration ensured a proportion of government contracts and surpluses to small businesses; this function of the Small Business Administration was provided by government funds that were set aside by the United States federal government.

Small Business Administration Loan Programs:

The Small Business Administration does not provide direct loans to small businesses, with the exception of Disaster Relief Loans. The Small Business Administration does; however, provide guarantees against default certain portions of business loans made by financial institutions and other lenders that must conform to its guidelines.

The Small Business Administration provides loans through three distinct classifications or categories. Larger banks, such as Bank of America or Chase, generate the majority of their SBA loan volume by loans that offered to those who would otherwise be declined for ‘typical’ bank credit due to various factors such as length of time in business.

Small Business Administration loans are widely used by banks of all sizes to provide financing for the purchase or construction of a businesses’ owned or occupied real estate.

Small Business Administration loans also are used to encourage individuals to buy existing businesses. Dissimilar to real estate transactions, a commercial lender can fund business brokers to aid individuals in buying and selling a businesses; this particular segment of the SBA loan program is supported by smaller financial institutions and independent finance companies involved in this particular sector.