Once a target of federal budget cuts, the U.S. Small Business Administration is alive and well and continues to offer loans and other services vital to America's small businesses.
Small business makes a big difference in the nation's economic well-being. Small businesses were responsible for 64 percent of all the jobs created during the last decade.The SBA was created in 1953 to assist and counsel both established and new small businesses. It provides financial assistance, management training and counseling, business loans for minorities, low-cost educational publications and help in procuring government contracts.
STARTING A BUSINESS
Many Americans dream of starting their own businesses, but prior planning is essential to keep the dream alive. Before becoming the boss, the SBA recommends you answer the following questions:
What type of business do you want?
Is there a need for the business?
Are you suited for the enterprise?
What are your goals? Do you already have a business plan?
What's the best type of ownership? While most businesses are sole proprietorships, you may want to take on partners to share your risk.
What licenses and permits do you need to operate a business?
Established businesses also need to periodically re-examine themselves:
Is your company growing, or has new technology made a decline inevitable?
Are there new markets in other areas or new product niches that can be exploited?
Don't lose sight of your objectives. What do you plan to achieve in the future? Is it a realistic goal? How will you get there?
FINANCING A SMALL BUSINESS
The SBA's loan-guarantee program is the largest source of money for small businesses. Each year, the SBA guarantees $2.6 billion in loans to more than 16,000 businesses.
Although the SBA can help you get financing, it rarely makes direct loans. Instead, the SBA insures business loans up to $750,000 from banks and S&Ls.
"Loan guarantees are based upon a borrower's ability to repay the loan and the size of the company," said SBA spokesperson Susan Clifford. "However, we do guarantee loans for start-up companies, too."
Most SBA loans are meant to help businesses meet their normal operating costs and to purchase new equipment and property. However, a wide variety of other business loans also are available, including lines-of credit for contractors and exporting companies, economic-opportunity loans to assist low-income people, disaster loans to help businesses recover from natural disasters, and energy loans for businesses developing or manufacturing energy-saving devices.
The SBA guarantees up to 90 percent of the loan balance. The average loan is for $175,000. The interest rate is usually pegged to the prime rate.
Repayment periods are based on the purpose of the loan. Working-capital loans mature in seven years; equipment loans last 10 years; and loans used to purchase land or a building must be repaid in 25 years. The average SBA loan matures in eight years.
You will need to be denied conventional financing before you can get a loan from the SBA. So the first step is applying for a business loan from a bank or S&L. Experts say lack of experience is the main reason why loan applications are denied. If your lender turns you down, ask if you can get a government-guaranteed loan from the SBA.
A good business plan is a must when applying for a loan. It should be short and simple and include the following information: the amount and purpose of the loan; how you plan to repay the loan; a description of the business; profiles of the owners; the market targeted by your business; and a listing of your available collateral.
THE SERVICE CORPS OF RETIRED EXECUTIVES (SCORE)
The Service Corps of Retired Executives is an important part of the SBA program.
SCORE is a network of volunteer business executives and professionals - most retired, but some still active - that provides advice and counsel. There are now more than 400 local SCORE offices with 13,000 members.
SCORE members meet with 150,000 clients annually in one-on-one counseling sessions. Counseling is free and can last anywhere from several hours to several years. In addition to one-on-one counseling, SCORE conducts training seminars on a wide range of business topics. A slight fee (about $10) is sometimes charged for the seminars to cover the costs.