Small businesses continue to face significant hurdles when it comes to accessing capital. With large companies frequently raising capital through debt and equity markets, small businesses regularly finance their ventures with commercial bank borrowing. However, despite improving economic conditions in recent years, levels of bank lending to small businesses remain stationary. With the approximately 30 million small businesses in the nation accounting for two out of every three new private sector jobs, the inability to access capital is preventing the engines of the economy from expanding. Communities across the country rely heavily on the products, services, and jobs created by main street businesses. Capital is critical to growing jobs, communities, and the economy.
With capital options limited, small businesses, startups, and entrepreneurs are turning toward the United States Small Business Administration (SBA) to help finance their dreams. The SBA offers a number of financing programs designed to offer creditworthy businesses the ability to obtain capital.
7(a) Loan Program
SBA’s flagship program is the 7(a) Loan Program, which provides creditworthy small firms that cannot obtain credit elsewhere the opportunity to access capital from private lenders. SBA does not offer direct lending to small businesses; rather, SBA guarantees the repayment of loans issued by lenders for general business purposes.
CDC/504 Loan Program
SBA’s second largest loan program is the CDC/504 Loan Program, which provides long-term and fixed-rate financing provided by a combination of private and government guarantee support to assist with the acquisition of major fixed assets, such as real estate or machinery or equipment purchases that expand or update small businesses. To be eligible for the loan program, a project must meet an SBA job creation or job retention requirement or meet specific community development or public policy goals.
To bridge the gap for small dollar borrowers, the SBA offers the Microloan Program, which works with nonprofit lending intermediaries to make small dollar loans of $50,000 or less.
Small Business Investment Company (SBIC) Program
To increase the amount of private equity flowing to small businesses, the SBA offers the SBIC program, where private equity capital is utilized to invest in small businesses.