As the largest backer of business loans in the United States, the Small Business Administration strengthens the American economy by enabling small businesses to function effectively. By providing access to credit, it stimulates growth in the small-business sector and the overall American economy.

Thomas Jefferson and Abraham Lincoln both considered small business to be the backbone of American democracy and free enterprise. The Small Business Administration (SBA) acts primarily to guarantee loans made to small businesses and thus allow them access to credit. It also provides assistance to homeowners in times of disaster. In all, the SBA has helped more than 20 million businesses and has guaranteed loans worth a total of over $45 billion. The SBA also oversees a mandate that a portion of government contracts and government surplus property go to small businesses.Small Business Administration

The Small Business Act of 1953Small Business Act of 1953 was instrumental in establishing the Small Business Administration. The agency has operated effectively for more than half a century helping small-business owners start up and manage new businesses. Acting under the Department of Commerce, the SBA is headed by a presidentially appointed administrator. It is made up of separate administrative units whose responsibilities include customer service, marketing, disaster assistance, legislative affairs, equal employment opportunity, and civil rights. In addition, the SBA works to procure government contracts and to help burgeoning businesses train new employees and managers and provides information on any problems that may arise. It also sponsors business classes and counseling sessions at local community centers and schools. Any business that meets the SBA’s definition of small, which is different for each industry, may qualify for a loan. SBA clients represent a cross-section of American businesses, particularly in the retail, wholesale, and manufacturing sectors, and they range in size from sole proprietorships to businesses with between fifty and one hundred employees.

Listed among the types of guaranteed business loans administered through the SBA are the Loan Guarantee Program, which helps new business owners establish or expand their businesses, the Fixed Asset Financing Program, which provides funds for land or construction, and the MicroLoan Program, which deals with loans of up to $35,000. The Economic Development Program offers free counseling and training, and the Business Development Program helps small businesses that are owned by disadvantaged individuals. In addition, homeowners and businesses are eligible for loans to recover from presidentially declared disasters.

The Loan Guarantee ProgramLoan Guarantee Program remains a vital source of Capital;sources ofcapital for American small businesses. Although the SBA does not make loans, it guarantees loans to lender institutions such as banks and credit unions. Traditional business loans can be difficult to obtain, but the SBA ensures that small-business owners can repay loans at a slower pace, making their loans much more affordable. In addition, the SBA allows some businesses to borrow larger amounts of money, which makes working with the SBA far more viable financially for start-up businesses short on cash. SBA loans are usually intermediate in size, under $500,000. Mortgages on buildings where small businesses are located are appealing to banks and a particularly popular use of SBA loans, as are loans to finance the takeover of successful, established businesses.

In 1996, the Republican-led House of Representatives failed in its attempt to eliminate the SBA. Similarly, the George W. Bush Administration failed in its attempt to put a stop to the SBA loan program. Because of its size, impact, and longevity, the Small Business Administration has come under fire from critics calling for a full-scale evaluation. Its loan programs, critics maintain, can have a negative effect on small businesses by harming businesses that are not affiliated with the SBA. Indeed, the SBA aids only 0.4 percent of the entrepreneurs in the United States.

Some critics argue that the SBA serves political and ideological needs and that it serves the banking community–about two-thirds of all banks participate as lenders. They also insist that the SBA serves politicians, who support it merely to demonstrate their commitment to the ideal of entrepreneurship to their constituents. The SBA is also unfair because it provides services at taxpayer expense. Despite this criticism, the SBA remains the greatest guarantor of small-business credit in the country as well as a welcome source of help for those in need of counseling and training.

• Bean, Jonathan J. Beyond the Broker State: Federal Policies Toward Small Business, 1936-1966. Chapel Hill: University of North Carolina Press, 2002. Focuses on the impact of American politics on small businesses from the Great Depression to the creation of the Small Business Administration during the Dwight D. Eisenhower administration. Underscores the chaotic nature of small business and illustrates how Congress misinterpreted the threat to small business posed by larger corporations.
• Green, Charles H. The SBA Loan Book: Get a Small Business Loan–Even with Poor Credit, Weak Collateral, and No Experience. Cincinnati: Adams Media, 2005. The author is a vice president of Sunrise Bank, a leading SBA lending institution. Besides being a how-to book, the volume provides a vast amount of knowledge about the workings of the Small Business Administration.
• Olsen, Elizabeth. “Reports Find Errors and Fraud in Small Business Administration Contracts.” The New York Times, July 24, 2008. Two different reports state that millions of dollars in federal contracts were awarded to unqualified companies instead of qualified small businesses; provides insights into the workings of the Small Business Administration.
• Rhyne, Elisabeth Holmes. Small Business, Banks, and SBA Loan Guarantees: Subsidizing the Weak or Bridging a Credit Gap? Westport, Conn.: Quorum Books, 1988. Examines loan default rates, subsidies, banks’ response to incentives, and ultimately the purpose of the Small Business Administration, calling for reforms. Aimed primarily at bankers, small-business owners, and legislators. Extensively researched.
• Zwahlen, Cyndia. “Bill Could Open Door for Venture Capital Firms.” Los Angeles Times, September 27, 2007. Details a controversy centering on the Small Business Administration, wealthy venture capitalists, and billion-dollar companies that could benefit from small-business programs.

Banking

U.S. Department of Commerce

Credit unions

Export-Import Bank of the United States

Farm Credit Administration

Hurricane Katrina

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