In today’s economy, it can be increasingly difficult for small businesses to get loans from private capital financing. Default rates have been the highest in years, and many banks simply don’t lend to new or small business ventures. It can be even more difficult if you are a professional or self-employed individual, such as a dentist or lawyer. The SBA has been helping to fill this gap in available funding. We’ll talk about how this works, in today’s article.
The SBA, through its loan guarantee program, helps small businesses and the self-employed get funding. Private banks finance each loan. However, the federal government guarantees a portion of each SBA approved loan. That portion depends on how much they want to leverage the guarantee; most banks choose about 10 to 1. With loans defaulting around 6 to 10 percent, this is about all the protection they need to keep lending.
However, the Small Business Administration certainly isn’t without its issues. Some question how cost effective they are, while others point out that there are probably good reasons why funds are not being made available to less qualified individuals. Nevertheless, the program has continued from its inception in 1953 until today. It has helped tens of thousands of companies get the funding they need to grow their companies.
The ability for new small business owners to get loans, especially from traditional banks, has become increasingly difficult. The Small Business Administration tries to offset the risk to banks through its loan guarantee program, thereby increasing available funds. Although some people question the cost effectiveness of this program (if not its motives), it has helped to furnish tens of thousands of loans to small companies.