The Small Business Administration is a government agency that guarantees a portion of banks’ loans to small businesses. Because small businesses often do not have the credit history or collateral to qualify for traditional loans, this organization was designed to help give them a chance, thus promoting competition, stimulating the economy, and creating jobs. Instead of making loans directly, they create security by backing up these loans, removing some of the risk to lending institutions, thus making them more inclined to offer credit to the businesses. The business owner, of course, is still expected to pay off the loan, so the business will be evaluated for its potential and reliability. There are special benefits for some businesses that serve underdeveloped areas, that are owned by members of underrepresented demographics, or that serve stated purposes such as increasing exports or promoting green energy. Such businesses can get higher guarantees, have fees waived, or have the application process streamlined.
To qualify as a small business, a business and all of its affiliates must be worth less than $6 million, and must have an annual profit of no more than $2 million in the two years just before it seeks assistance. There are usually terms concerning what the money can be spent on, depending on the type of program under which the loan is being received.
In a bad economy, these programs help stimulate economic activity, growth, and development. It is beneficial to businesses to take advantage of such programs during a recession or period of economic stagnation, because during such times resources such as labor, real estate, inventory, equipment, raw materials, and rented space are less expensive. Businesses that get a head start during a recession are likely to have a leg up on competition when the economy picks back up. In fact, the higher ranked a Fortune 500 company, the greater likelihood that company was started during a recession.
In a booming economy, business and demand are often expanding faster than a business can expand to meet such demand. A quick injection or “turbo boost” of capital can help a business ride a wave of economic growth. A business can strike while the iron’s hot by taking advantage of an expanding economy.
As you can see, no matter what the economy is like, these loans can be beneficial to a business. If you think that your business would benefit from such a chance (and how could it not?), try contacting a lending institution that works with the SBA. They should get in touch with the SBA on your behalf and make the application process as easy as possible for you. After all, you’re offering them your business—they should do their best to serve you as a client.