SMALL BUSINESS LOANS -
A Simple Explanation
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When people think of Government Small Business Loans, they're usually thinking of Small Business Administration Loans.
You may be surprised to learn that Small Business Administration loans aren’t really loans at all. Instead, the SBA guarantees loans that are made by banks and other financial institutions. It’s a sort of insurance for the people giving the loan.
The SBA’s mission statement sums up their purpose nicely:
“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. We recognize that 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 SBA has grown and evolved in the years since it was established in 1953, the bottom line mission remains the same. The SBA helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships with public and private organizations, SBA delivers its services to people throughout the United States, Puerto Rico, the U.S. Virgin Islands and Guam.”
How You Can Get Government Small Business Loans
Small Business Administration loans aren't generally for people with bad credit, or for start up funding.
The primary use of these types of government small business loans is to provide financing with longer repayment periods and with less strict requirements than normal commercial loans.
Compared to commercial bank loans, an SBA loan amount can also be higher as a percentage of your business’ income. These terms can make it easier for small businesses to borrow larger amounts and repay the loans without over-stressing their budgets.
Government Small Business Loans in the form of Small Business Administration loans can be divided into three categories:
1. SBA Loan Programs (Debt Financing)
The SBA does not make direct loans. Instead, the SBA guarantees the loans made by thousands of lenders, insuring the lender is repaid.
However, if you have access financing at reasonable terms from other sources, you may have trouble getting an SBA guaranteed loan.
Additional information, including credit and eligibility requirements, how to apply, etc., is available at the official
2. SBA’s Small Business Investment Company Program (SBIC)
SBIC’s are privately owned investment companies which are licensed and regulated by the SBA. These companies are similar to venture capital groups and are generally looking for high returns for their investors.
However, unlike other private investment companies, SBIC’s limit their investments to small businesses that are qualified according to SBA regulations.
3. SBA’s Bonding Program (Surety Bonds)
This program is called the Surety Bond Guarantee (SBG) program. It was developed to provide small and minority contractors with contracting opportunities for which they would not otherwise bid.The SBA can guarantee bonds for contract up to $2 million. The goal is to strengthen a contractor’s ability to obtain bonding and thereby greater access to contracting opportunities.
SBA offers multiple variations of the basic loan program to accommodate targeted needs. Here is a simplified list as described on the
Certified Development Company (CDC)
FUNCTION: Provides long-term, fixed-rate financing to small businesses to acquire real estate or machinery or equipment for expansion or modernization.
CUSTOMER: Small businesses requiring “brick and mortar” financing.
2. PROGRAM: Micro-loan Program
FUNCTION: Provides short-term loans of up to $35,000 to small businesses and not-for-profit child-care centers for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. Proceeds cannot be used to pay existing debts or to purchase real estate.
CUSTOMER: Small businesses and not-for-profit child-care centers needing small-scale financing and technical assistance for start-up or expansion
3. PROGRAM: Loan Prequalification
FUNCTION: Allows business applicants to have their loan applications for $250,000 or less analyzed and potentially sanctioned by the SBA before they are taken to lenders for consideration. The program focuses on the applicant’s character, credit, experience and reliability rather than assets.
CUSTOMER: Designated small businesses.
For more information about Government Small Business Loans, see the related articles on this website.
-by Andrew Sokol
Andrew Sokol is a Business and Marketing Strategist.
He is also the publisher of this website.
Andrew is available for private consulting and public speaking.
He can be reached by clicking
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