In the prior four posts of this series, I provided an overview of small business financing that included tips on how to align funding sources with funding needs and how to find alternative sources of funding. In this post, I'll review some of the U.S. Small Business Administration (SBA) funding programs.

SBA-Backed Lending Programs

It's a common mistake to assume that the U.S. SBA makes small business loans directly to small businesses to help them start and grow their ventures. This is not the case. Nor does the administration provide grants for this purpose.

Instead, the SBA serves as a guarantor of loan programs made through traditional banking and other types of lending institutions. The benefit of this intermediary relationship is the value that it provides to the lending institution by backing the loan in a way that allows the lender to extend longer payment terms and lower interest rates. As a result, the lending institution can lend to businesses that might not otherwise be creditworthy from the institution's perspective alone.

  • 7(a) Loan Guaranty Program
    The most common SBA program, the 7(a) supports venture startup, acquisition, operations and expansion, as well as special purposes to aid businesses impacted by the North American Free Trade Agreement (NAFTA). Fees, rates, terms and loan processing times vary.
  • Microloan Program
    This program focuses on small (up to $50,000), short-term lending by nonprofit community-based organizations to small businesses and some nonprofit child care centers for the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment.
  • CDC - 504 Loans
    A CDC is a nonprofit Certified Development Company set up to contribute to the economic development of its community or region by providing growing businesses with long-term, fixed-rate small business financing for major fixed assets, such as land, real estate and equipment.

SBA-Direct Lending Program

In cases of declared disaster areas, the SBA will lend directly to small businesses, as well as private nonprofit organizations, homeowners and renters. The objective of an SBA Disaster Loan is to help fund the replacement or repair of items damaged or destroyed, such as real estate, personal property, machinery, equipment and inventory.

Other SBA Financial Programs

The SBA also helps to facilitate long-term investment by partnering with private investors and guaranteeing bid, performance and payment bonds issued by surety companies.

  • Small Business Investment Company (SBIC)

    An SBIC is a privately owned and managed venture capital firm that is licensed and regulated by the SBA. SBICs use a combination of funds raised from private sources and through the use of SBA guarantees to make equity and mezzanine capital investments in small businesses.

  • Surety Bonds

    The SBA guarantees bid, performance and payment bonds issued by surety companies as a way to encourage surety companies to bond small business contractors who are having difficulty obtaining bonding on their own.

To learn more about SBA-backed funding programs and what institutions are utilizing them in your area, visit their website and connect with SBA-approved lenders.

In my next and final post in this series, I'll introduce other funding resources available through public agency programs seeking to promote venture startup and growth, as well as innovation.

Read the rest of the series.

Introduction: Small Business Financing: How Can You Make the Most out of Your Options?

Part 1: Small Business Financing: What You Need to Know

Part 2: Small Business Financing: How to Align Your Funding Sources With Your Funding Needs

Part 3: Small Business Financing: Alternative Sources for Working Capital

Part 4: Small Business Financing: Myths and Realities Regarding Invoice Factoring

Part 6: Small Business Financing: Public Sector Funding Resources

Tags: Small Business Financing