Say Uncle: Get federal help for your small business
Sam is often a misunderstood relative. As a member of the federal
family, he frequently takes heat for government programs his nieces
and nephews outside Washington, D.C., view as wasteful.
But as a representative of the U.S.
Small Business Administration, Uncle Sam just might be the best
kin an entrepreneur can have.
Financial assistance is the first thing that comes
to mind when the SBA is mentioned. While it's true the agency offers
various ways to help bankroll small companies, the SBA also offers
other types of critical business assistance, much of it free.
Here's a look at various SBA programs and how they
can help your company grow and prosper.
Funding your business
Since its inception in 1953, the SBA has been a primary backer of
small companies seeking capital. Through its various loan
programs, the agency has lent $180.17 billion to small businesses
under its 7(a), 504 and Microloan programs. Household names, and
now big businesses, such as Apple Computers, Outback Steakhouse,
Nike, Staples and Federal Express have received loans or venture
capital thanks to the SBA.
The SBA's main loan programs are:
Loan: This loan program, designed to help businesses that
ordinarily would not be eligible for banks loans, is probably
the best known of all SBA lending options. With it, ventures get
the financing they need by having the SBA guarantee the loan.
The trick with SBA-guaranteed loans is to find a lender who has
a lot of experience with the 7(a) program and who can help the
small-business owner run through the money maze. The maximum loan
amount under the program is $2 million, but most loans are smaller,
since the SBA can only guarantee up to $1 million. (Banks that
opt to loan more than the SBA limit issue the funds at their own
risk.) The biggest complaint about the 7(a) program is that small-business
borrowers must pledge both business and personal assets. The SBA
also requires personal guaranties from company principals.
Loan: This program makes it easier and faster for lenders
to provide small-business loans of $150,000 or less. Lenders can
use their own forms to process loans, which are then guaranteed
by the SBA. Loans are approved or rejected within 36 hours of
receipt. While the SBA requires guaranteed loans to be fully secured,
under SBAExpress lenders may approve unsecured credit lines up
to $25,000. Loans mature within five to 10 years and up to 25
years for fixed-asset loans.
These mini loans are for startup or emerging businesses. The
SBA gives funds to nonprofit community-based lenders who make
the actual loan and decide who gets the money. A maximum of $35,000
can be borrowed, but the average loan size is $10,500. The maximum
term for a microloan is six years. However, terms vary by loan
size, planned use, requirements of the intermediary lender and
the needs of the borrower. Interest rates also vary depending
on the lender. Like other loans, microloans require collateral
and the personal guarantee of the business owner.
Development Company (504) Loan: The 504 Certified Development
Company Program grants long-term, fixed-rate loans to growing
businesses for purchasing land, buildings, constructing parking
lots and landscaping, construction of new facilities or modernizing
old ones. Loans can also be granted for purchasing machinery,
equipment and other "major fixed assets." Designed to
foster economic development and job creation in local communities
by assisting small businesses, 504 loans are made through Certified
Development Companies, nonprofit corporations that foster grassroots
economic development. The approximately 270 CDCs located nationwide
work with the SBA and private-sector lenders to provide financing.
The SBA also offers CommunityExpress,
a pilot loan program similar to SBAExpress, but which focuses primarily
on low- and moderate-income areas. In general, companies must have
at least $2.5 million in annual revenues to be eligible. The maximum
loan amount is $250,000 and the standard SBA 7(a) guarantee applies.
Loans mature in five to 10 years and up to 25 years for fixed-asset
loans. Length of payback depends on what the money is used for and
the borrower's ability to repay. The lender and borrower negotiate
the interest rate, which is capped at 2.25 percent over prime for
loans of less than seven years, or 2.75 percent over prime for loans
of seven years or more.
And CommunityExpress provides more than money. Loan
recipients receive technical and management assistance and advice
"designed to help increase the loan applicant's chances of
success," according to the SBA.
Do you need a short-term loan or line of credit to meet cyclical
working-capital needs? Check out the five types of credit lines
offered by the SBA's CAPLines
1. Seasonal, which is advanced against anticipated
inventory and accounts receivable to help out during peak seasons;
2. Contract line, which finances labor and
material cost for assignable contracts;
3. Builders line for members of the construction
4. Standard asset-based line for companies
that can't meet credit standards for long-term credit; and
5. Small asset-based line, an asset-based revolving
line of credit for up to $200,000. It works like a standard asset-based
credit line except that some of the stricter requirements are
waived if the business can show repayment ability from cash flow
for the full amount.
In general, the total loan amount available under
CAPLines is $1.33 million. Each of the five lines of credit mature
up to five years. Interest rates are negotiated between the borrower
and the lender and are subject to SBA maximums that are pegged to
the prime rate.
Federal venture and angel capital
Uncle Sam also is a venture capitalist. Well, actually, he is the
funder of venture capital firms, called Small
Business Investment Companies.
Congress created the SBIC program in 1958 to give
small businesses access to equity financing. SBICs are licensed
and regulated by the SBA, but are privately owned and managed. They
use their own capital, plus funds borrowed at favorable rates with
a SBA guarantee, to make venture capital investments in small companies.
The SBA requires a minimum private capital investment of $5 million
or $10 million if the SBIC intends to use participating securities.
A minimum of 30 percent of this capital must come
from sources unaffiliated with the SBIC. According to the SBA, tax
revenue generated each year from successful SBIC investments more
than covers the costs of the program. Through the SBIC program,
the SBA has provided $32.77 billion in venture capital to small
Looking for an angel investor? Then point your computer
mouse to the SBA's Angel
Capital Electronic Network. Here, small businesses can be listed
online and matched up with investors. The Web page currently boasts
listings of almost 400 active investors and more than 300 entrepreneurs.
The ACE-Net site, developed by University of New Hampshire, reports
that the program has helped entrepreneurs secure more than $4 billion
in four years.
More than money
Although the SBA is probably best known for guaranteeing loans,
it offers a lot of confidential and free advice for small businesses.
Workshops also are provided, with minimal or no registration fees.
The services most often are used by startups, but the agency welcomes
small-company owners at any stage of a firm's development.
Business Development Centers have been helping small companies
for more than 20 years. SBDCs assist people who wish to start or
expand a business. They provide advice and mentoring on a wide range
of business concerns, including guidance on finances, marketing
and organization. More than 500,000 companies get help from SBDCs
on an annual basis (635,000 in fiscal 2001), on topics such as how
to write a business plan or how to launch a new product.
Counselors with the Service Corps of Retired Executives
offer free advice and mentoring to small business owners. As the
program's name implies, SCORE advisers are primarily retired top
managers. SCORE helps around 300,000 small businesses annually,
with more than 4.5 million small-business owners served since its
1964 inception. The program presents more than 5,000 training workshops
each year. SCORE
even offers e-mail counseling via its Web site.
Information Centers provide cutting-edge computers, graphic
workstations and other technology, so small businesses can access
market research databases, planning software, spreadsheets and a
vast library of information.
Business Centers provide assistance and training for female-run
ventures. Help can be found on financing, management, marketing
and the Internet, as well as specialized topics such as home-based
businesses, corporate executive downsizing and welfare-to-work.
If you don't live near an SBA counseling facility,
then get help electronically. In addition to the SCORE e-mail advice
program, the SBA provides online business education through its
Business Classroom. This cyber-training and educational resource
lets small-business owners take classes or perform research. Current
courses, several in conjunction with private-sector partners, include
"How to Start a Business," "How to Raise Capital
for a Small Business" and "Growing Your Business on the
Jenny C. McCune is a contributing
editor based in Montana.
-- Posted: July 3, 2002