Small Business Administration (SBA) Programs

Small Business Administration (SBA) Programs

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As larger franchise continue to grow and take over the market place small businesses find them selves falling behind financially. With recession and the hard times it has created since 2008 small business continue to struggle to thrive and grow. Throughout this struggle the Small Business Administration (SBA) Loans programs have come up with a way to help the small businesses stay afloat. They help small business get access to financial assistant programs that have been create to help meet their needs including, debt, company growth, general company needs and capital. The SBA does not personally give the loans to the small businesses, but it helps give regulation on how the small businesses can receive loans whether it be through, micro lenders, investors or community organizations. Four beneficial programs that exist to help businesses are: Section 7(a) Loan Guaranty Program, Certified Development Program Company (CDC) 504 Loan Program, Small Business Investment Company (SBIC) and Micro-Loan Program. These programs provide and alteration to policy to help close the gap during economic disruptions. Understanding these programs, how they work and if they are efficient are key to deciding if this is helping or doing nothing for the small business industries.
The four SBA programs give small businesses and opportunity to get financial help through loans when usually they would be denied. Because of the economic conditions it makes it harder for business to maintain their debt and continue to grow and keep everything the same as before the economic shock. One program is the Section 7(a) Loan Guaranty this is a loan program that can be used on general business, fixed assets and working capital. It is a large loan given by a bank or lender. Conditions for this loan are set by purpose by the lender and collateral of the company is used, personal can be used as well (i.e. the owners home). The CDC/504 Program also provides loans to small businesses that are unable to get financial assistance from private lenders. Although it does differ from 7(a) Loans in two ways, “The 504 loans can only be used for fixed assets (i.e., land and buildings) and have fixed interest rates (under the 7(a) program, rate may be fixed or variable” (Urban Institute 3). In addition, they can receive funding from the CDC/504 through community organizations.
The Micro Loan program provides small businesses and some community organizations with small loans that can be used for start up or growth.

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According to SBA.gov, “Microloans can be used for: working capital, inventory or supplies, furniture or fixtures, machinery or equipment.” The small businesses are reviewed by intermediaries that will accept or deny their applications. Opposite of micro loans is the SBIC program; they provide funding through small business investment. It allows the company to uses their capital as a way to assist their small business. Each of these four programs have limits to their loans ranging from the micro loan maximum of $35,000 to $4 million with the CDC/504 Program (Urban Institute Chart 2).
It is important to provide proof that these programs are effective or ineffective. The effectiveness of the program can be measured by sales, survival before and after financial assistance and employment rates. In the study, A Performance Analysis of SBA’s Loan and Investment Programs, it showed that the 7(a), 504 and SBIC all showed growth in the areas of sales after receiving financial assistance. Which also increase employment opportunities at the small businesses. In addition, it showed that younger undeveloped companies showed more growth then the companies that had been around for a while. In conclusion, the start up businesses needed just a little more financing to boost their sales and start a successful company did benefit from these loans.
“The difference in the pre-financing and post-financing years was most pronounced in the 504 program, where the average sales increased more than twice as much in the three years before financing (from$2.7 million to $3.4 million average) relative to the three years after financing (from $3.4 million to $3.5 million on average). Both the 7(a) and 504 programs saw a slight dip in sales in the year after financing, followed by an upswing in sales.”(Urban Institute Performance Analysis of SBA Loans and Investment Programs 18).

One does have to take into account the size of the business, age, expected growth, sale estimate and number of employees it takes to run the business as well. During the studies it has shown that the newer companies or developing companies showed more growth then those who had existed for a while they did not show much change in sales and new employment. As one can see the SBA programs can help increase sales and employment in some cases.
Another way to estimate how the SBA program have made a change is looking at gender of business owner, geographic area or rural versus urban areas and the industries that needed it the most which is seen in the Gap Analysis 7(a) and 504 Programs report by Urban Institute. First, the loans had a higher rate of women and minorities taking out of the 504 and 7(a) loan program then male business owners. “Women-owned businesses were five percentage points more likely to receive loans under the SBA 7(a) and 504 programs than conventionally, and received nearly four times the dollar amount of financing” (Gaps in 7(a)13). In addition, they still took out conventional loans more then their male counterparts. The 7(a) and 504 programs also lend to the more high-risk businesses in distressed areas. The industries that needed the SBA programs 7(a) and 504 were services (38.5%) and retail trade (29.1%). (Gap Analysis 7(a)). The funds were put out into area first by a need bases. Small Business Administration Programs do help in time of economic distress. They also can have a disadvantage at times. For example, this last government shut down. During this recent government shutdown none of the Small Business Administration programs were able to lend money. All loans and applications were put on hold due to the governments shut down. But in the case of helping business continue to grow and prosper I think the positives out way the negatives.
When deciding if the SBA programs matter I felt indifferent I wasn’t sure how it was directly affecting the area I lived in. Working in a licensing office I do get to see how many businesses and manufactures emerge month after month and how much the St. Louis business industry grows. I contacted St. Louis District Director Dennis Melton of the Small Business Administration Program for a phone interview to explain Small Business Administration further. He explained that the SBA helps in a time of crisis. When a business cannot receive a loan the SBA acts as a verification and safety net for the lenders whether it be banks or private.In addition, the SBA weighs the risk of the company because they are a cash-flow lender meaning one must have some collateral and they look at how much cash is going to come in to make sure it will be able to pay back the debt. Mr. Melton explained that the SBA gives a guarantee that 50-75% will be reimbursed if the balance is unpaid by the business, so if the business shuts down or goes bankrupt. The money used as a down payment fee before getting the loan is also used to help pay back the debt. Mr. Melton also said, “By nature entrepreneurs are risk takers they are what run the American dream., by nature bankers are the exact opposite they are logical and avoid risk. That is where SBA comes in to provide verification and guidance.” The SBA Program does not only give out loans but also provides consulting, business coaching and advocacy for business.
I also asked Mr. Melton who were the top businesses to take loans in the St. Louis region, the highest in taking SBA Loans were Manufacturing, second Profession IT Services, third Construction, forth Durable Machinery and fifth Hotel Bed and Breakfast. I have seen this increase in my work place with just in the month of November 129 new businesses have opened up in the city of St. Louis. Only a few were chain businesses so there are the small businesses and entrepreneurs that are using the SBA’s Loan Programs to help create their dream. Mr. Melton expressed a true passion and dedication to his work and the growth of the small business industry. He explained the SBA is one of the smallest federal offices only having 3,000 employees nation wide. He explained that small businesses are 50% of the gross domestic product, which means that SBA is absolutely needed to keep the small businesses growing and our economy recovering. Furthermore, he gave a list of companies that have received the small business administration assistance nationally and locally in St. Louis these include include: Apple, Intel, Federal Express, Build A Bear Workshop, World Wide Technology all received help in early start up funds from the SBA Programs.
Small Business Administration Programs are something I think that the country cannot live without. The survival rate of a business going past it’s first year is extremely low which means that banker are less likely to want to lend to businesses. SBA programs provide reassurance to the lenders and coaching to the businesses so that businesses can get their start up funds and create a strong start. The companion of reward is always risk with businesses and the SBA Programs help to lower that risk and provide a support system for the lender and the businesses. After talking to Mr. Melton and seeing how intimate the SBA program is and how it has helped some of the companies I’ve seen grow in the past few years working for the city; it has confidently reassured me that Small Business Administration Programs do matter and should always be here to stay.



Works Cited

Melton, Dennis. "Missouri District Director SBA Programs and Small Businesses Interview."
Telephone interview. 11 Dec. 2013.
The Urban Institute. Executive Summary Final Report. Competitive and Special Competitive
Opportunity Gap Analysis of the 7(a) and 504 Program. January 2008. Pg. 1-23. Online.
The Urban Institute. Executive Summary. Key Findings from the Evaluation of the Small
Business Administration’s Loan and Investment Programs. January 2008.Pg 1-66. Online The Urban Institute. Executive Summary. Performance Analysis of SBA Loans and
Investment Programs. 2008. Pg. 18. Online.
”The U.S. Small Business Administration | SBA.gov." The U.S. Small Business Administration | SBA.gov. N.p., n.d. Web. 14 Dec. 2013.
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