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Small Business Administration

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Introduction

The SBA (Small Business Administration) is an agency of the Government of the United States that was formed to provide support to small business owners and entrepreneurs.  Its main objectives are to strengthen the national economy by helping in the establishment of entrepreneurial ventures and small businesses and assessing their viability. Additionally it is charged with providing assistance to such businesses recovery after disasters. Small business administration summarizes its activities as the three C’s that is capital, contracts and in counseling.

SBA was formed in 1953 and inaugurated by President Eisenhower on July 30. It was established by the signing of the small business act and was tasked with aiding, counseling and protecting the interests of entrepreneurial ventures and small businesses. SBA has faced various political threats including a plan to eliminate the agency in 1966. This was by the Republican controlled House of Representative and an effort by the bush administration to stop the SBA program.

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Purpose of the Small Business Administration

The US small business administration provides financial aid, counseling, business assistance and protects the interests of small businesses and entrepreneurial ventures. In addition, the agency advocates on behalf of the small businesses to the federal government. It provides businesses with financial, contractual and business development assistance especially to victims of disasters.

The small business administration provides loans through banks and credit unions by partnering with the institutions. The lenders provide the loaning fund while the small business administration provides a guarantee that is backed by the government. For instance, after the 2008 credit froze the small business administration provided a guarantee of up to 90 percent with the aim of strengthening the access of capital fund to small businesses and entrepreneurial ventures. In addition, small business administration helps to provide 23 percent of its contracts to small businesses in the implementation of the federal government policy. The small business administration program operate a contracting program whose effort is to ensure that certain contracts of the federal government are accessed by businesses and ventures operated by special groups such as a woman owned ventures, service disabled veterans businesses and other businesses that participate in programs like the HUB zone.

In addition to supporting businesses SBA avails grants to support counseling. It has formed counseling partnership with over 900 centers of business development, which are mostly located in colleges and universities, 110 business centers that support women businesses and a volunteer mentor corps composed of retired business leaders. Through its partners, SBA provides counseling to over one million entrepreneurial venures and small businesses every year.

Small business administration has also formed a public- private partnership to form an investment company called small business Investment Company. The company is created to fill the void between the availability of expansion capital and the financial needs for small businesses. However, SBA does not provide the financial assistance directly but rather rely on the expertise of the qualified investment funds that it forms partnerships with. SBA gives operational licenses to these funds as a small business investment companies and supplements their capital base by giving access to low cost debt that is guaranteed by the government.

Once the small business investment company are licensed by the SBA and are backed by the two sources of capital, they search across the country for businesses with promising returns and in need of debt or equity financing. Despite operating as normal investment funds, that is pursuing high returns small business investment companies limit their investment to qualified small business and entrepreneurial ventures as defined by the small business administration regulations.

Acts enabling SBA

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SBA is formed and operates through the small business Act of 1953 and the small business investment act of 1958. Small business act of 1953 establishes the agency and empowers it provides financial support and contractual assistance to small businesses. On the other hand,  the small business investment act establishes the small business investment company program and empowers the SBA to license, regulate and provide financial assistance to privately owned small business investment companies.

Historical perspective of SBA

Since SBA’s formation on July 30 1953, the agency has delivered and guaranteed millions of loans, provided counseling sessions to millions of entrepreneurs, aided in contracts formation and advocated for small businesses. It is important to note that, despite being formally inaugurated in 1953 SBA’s mission had already taken shape through a number of predecessor agencies. Some of the earlier of SBA were the reconstruction finance corporation (RFC) and smaller war plants corporation (SWPC). RFC was created in 1932 by President Herbert hoover to alleviate the crisis brought by the great depression. RFC was a lending program of the federal government. On the other hand, SWPC was formed during the world war two to help small businesses to participate in war time production. However, SWPC was disbanded after the world war and its lending mandates were handed to RFC.

In 1952, RFC was abolished, and President Dwight Eisenhower proposed the creation of another agency to advance the mission of RFC.  Consequently, SBA was formed in 1953. By 1954, the SBA was already making loans to small businesses and to victims of disasters. In 1958, the small business investment coompany program was started to regulate and provide funds to privately owned venture capital investment firms. In addition, SBA started the equal opportunity loan in 1964 to help alleviate poverty. Since then, SBA has grown both in terms of the total assistance provided and in the array of programs it operates to aid small businesses growth.

Functions of SBA

Debt Financing

This agency provides funding for small businesses and entrepreneurs. The activities of this agency have been summarized as the 3 Cs of counseling, capital and contracts. Additionally, it offers various financial assistance programs for entrepreneurs and small industries that are designed specifically in meeting major financial needs. These include equity financing, debt financing and surety bonds. Direct loans are not created by the small business administration to the small businesses. Relatively, small business administration issues the loans’ guidelines, which are later created by its micro lending institutions, lenders and community development organizations.

Small Business Administration promises that the loans issued will be paid back, therefore eradicating some of the perils to its lending partners. When any small business applies for a small business administration loan, this is similar to applying for a profitable loan that has been structured according to the requirements of small business administration with guaranty from the small business administration. Guaranteed loans from small business administration may not be created for a small industry in case the debtor has entrée to different financing on realistic terms.

Surety Bonds

Small Business Administration surety bond guarantee program assists small business contractors having problems in obtaining surety bonds by using systematic commercial channels. Through this program, the small business administration makes a covenant with a security ensuring that the small business administration will undertake a loss percentage in case the contractor breaches the contract’s terms. The small business administration guarantees issues of sureties, a reason to offer bonding for qualified contractors, henceforth strengthening the ability of the contractor to obtaining bonding.

Venture Capital Program

The small business investment company program is among the public/private investment corporations formed to assist fill the gap found in the small business needs and growth capital availability. Small business administration does not directly invest in small businesses, depending on the proficiency of capable private investment funds. These funds are licensed by small business administration as SBICs and increase the capital raised by private stakeholders with access to government guaranteed debt and low cost.

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