Small Business Administration

Well, it doesn’t work that way.

While the Small Business Administration does help by guaranteeing loans, it’s set up to provide more informational assistance than loans or outright grants, especially to startups or lone entrepreneurs. Having a great idea for a business simply isn’t enough to qualify.

Myth: The SBA Has Tons Of Free Money

The Small Business Administration doesn’t give away anything for free. "Free” money just doesn’t exist. Government grants do, but have clearly definite limitations, restrictions and expectations about what the SBA expects an organization to do with the money once it receives it. Generally, the majority of grants are awarded to nonprofit groups, not individuals.

Myth: The Small Business Administration Makes Loans

At one time there was a Direct Loan Program where qualified applicants whose commercial loan applications had been rejected by three lenders were given loans directly by the SBA. So too, veterans and the physically challenged. Not anymore. The direct Loan Program has been phased out. What the SBA does is guarantee loans made by qualified lenders against default. This amount varies between 50 and 90 percent of the loan depending upon the specific loan program.

Myth: SBA Loan Programs Target Startups

No way. In fact, just the opposite is true. The Small Business Administration has strict requirements for its loan programs. Every applicant has to have a business plan, a direct management role in the business, very good credit and collateral. More importantly, they have to demonstrate an ability to repay the loan. While the Small Business Administration guarantees loans, it’s not in the business of assigning loans to high risk individuals who may default. Loan applications are submitted by commercial lending institutions to the SBA, and lenders never submit any loan they consider to be high risk. Startups are considered to be high risk, especially if the applicant has limited funds to invest or no collateral to offer. Startup capitalization is limited to personal resources, family, friends, partners or venture capitalists. Loans submitted by banks to the SBA do have some degree of risk, but the individual loan officer decides what is acceptable or not.

Myth: SBA Policies Are Carved In Stone

Hardly. The SBA is under constant scrutiny mostly because it’s such a huge organization with an extensive budget. Budget cuts are the norm, especially with President Bush’s administration keenly interested in trimming the federal budget. Programs that no longer make the grade are given the ax. Business Information Centers are just one example.

Myth: Assistance Programs Are Hard To Find

The SBA subsidizes major assistance programs such as Small Business Development Centers and SCORE whose mission is to provide direct or indirect assistance through education, mentoring and workshops to anyone who asks.

Myth: Too Much Bureaucratic Red Tape

It has in the past, but the situation is improving. Any loan, no matter how small, does have a huge amount of paperwork to complete and business owners or entrepreneurs have plenty of hoops to jump through. Today there is some relief with programs such as the Small Business Administration’s LowDoc Program for loans under $100,000, where applications are limited to a single page and you get an yay or nay answer within 48 hours.

Where To Go For More Information

The Small Business Administration Web site is huge. The first step in determining what program assistance and loans you may qualify for, involves an exploration of the site. If you lack a personal computer, check into your city library or call your local SBA office for the location of a Small Business Development Center near you that can grant you access to a PC.