Plain english description of the SBA

[prova.fm]

I wanted to reply to a few threads, but thought I'd ask my own, rather than hijack others. Could someone explain what the SBA does in plain english? Every time I look at the SBA it seems so daunting, I just pass. I've never been in need of a loan, so I've just stayed away. My understanding was that they could help "less fortunate" people start a business. It seems, however, that I may have been incorrect. Maybe they're just like a bank, with typical loans, & less stringent guidelines?

As I'm starting a new business, I'm considering getting some extra "fallback" cash.

Thanks,
-David

[vangogh]

The Small Business Administration (http://www.sba.gov/) does more than deal in loans. They don't actually loan you money, but they work with financial organizations and guarantee the loan. You're still getting a loan through a bank or other institution the same as you would without the SBA, but they're supposed to make it easier for you to get a loan if you're having trouble getting a loan on your own.

The also offer other kinds of financial help (http://www.sba.gov/services/financialassistance/Introsbafinance/index.html) if you qualify.

Beyond finances, the SBA provides a lot of resources for small businesses. They provide classes to help you learn various aspects of running a business. They'll meet with you and answer questions. They'll help you write a business plan. When I started my first business I used them as a resource. My business partner at the time and myself met with them and asked questions. We took a few one day classes as well.

I learned some things there. Other things, not so much. Everything I did learn I'm sure I could have found online somewhere, though sometimes it's nice to have someone there as a resource for the questions. The first year I was doing taxes I felt a bit lost and someone at the SBA walked me through enough of it so I could finish on my own.

They're not going to give you 'fallback' cash. I think that's the misperception about the SBA. If you need a business loan and are having a hard time getting one on your own then ask the SBA for help. Whether they have a connection to help or can simply help you rework your business plan so banks to increase your odds of getting a loan, they can probably help in some way. But they aren't going to loan you money to live off while you get your business started.

Hopefully one of or legal or accounting types will show up and correct any errors I've made above. You can always find the closest SBA office and ask them directly. They didn't always give me the answers I wanted to hear, but they were always friendly and tried to help as much as possible.

[phanio]

If you go to your bank and they tell you that you are close to an approval but just not quite there - sitting on the fence so to say, a SBA loan can help put you in the "approved" side. As stated, the SBA does not make direct loans. They only guarantee the loans. There guarantee is like collateral. Let's say that you finance a car - the car is the collateral. If you don't make your payments, the lender takes the car, sells it and tries to minimum its losses. The SBA guarantee works the same way. The bank that underwrites the loan - uses the SBA as collateral should you not make your payments.

You still have to be approved by the bank that issues the loan and then, the SBA will also underwrite the loan - meaning they will make sure they also want to take a risk on you.

What this means is that you must still be creditworthy - great credit history and cash flow.

Here are some of the benefits. Let's say a bank requires you to put 20% equity into the deal. The SBA may only require 10%. Let's say you have other collateral to cover say 50% of the laon amount - the bank will say no - but, the SBA could say that it will cover the other 50%. Or, let's say the bank requires a credit score of 720 and yours is 680 - the SBA may say that is OK as long as everything else is in place. Or, the bank may require that have 3 years of profitable operation (if not a start-up) - but you only have two and everything else looks good - the SBA may say yes.

Hope this helps. Remember, there are many loan programs that the SBA will back. They also partner with other companies (non-profit and for-profit) to help businesses get funding like micro-credit companies and SBICs.

We have recently outlined many of the SBA programs on our website. Not trying to promote us but the SBA offers so much that it is hard to put it all here. You can also visit the SBA's website and search for financing or find a bank in your local area that offers SBA loans and go talk with them.

[prova.fm]

Thanks for the info. That was really clear. I guess I've always been wrong about how the SBA worked.

Thanks,
-David

[vangogh]

Don't worry. It's not just you. I think a lot people assume they're there to lend money directly to small businesses.

[Business Attorney]

Although this falls within the area of "other resources" mentioned by vangogh, the SBA also provides hands-on assistance through cooperation with SCORE, through Small Business Development Centers, and through Womens Business Development Centers. I have found them to be particularly helpful in providing expertise to established small businesses interested in finding foreign markets for their products, a daunting task if you have never exported goods before.

[phanio]

David Staub makes a very good point. Althought the SBA does not do direct investment or loans - they do have tons of resources to help small businesses help themselves.

Plus, they are not alone. The IRS has really picked up on marketing its resources - many that can really clearify tax issues.

Also wanted to mention that the USDA offers similar programs to the SBA in loan guarantees to rural businesses - some are also direct loans - but most go through local governments who in turn will make direct loans and grants to businesses in their communities.

[janiels]

so which is better SBA or USDA..

by the way thanks van for the link, I learned a lot from it..

[nocompanyguy]

One big misconception with the SBA relates to startups. Many people think that all you need is a great business idea/business plan and the SBA will secure a loan for your startup. This is not true. All lending is based on risk. If you have stellar credit, collateral, etc. you might get an SBA guarantee. However, if you just have an idea, no money, 'no skin in the game' as they say, you are getting nothing from the banks/SBA. It does take money to make money. That is why the successful entrepreneurs on this site will tell you to work at your goals, save money, build your credit, gain experience, and have a real partnership to offer the bank/SBA to mitigate their risk. Usually you will need to personlly have on hand about 20-30% of the total loan amount you are requesting. Those one in a million startups that are based on a dream idea and take off overnight really are one in a million. Unfortunately that is the reality of small business and lending. But like everything in life, if it's worth having, it's worth working for.

[Spider]

Although this has nothing to do with the SBA, it does concern money and how money works.

"Shark Tank" is a TV show on ABC Sunday evenings. It shows very well money at work. While the show is a 'reality' type show with entrepreneurs applying to private investors (the sharks) for money, understanding how money functions in our capitalist society is very, very valuable.

[alfromla]

SBA = Pain in the neck.

Every time you have to deal with government to help you out with anything, just might as well just forget about it.

[Spider]

U.S. Small Business Administration-Your Small Business Resource (http://sba.gov/)

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.

The SBA is not a bank - they do not lend money or take deposits.