Small Business Administration
Small Business Administration
The Small Business Administration (SBA), which was created in 1953, is an independent federal agency charged with aiding, counseling, and protecting the interests of American small businesses. The agency maintains a wide range of programs designed to address various aspects of this mandate. These programs, each of which seeks to assist small business owners in one or more areas of their enterprise, are maintained in the following areas: lending and investment; surety bonds; international expansion and development; disaster assistance; federal procurement contracts; minority small business assistance; veterans' assistance; research and development; business and training; and business information and counseling. The SBA also serves as an advocate for American small businesses in government.
STRUCTURE OF THE SBA
Most SBA programs and services are implemented through Small Business Administration district offices. District offices are maintained in all 50 states, as well as Washington, D.C., and Puerto Rico (some larger states, such as California, New York, and Texas, have as many as half a dozen offices). Personnel in these offices work directly with small business owners and various cooperating institutions to implement SBA programs.
These field offices report to regional offices of the SBA. In addition to their supervisory responsibilities, the regional headquarters are charged with educating small business owners, lending institutions, and others on issues that affect them; fostering regional economic development; and providing the Office of Field Operations (OFO) with information on SBA programs and small business developments at the district level. OFO is responsible for all aspects of the SBA's field operations, including communications, policy formation, and general performance. It reports directly to the SBA's chief administrator.
Collateral offices maintained by the Small Business Administration include administration; comptroller; personnel; external affairs; marketing and customer service; public communications, congressional and legislative affairs; Hearings and Appeals; Inspector General; Office of Information Resources Management (OIRM); Equal Employment Opportunity and Civil Rights Compliance; and Office of General Counsel.
Finally, the SBA maintains several departments devoted to providing advocacy services on behalf of American small business owners. The Office of Interagency Affairs oversees enforcement of the Regulatory Flexibility Act, analyzes small business issues, develops governmental policy options, and prepares testimony for use before various legislative and regulatory bodies. The Office of Economic Research oversees the SBA's research contracting program, and compiles and interprets various economic data on small businesses. The Office of Information publishes books and economic reports on small business issues, and serves as a distributor of advocacy publications and other materials. Finally, the Office of Advocacy attempts to evaluate the effect of proposed legislation and other policy issues on small businesses. The chief counsel for advocacy acts as the primary spokesperson for America's small business community and represents its views before Congress, local governments, and other agencies. The Office of Advocacy also utilizes regional advocates who work directly with local communities and small businesses, gathering information on policies and regulations that are helping and hurting small businesses and the communities in which they operate.
SMALL BUSINESS ADMINISTRATION PROGRAMS
The SBA provides a number of lending options to small business owners. The best known of these is the 7(a) Loan Guaranty, but there are many others that are widely used as well. In all of these cases, the loan is actually delivered through commercial lending institutions and other intermediaries. The SBA helps secure the loans, though, by consenting to cover the cost of the loan should the borrower be unable to pay. Lending institutions value this added protection very highly.
The 7(a) Loan Guaranty Program, which was authorized by the passage of the Small Business Act, is primarily designed to address the long-term funding needs of small businesses by guaranteeing loans to qualified enterprises. These loans can be used for all sorts of purposes, including inventory, working capital, equipment, and real estate. Maturities are up to 10 years for working capital and up to 25 years for fixed assets. The SBA can guarantee 80 percent of loans of $100,000 or less, and 75 percent of loans between $100,000 and $750,000. There are several other loan programs available through the 7(a) Loan Guaranty plan as well.
The Low Documentation Loan (LowDoc) program is a streamlined version of the 7(a) loan for businesses seeking less than $150,000. Limited to applicants with a strong credit history, LowDoc loans can be secured with a one-page application (in cases where the loan request is for $50,000 or less). The SBA has made a strong effort to improve response time under this plan, in large measure because it had long been criticized for the bureaucratic red tape associated with even the smallest of its loan programs.
The CAPLines program is an option designed to meet the short-term and cyclical working capital needs of small businesses. There are several different loan options available under this program, which replaced the SBA's earlier GreenLine program. Loans under CAPLines are generally limited to $750,000.
The SBAExpress program is shaped to increase the capital available to small businesses seeking loans up to $150,000; it is currently offered as a pilot program, with a limited number of participating lenders.
SBA MicroLoans, meanwhile, are short-term loans of up to $25,000. Disseminated through non-profit groups, MicroLoans are intended for the purchase of machinery and other equipment, office furniture, inventory, supplies, and working capital.
The SBA also offers several targeted lending programs for small businesses. These include the Defense Loan and Technical Assistance (DELTA) program, which provides financial assistance to defense-dependent small businesses impacted by defense cuts (maximum loan amounts under the DELTA plan through the 7(a) Program is $1.25 million, usable for working capital, acquisition of assets, raw materials or inventory, capital improvements, or refinancing of current debt); prequalification pilot loan programs for women and minorities; the Export Working Capital Program (EWCP), which guarantees loans for qualified small businesses engaged in export transactions; the International Trade Loan (ITL), which provides long-term financing assistance to small businesses engaged in international trade and/or hurt by imports; and the Pollution Control Program, which gives loan guarantees to eligible small businesses proposing to design and install pollution control facilities.
The SBA also maintains a loan program known as the 504 CDC (Certified Development Companies), which makes available up to $1 million to qualified applicants. Under this system, long-term, fixed-rate financing is made available to small businesses interested in expanding or modernizing their operations through the purchase of new machinery, equipment, and/ or real estate. DELTA loans are available through this program as well.
Another SBA loan program is the U.S. Community Adjustment and Investment Program (CAIP), created to help communities that suffered economic and workforce losses due to changing trade patterns following implementation of the North American Free Trade Agreement (NAFTA). According to the SBA, this program utilizes both the SBA 7(a) Program and the SBA 504 Program to "promote economic implementation of the adjustment [to NAFTA] by increasing the availability and flow of credit and [encourage] business development and expansion in impacted areas. Through the CAIP, credit is available to businesses in eligible communities to create new, sustainable jobs or to preserve existing jobs." Small companies interested in pursuing CAIP assistance should contact their local CDC for more information.
The Small Business Administration relies on lending institutions and other intermediaries (such as non-profit organizations, in the case of MicroLoans). But the SBA is careful about the banks and savings and loans companies with which it does business. The most reliable of these lending institutions are eventually designated as "preferred lenders." This status gives them increased powers of loan approval and processing (although the SBA still conducts a final review of loan applications). To become a preferred lender, an institution needs to have established a reputation for solid community lending (to small businesses and minority- and women-owned firms) and a strong history of being repaid by loan applicants.
The SBA also maintains investment programs for small businesses. The Main Street Investment Program, for example, is described by the SBA as "a public/private partnership between the SBA and state governments to make capital more available to lenders who, in turn, make loans to small businesses. Participating states invest tax revenues in community banks that agree to make LowDoc loans." Small Business Investment Companies (SBICs), meanwhile, are SBA-licensed investment firms who—armed with U.S. government-guaranteed debentures or participating securities—make investments and loans to small businesses. Indeed, SBICs exist for the express purpose of funding start-up companies. They operate under extremely stringent guidelines, however, and turn down many applicants. Similar to SBICs are Minority Enterprise Small Business Investment Companies (MESBICs), which provide funding to businesses owned or operated by minorities.
In recognition of the fact that contractors to construction projects must post surety bonds on federal construction projects valued at $25,000 or more, the SBA established a program wherein they guarantee bid, performance, and payment bonds for contracts up to $1.25 million for eligible small firms unable to secure surety bonds through commercial lenders. Under this program, bonds may be obtained either via prior approval, in which contractors apply through a surety bonding agent; or preferred sureties, authorized by the SBA to issue, monitor, and service bonds without prior SBA approval.
The SBA's International Trade Loan Program is designed for small companies engaged or preparing to engage in international commerce. Under this program, the SBA guarantees up to $1.25 million for a combination of fixed asset financing and Export Working Capital Program (EWCP) assistance. The fixed-asset portion of the loan may not exceed $1 million, while the EWCP segment may not exceed $750,000. According to the SBA, the small business applicant must do the following in order to qualify: "establish that the loan will significantly expand or develop an export market, is currently adversely affected by import competition, will upgrade equipment or facilities to improve competitive position, or must be able to provide a business plan that reasonably projects export sales sufficient to cover the loan."
In addition to maintaining loan programs for small businesses engaged in international commerce, the Small Business Administration provides a number of other services to these enterprises. The Export Legal Assistance Network (ELAN), for instance, is the product of an agreement between the SBA, the Federal Bar Association, and the U.S. Department of Commerce. Under this program, trade attorneys provide free legal consultations to small business exporters.
The SBA also operates information centers called U.S. Export Assistance Centers (USEACs). As with ELAN, the USEACs are the product of an alliance between the SBA and other organizations (in USEACs' case, the Department of Commerce and the Export-Import Bank). These centers are designed to disseminate trade promotion and export financing information to small businesses engaged in international trade. In addition, the SBA maintains a computer database known as the Small Business Automated Trade Locator Assistance System (SBAtlas), which includes market data of interest to exporters.
The SBA makes available Physical Disaster Business Loans to businesses of any size that need to repair or replace business property to "pre-disaster" conditions. These loans, which can be used for equipment, fixtures, and inventory, are limited to $1.5 million and are not available to businesses who were insured for their losses. Economic Injury Disaster Loans (EIDLs), meanwhile, are targeted at businesses that have "sustained economic injury as a direct result of a disaster," said the SBA. "These working capital loans are made to help businesses pay ordinary and necessary operating expenses which would have been payable barring disaster." The maximum amount of an EIDL loan is $1.5 million, but small business experts note that businesses can receive no more than $1.5 million in combined EIDL and physical disaster business loans. An exception to this stipulation is made, however, for those places of business that qualify as major sources of employment. Under the SBA's Major Source of Employment (MSE) program, the $1.5 million loan limit is waived for those businesses that employ 250 or more people in an affected area.
The Small Business Administration maintains several programs designed to help small businesses secure government contracts. These include:
- Breakout Procurement Program—promotes the breakout of historically sole-source contracts for open competition with the aim of aiding small businesses and effecting government savings.
- Prime Contracting Program—designed to help small businesses interested in securing federal contracts; services include support for small business set-asides, counseling, identification of new small business sources, and "assessment of compliance with the Small Business Act through surveillance reviews."
- Subcontracting Program—designed to aid small businesses in their efforts to secure federal contracts as suppliers and subcontractors.
- Certificates of Competency—appeal process that can be used by small businesses that have been denied government contracts because of alleged lack of ability to fulfill job requirements.
The most recent program in this area introduced by the SBA is the HUBzone Empowerment Contracting Program. This initiative, unveiled in 1997, provides federal contracting opportunities for qualified small businesses located in economically distressed areas.
The SBA has several programs intended to provide support to small businesses owned and operated by minorities. Programs maintained by the SBA's Minority Enterprise Development office include 8(a) Small Disadvantaged Business Development, which arranges federal procurement opportunities for minority-and disadvantaged-owned firms, and initiatives which provide management and technical assistance to those firms. The SBA also operates an Office of Native American Affairs (ONAA), which works to provide Native American communities with business development and job creation opportunities.
Business Training and Counseling
SBA-sponsored training and counseling services are available through the following programs:
- Small Business Development Centers—provides management and technical assistance to both current and prospective small business owners through an alliance of educators, the private sector, and federal, state, and local governments. All areas of business are covered, from market research and accounting systems to inventory control and cost-benefit analysis.
- Business Information Centers (BICs)—specializes in providing technology information to small businesses. Subjects covered include advances in telecommunications, software, and computers.
- Service Corps of Retired Executives (SCORE)—matches retired business executives with small businesses seeking advice on business issues. SCORE includes more than 12,300 members in hundreds of chapters around the country.
Women's Business Ownership
SBA programs specifically directed at women small business owners include the Women's Demonstration Program, which provides women with training and advice on all aspects of business ownership and management, and the Women's Network for Entrepreneurial Training (WNET), wherein established women business owners serve as mentors to other women entrepreneurs.
The SBA maintains several programs intended to provide information and training to veterans. These include the VET (Veterans' Entrepreneurial Training) Program, the Transition Assistance Program (TAP), and "business opportunity conferences," which helps veteran-owned companies previously reliant on the defense industry to secure other clients.
Research and Development
The two principal programs administered by the SBA in this area are the Small Business Innovation Research (SBIR) Program and the Small Business Technology Transfer (STTR) Program. STTR is a program that seeks to form research and development partnerships between small firms and nonprofit research institutions. It provides up to $100,000 to companies for the first phase of research, though there are stipulations attached to that figure. SBIR, meanwhile, provides financial rewards to small businesses who propose innovative ideas to problems faced by participating federal agencies. Initially established in the early 1980s, as a result of the 1982 Small Business Innovation Development Act, SBIR has been warmly received by many small companies with expertise in science and high-technology areas.
One-Stop Capital Shop (OSCS)
The SBA expects to contribute to the Empowerment Zone/Enterprise Communities Program initiative headed by the Department of Housing and Urban Development and the Department of Agriculture through its "One-Stop Capital Shops." These centers, located in federally designated empowerment zones and enterprise communities, are expected to be headed up by local nonprofit organizations, but they are intended to include access to complete information on various SBA programs and offerings. "A One Stop Capital Shop is a partnership between SBA and a local community designed to offer small business assistance from an easy to access, retail location, all under one roof," explained the SBA. "Small business clients require a wide range of assistance, from the simple: accessing the Internet or gathering basic information on writing a business plan, to the complex: learning how to compete for a federal contract or applying for a city permit. Whether a small business needs information or has to complete a transaction, requires training or counseling, is applying for a loan or seeking a government contract, a One Stop Capital Shop is designed to make all those services available in one location…. No other SBA program or federal agency plays a more prominent role in generating economic revitalization in distressed communities than the One Stop Capital Shop Initiative."
Business Information Services
A comprehensive range of business development booklets is published by and made available from the SBA. A diverse range of topics are covered in these brochures; sample titles include Strategic Planning for Growing Businesses, Budgeting in a Small Service Firm, Inventory Management, and Evaluating Franchise Opportunities. SBA also maintains SBA Online, a computer-based electronic bulletin board of small business information, and a toll-free answer desk for small business owners with questions about aspects of their operation. The answer desk is open 24 hours a day, seven days a week, but counselors are only available Monday through Friday, 9 a.m. to 5 p.m. Eastern Time. The toll-free number is (800) 8-ASK-SBA. Finally, the Small Business Administration maintains a page on the World Wide Web at http://www.sba.gov.
see also 8(a) Program; Service Corp of Retired Executives (SCORE); Small Business Development Centers (SBDC); Small Business Innovation Research (SBIR); Small Business Technology Transfer (STTR)
Barlas, Stephen. "Looking Ahead: Three SBA Programs Face Closer Scrutiny." Entrepreneur. January 1997.
Emerich, Amy., ed. Small Business Sourcebook. Gale Group, 1996.
Murphy, Richard McGill. "Now is the Time to Tear Down the SBA." FSB. June 2006.
U.S. Small Business Administration. SBA Profile: Who We Are and What We Do. 2000.
Hillstrom, Northern Lights
updated by Magee, ECDI
Small Business Investment Companies (SBIC)
Small Business Investment Companies (SBIC)
The Small Business Investment Company (SBIC) program was created in 1958 with the passage of the Small Business Investment Act of 1958. Licensed by the Small Business Administration (SBA), SBICs are privately organized and privately managed investment firms that provide venture capital to small independent businesses. These loans, which are available both to new and established businesses, consist of funds borrowed (at favorable rates) from the U.S. government or from the lending institutions' own capital stock. In essence, an SBIC uses its own capital, combined with funds borrowed from investors and supported by an SBA guarantee, to make investments in qualifying small businesses. The SBIC program is designed to assure that there are institutions within the marketplace able and willing to facilitate the capital needs of a vibrant small business community.
Two different kinds of Small Business Investment Companies operate in the United States. In addition to regular SBICs, investment firms known as Specialized Small Business Investment Companies (SSBICs) also exist; this latter type of firm emphasizes service to entrepreneurs who "have been denied the opportunity to own and operate a business because of social or economic disadvantage," according to the SBA. Formerly known as Minority Enterprise Small Business Investment Companies (MESBICs), SSBICs are now officially called Section 301(d) SBICs. However, since the differences between SSBICs and regular SBICs are minor they are generally lumped together under the SBIC heading.
THE SBIC ORGANIZATION
Ownership of SBICs generally takes two different forms. The majority of SBICs are relatively small, privately owned and operated firms, but many others are firms owned by commercial banks or insurance companies. For banks, establishment of an SBIC subsidiary is often an attractive proposition, because it enables them to make small business investments that would otherwise be closed to them because of U.S. banking laws and requirements. United States law places few restrictions on SBIC ownership. As the SBA itself said, "almost any person or organization with a minimum initial private capitalization of $5 million and an SBA-approved full time manager who will be in charge of the licensee's operations and who is able to serve the licensee's small business concerns, may be approved for ownership." Indeed, the SBA's interest in encouraging SBICs is evident in the relatively hands-off regulatory environment that they have established for such enterprises. Those regulations that the SBA does enforce are concerned with ensuring the continued financial and ethical health of the SBIC program.
SBICs, then, range from limited partnerships to subsidiaries of multinational corporations. Whatever their ownership situation, however, their ultimate goal is to realize a profit from their various business transactions. Some SBICs make most of their revenue from straight debt financing, with their profit coming from the differential between the cost of borrowing from the SBA and the interest rate they charge the small business bar-rower. Other SBICs take a more aggressive tack in seeking profits by making equity-participation loans.
According to the SBA, prospective SBICs (and SSBICs) must have a minimum private capital investment of $5 million to form (the minimum requirement for those firms wishing to utilize participating securities is $10 million). The amount of private capital that an SBIC has at its disposal is important, for the SBA limits its loan guarantees to SBICs to 300 percent of its private capital. The SBA notes, however, that an SBIC "with at least 50 percent of its 'total funds available for investment' invested or committed in 'venture capital' may receive an additional tier of leverage per dollar of private capital for total leverage of 400 percent of private capital. However, in no event may any SBIC or SSBIC draw down leverage in excess of $90 million." An SBIC that engages in leveraging is in essence borrowing additional investment funds from the U.S. Treasury. Only those SBICs that have invested the bulk of its initial private capital and are in full compliance with state and federal regulations are eligible to do this.
Small Business Investment Companies have several different options to choose from in providing financing to small businesses. Most SBICs provide long-term loans to qualified small businesses that need funding for needs that range from expansion of existing facilities to modernization of operations. Sometimes this loan will take the form of equity or debt securities.
OPERATING RESTRICTIONS FOR SBICS
While the SBA provides SBICs with considerable freedom to operate, they do require that these organizations adhere to certain rules. For example, SBICs are not permitted to invest in the following entities: companies with less than one-half of their assets and operations in the United States; unimproved real estate; finance and investment companies; or companies seeking to purchase or improve farmland, cemeteries, or certain other stipulated types of real estate (exceptions are made for sub-dividers and developers, title abstract companies, and real estate agents and brokers. Small Business Investment Companies also are forbidden from investing in other SBICs, or in business enterprises that do not fit federal definitions of a "small business."
The SBA also has established regulations in the following areas:
- Conflict of Interest—SBICs are not allowed to make business transactions with any of its associates, which are defined as officers, directors, employees, key "control persons," and certain shareholders.
- Control—the SBA has stipulated that no SBIC may exercise either direct or indirect control over the operations of any small business on a permanent basis. The SBA has, under some circumstances, permitted SBICs to assume temporary control of a business enterprise in order to protect its investment. Before doing so, however, the SBIC and the small business must submit a plan of divestiture for SBA approval.
- Overline Limitations—The SBA has established investment ceilings for both SBICs and SSBICs in their dealings with individual small businesses. SBICs are not allowed to invest more than 20 percent of its private capital with any one small business, while the limit for SSBICs is 30 percent. The SBA does, however, occasionally grant waivers to this rule.
- Cost of Money—The SBA regulates the cost of money on SBIC loans and debt securities issued by SBIC clients.
- Financing Proceeds—The SBA has established regulations designed to ensure that investment funds that are used to purchase securities go directly to the small business that has offered those securities.
- Length of Financing Agreements—SBA rules stipulate (in most cases) that SBIC loan agreements with small business enterprises be made for at least five years, and that the small business taking the loan be given adequate opportunity to fulfill its obligations ahead of schedule if it is able to do so. According to the SBA, loan and debt securities of less than five years' duration are permissible only on those occasions when they are necessary to protect existing financing agreements, are made in contemplation of long-term financing, or are made to finance a change in ownership.
BORROWING FROM AN SBIC
"As is true with venture capitalists in general, SBICs have divergent philosophies and operating policies," wrote Art DeThomas in Financing Your Small Business. "Some specialize in equity financing while others provide debt financing in several different forms. This latter group of SBICs is the richest source of debt financing for small businesses outside commercial banks." Small business owners, however, need to weigh several factors before making a loan arrangement with an SBIC.
Entrepreneurs and small business owners seeking financing from SBICs first need to determine how many options they have. Regional SBA offices maintain information on SBICs that operate in their areas, and while they do not provide guidance in directing businesses to particular SBICs, they can give information on the industries and types of investments in which area SBICs have historically shown interest. In addition, a free directory of SBICs is available through the National Association of SBICs.
As many experts note, small businesses should narrow their search for a suitable SBIC by eliminating those that do not provide the business's desired financing route or display adequate management experience in the industry in which the business is involved. Analysts also caution small business owners not to rush through the decision making process. Given the latitude that SBICs have in shaping their loan policies, individual SBICs often maintain dramatically varied lending policies. Entrepreneurs and small business owners should take the time to find the program that best meets their needs.
Business consultants also encourage prospective borrowers to negotiate the best possible loan agreement for themselves when talking with SBICs. "Aside from the specifics of SBIC lending that are mandated by existing law or regulation," noted DeThomas, "particulars such as interest rate, maturity, equity participation, and collateral requirements can be negotiated. In general, the more attractive your firm as a financing opportunity—that is, the stronger the business plan—the more negotiating leverage you possess."
DeThomas, Art. Financing Your Small Business: Techniques for Planning, Acquiring & Managing Debt. Oasis Press, 1992.
"Senators Propose New SBA Program: Under the bill, the SBA would get a bigger chunk of an SBIC's profits. Private Equity Week. 7 November 2005.
U.S. Small Business Administration. SBA Profile: Who We Are and What We Do. 1996.
U.S. Small Business Administration. Small Business Innovation Companies Program. Available from http://www.sba.gov/INV/forentre.html. Retrieved on 5 June 2006.
Hillstrom, Northern Lights
updated by Magee, ECDI
Small Business Job Protection Act
Small Business Job Protection Act
The Small Business Job Protection Act (SBJPA), signed into law in 1996, contains a number of provisions that impact various aspects of small business operations, from retirement plans to changes in S Corporation structures. The small business community greeted many of the changes contained in SBJPA with considerable enthusiasm, since it was widely interpreted as an act that eliminated a number of unnecessarily burdensome provisions. The act touched on a wide variety of areas relevant to small businesses, especially in the area of pensions. Changes made by the law can be found in such areas as the definition of highly compensated employees, deferred compensation arrangements, family aggregation rules, minimum pension participation rules, "safe harbor" rules for qualified cash or deferred arrangements (CODAs), notice requirements, limits on matching contributions, distributions of excess contributions, elective deferrals that may be included as compensation, early participation nondiscrimination rules, plan distributions and QJSA waivers, employee leasing provisions, and modification of GATT interest and mortality rate rules. Small business consultants strongly advise business owners who wish to take full advantage of the myriad changes included within SBJPA to consult with a tax advisor or other accounting professional.
IMPACT ON SUBCHAPTER S CORPORATIONS
Some observers estimate that the Small Business Job Protection Act has directly impacted as many as two million small businesses currently structured as Subchapter S Corporations. For instance, the law allows S Corporations to increase its shareholders from 35 to 75, giving businesses heightened capacity to attract additional investors and capital. Another change that benefited small business owners concerned an expansion in the kinds of organizations that can be shareholders. Under the SBJPA, qualified pension plans became eligible to be shareholders in S Corporations after January 1998. Since many pension plans are willing to invest in promising young businesses, S Corporation owners have been able to turn to these entities as a source of significant capital.
The Small Business Job Protection Act also provided S Corporation owners with greater flexibility in structuring their businesses. Prior to the passage of the SBJPA, S corporations could not own more than 79 percent of another company, but with the new law, they may now own 100 percent of affiliated companies. Finally, business experts note that the SBJPA expands the number of allowable beneficiaries when an S Corporation puts together a small business trust.
CHANGES TO RETIREMENT PLANS
The SBJPA established a simplified retirement plan for small businesses that is known as the A SIMPLE retirement plan. Under these plans, which are designed for employers with 100 or fewer employees who do not maintain another employer-sponsored plan, employers and employees work together to help ensure that workers have adequate financial security when they reach retirement age. Under the law, employees may make elective pre-tax contributions of up to $6,000 annually, a total that has moved up at regular intervals to adjust for cost of living increases and in 2005 was set by the Internal Revenue Service (IRS) at $10,000. The employer is required to make matching contributions and do so every year. The SBJPA also requires that businesses contribute at least 1 percent of all employees' compensation or be subject to significant penalties.
The law also impacts other elements of pension plans. For example, for the years 1997, 1998, and 1999, the 15 percent excise tax on excess distributions from pension plans was suspended. Moreover, the act introduced safe-harbor formulas for 401(k) salary deferral and matching contributions that eliminated requirements that employers conduct annual nondiscrimination testing. "Under the 1996 act, small employers can adopt matching 401(k) plans without concern about whether non-HCEs [highly compensated employees] elect to participate," wrote Michael Collins and Charles Sherman Jr. in Journal of Accountancy. "Depending on how attractive non-HCEs find the safe-harbor matching formula, the use of the safe harbors may reduce substantially the employer contributions businesses must make on behalf of these employees…. The safe-harbor formulas provide a way for employers to avoid nondiscrimination testing by adopting a plan with a relatively generous employer match—one that includes a contribution of at least 4 percent of pay on behalf of all eligible employees (depending on employee contributions). Safe-harbor matching contributions must be 100 percent vested at all times. Such contributions generally may not be distributed to employees until the earlier of when they terminate employment or reach age 59 1/2." In addition, under the SBJPA, distributions from a qualified plan must begin by April of the calendar year following the later of: 1) the calendar year in which the employee reaches 70 1/2 years of age, or 2) the calendar year in which the worker retires.
Day, Sally E. "ESBTs [electing small business trusts]: Perhaps More Advantages than Disadvantages." The Tax Adviser. September 2005.
Mulleneaux, Natasha M. "Retirement Plan Reform: The Aftermath of the Small Business Job Protection Act of 1996." Taxes: The Tax Magazine. August 1997.
Schneider, Mark N., and Marilyn C. Doolittle. "Small Business Job Protection Act Adds Simplicity (and Complexity)." The Tax Advisor. June 1997.
Sharp, Joel, Jr., and Hewitt D. Shaw Jr. "Subchapter S Reform: The Small Business Job Protection Act of 1996." Journal of Corporate Taxation. Spring 1997.
Sherman, Jr., Charles W., and Michael J. Collins. "The Safe-Harbor Solution." Journal of Accountancy. July 1999.
U.S. Department of Labor. Employment and Training Administration. Wyrsch, Mary Anne. "The Small Business Job Protection Act of 1996 and the Health Coverage Availability and Affordability Act of 1996." Available from http://workforcesecurity.doleta.gov/dmstree/uipl/uipl96/uipl_3696.htm. Retrieived on 5 June 2006.
Hillstrom, Northern Lights
updated by Magee, ECDI
Small Business Technology Transfer (STTR) Program
Small Business Technology Transfer (STTR) Program
The Small Business Technology Transfer (STTR) Program is an initiative, coordinated and overseen by the Small Business Administration (SBA), to provide small businesses with greater access to funding in the federal innovation research and development arena. "Central to the program," notes the SBA, "is expansion of the public-private sector partnership to include the joint venture opportunities for small business and the nation's premier nonprofit research institutions. STTR's most important role is to foster the innovation necessary to meet the nation's scientific and technological challenges in the 21st century."
STTR is a parallel program to the Small Business Innovation Research (SBIR) Program, and was created by Congress when it reauthorized SBIR in 1992. The STTR program is a cooperative research partnership between small business concerns and research institutions. It differs from SBIR in two ways. First, it places a greater emphasis on the potential for commercial success. This has spurred participating agencies to be more stringent in their evaluations of applicants. Secondly, it requires that universities, federal laboratories, or nonprofit research centers team with businesses to get product into the marketplace. These research partnerships between small businesses and nonprofit institutions enable participants to combine entrepreneurial initiative and creativity with the expertise, equipment, and other assets of nonprofit research laboratories.
The SBA summarizes the program's development and rapid growth this way. "The STTR Pilot program began making awards in FY 1994. In that year, 198 awards were issued for approximately $19 million to small high technology businesses that collaborated with nonprofit research institutions to undertake R & D projects. In FY 2004, Federal participating agencies awarded 614 Phase I awards and 195 Phase II awards totaling just over $198 million dollars."
In order to be considered for the STTR program, interested small businesses must meet several criteria. For instance, they must be American-owned and independently operated for-profit enterprises. In addition, the size of the company may not exceed 500 employees. There is no workforce size limit for participating nonprofit research institutions, but they must also meet certain parameters of the program. They must be principally located in the United States, and they must meet one of the following three definitions: nonprofit college or university, domestic nonprofit research organization, or federally funded research and development center.
Five federal departments and agencies—the departments of Defense, Energy, and Health and Human Services, along with the National Science Foundation and the National Aeronautics and Space Administration—are required by STTR rules to reserve a portion of their research and development funds for the program. As the distributors of STTR funding, they also designate those subjects suitable for additional R&D and determine whether to accept or reject STTR proposals.
These agencies make STTR awards based on the following factors: qualifications of the nonprofit research institution and its small business partner; degree of innovation; and future market potential. Small businesses that secure STTR funding are then routed through a three-phase program.
Phase One: Startup. In this initial stage, awards of up to $100,000 are given to pay for approximately one year's worth of study and research into the scientific, technical, and commercial feasibility of an idea or technology.
Phase Two: Development. These awards, available to Phase One participants, reach up to $500,000 for two years. During this period, business/research partnerships engage in research and development work with an eye toward commercial potential.
Phase Three: Introduction to Market. During this phase, the completed project is introduced into the commercial marketplace to succeed or fail. No STTR funds support this phase. Instead, participants must secure funding from private parties or other federal agencies that do not allocate STTR monies.
For more information on the STTR program, contact the Small Business Administration's Office of Technology in Washington, DC, or visit the SBA's Web site at www.sba.gov.
see also Innovation; Research and Development; Small Business Administration
U.S. Small Business Administration. Office of Technology. "What We Do." Available from http://www.sba.gov/sbir/indexwhatwedo.html. Retrieved on 2 June 2006.
Hillstrom, Northern Lights
updated by Magee, ECDI
Small Business Innovation Research (SBIR) Program
Small Business Innovation Research (SBIR) Program
The Small Business Innovation Research Program (SBIR) is the federal government's most important research and development funding program for small businesses. It was established by the passage of the Small Business Innovation Development Act of 1982. SBIR, at the time of its passage, required by law that any federal government agency with an extramural research and development budget of more than $100 million set aside 1.25 percent of those funds for the development of high tech small businesses. When the original law expired after ten years, Congress reauthorized SBIR and increased the agencies' contributions to 2.5 percent in 1992. By the latter part of the 1990s, total SBIR funding had reached some $1.2 billion. In December 2000 the program was reauthorized—with $1.5 billion in annual funding—for another seven years.
The Small Business Administration (SBA) serves as the coordinating agency for the SBIR program. It directs implementation of the program among participating agencies, reviews their progress, and reports annually to Congress on the status of the program. The SBA is also the information link to the program, collecting solicitation information from participating agencies and publishing it in quarterly Pre-Solicitation Announcements (PSA). These announcements are the single source for the topics and anticipated release and closing dates for each federal agency's solicitations.
By 2006, 11 federal agencies were participating in SBIR, bestowing research and development funds to small businesses in an array of industries. Participating agencies include the Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, and Transportation, as well as the Environmental Protection Agency, the National Aeronautics and Space Administration and the National Science Foundation. According to Science magazine, 96 percent of the total SBIR budget from all agencies comes from the Departments of Defense and Energy, the National Institutes of Health, National Aeronautics and Space Administration, and the National Science Foundation.
These agencies set aside seed funds to help small businesses develop innovative high-tech ideas whose commercial appeal may by some time in coming. Each year the agencies release for consideration more than 3,000 technology topics under which businesses may apply. The topics speak to specific program problems or needs and may be found in the quarterly Pre-Solicitation Announcement (PSA), which is only provided online.
SBIR ELIGIBILITY AND FRAMEWORK
To be eligible for SBIR funding, a small business concern must be American-owned, independently operated, for-profit, and employ fewer than 500 people. Nonprofit organizations are not eligible for SBIR awards.
The SBIR program comprises three phases. This approach allows the government agency to invest a small amount in the beginning and then increase their financial support later should the idea show promise. Once the project nears completion, funding drops off and the business must solicit capital from other sources.
Phase One—The Concept Stage. In this stage, individual awards of up to $100,000 are distributed to enable businesses to conduct approximately 6 months of preliminary investigations into the feasibility of their proposed project. At this point, business owners must have a well-formed idea for an innovative product and a specific plan for how to transform it into a commercially viable form.
Phase Two—The Prototype Development Phase. This phase, for which only Phase One entrepreneurs are eligible, provides additional monies (up to $750,000 over 24 months) to be used toward developing a prototype. From here, determinations are made about whether the product is a success or a failure and whether or not it is commercially viable. About 40 percent of Phase One ideas reach this second stage.
Phase Three—The Commercialization Stage. In this stage, states the SBA, "Phase Two innovation moves from the laboratory into the marketplace." No SBIR funds are used in this stage. Instead, funding must be secured from the private sector or other non-SBIR federal agency funding.
For more information on the SBIR program, contact the Small Business Administration's Office of Technology at 409 Third Street SW, Washington, DC 20416, (202) 205-6450. The SBA's Web site with information about the SBIR program is http://www.sba.gov/sbir/indexsbir-sttr.html.
Barlas, Stephen. "Teaming Up: Universities and Businesses Come Together in a Pilot Program to Fund Innovation." Entrepreneur. August 1996.
Giannone, Michael A. "A Wealth of New Ideas." Environmental Technology. November-December 1999.
Gillis, Tom S. Guts & Borrowed Money: Straight Talk for Starting & Growing Your Small Business. Bard Press, 1997.
"SBIR project to develop novel electrode fabrication methods for thermal batteries." Advanced Manufacturing Technology. 15 January 2006.
U.S. Small Business Administration. "Technology SBRI/STTR." Available from http://www.sba.gov/sbir/indexsbir-sttr.html. Retrieved on 5 June 2006.
Wallsten, Scott J. "The Effects of Government-Industry R&D Programs on Private R&D: The Case of the Small Business Innovation Research Program." RAND Journal of Economics. Spring 2000.
Hillstrom, Northern Lights
updated by Magee, ECDI
Small Business Development Centers (SBDC)
Small Business Development Centers (SBDC)
One of many programs administered by the Small Business Administration (SBA), the Small Business Development Center (SBDC) program is intended to provide management assistance to both established and prospective small business owners. The SBA characterizes the program, which was established in 1976, as a "cooperative effort of the private sector, the educational community, and federal, state, and local governments. It enhances economic development by providing small businesses with management and technical assistance."
The SBA maintains small business development centers in all 50 states, as well as Puerto Rico, Guam, the U.S. Virgin Islands, and the District of Columbia. Many of these centers have satellite service locations as well. These satellite locations are housed primarily at colleges, universities, and community colleges, but they may also be found at vocational schools, chambers of commerce, and economic development corporations.
SBDCs are typically headed up by a director and include paid staff members, but the services of volunteers—qualified individuals from professional and trade associations, members of the legal, banking, and academic community, chambers of commerce representatives, and members of the Service Corps of Retired Executives—are integral to most SBDCs. In addition, SBDCs commonly compensate consultants, consulting engineers, and testing laboratories for services rendered on behalf of SBDC clients.
While Small Business Development Centers are administered by the SBA, that organization is prevented by law from providing more than 50 percent of the operating funds for each state SBDC. The centers turn to state legislatures, private sector foundations and grants, state and local chambers of commerce, economic development corporations, public and private universities, vocational and technical schools, and community colleges for the remainder of their operating funds. In recent years, non-SBA sponsors have accounted for more than 50 percent of their required matching share at a number of centers.
THE SBDC PROGRAM
According to the SBA, Small Business Development Centers are designed to deliver timely and accurate counseling, training, and technical assistance in all aspects of small business management, including financial management, marketing, production and operations, organization, engineering and technical issues, personnel management, and feasibility studies. Some centers also offer assistance in such areas as venture capital formation, rural development, exporting and importing, and procurement of funding (including Small Business Innovation and Research grants), depending on the needs of their business clients and the communities in which the centers operate.
SBDC assistance to small business owners takes many forms, from counseling on legal issues to seminars on business finance to aid in putting together a business plan. Many centers also maintain extensive business libraries that contain a great deal of information of value to entrepreneurs and small business owners.
Anyone interested in starting a small business or making improvements to an existing small business is free to make use of the SBDC program, provided that they do not have the financial resources to secure the services of a private consultant. Indeed, the SBDC centers regard their primary clientele to be businesspeople from disadvantaged socioeconomic backgrounds. The SBDC program also makes special efforts to provide assistance to women, the disabled, and military veterans. To locate the SBDC nearest you, call (800) 8-ASK-SBA or see the Small Business Administration Web site at www.sba.gov/sbdc/.
Lesonsky, Rieva. "The Long Road: Enlightening travels find SBDC funding reaching new lows, generous big guys and inspiring entrepreneurs." Entrepreneur. November 2005.
Tiffany, Laura. "Show Me the Way: SBDCs Put You on the Road to Success." Entrepreneur. July 1998.
U.S. Small Business Administration. SBA Profile: Who We Are and What We Do. 1996.
Hillstrom, Northern Lights
updated by Magee, ECDI
Small Business Act (1953)
Small Business Act (1953)
Ross Rosenfeld and Seth Rosenfeld
Passed in 1953, the Small Business Act (SBA) established the Small Business Administration to "encourage" and "develop" small business growth, and to aid minorities and other disadvantaged peoples in securing loans and learning management techniques. "The essence of the American economic system of private enterprise is free competition," the act reads, "Only through full and free competition can free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment be assured. The preservation and expansion of such competition is basic not only to economic well-being but to the security of this Nation."
Congress adopted the act during the Eisenhower Administration, a time of economic expansion. Millions of G.I.'s returning from the army in 1945 and 1946 injected a renewed workforce into the economy, and factory jobs filled up quickly. Factories were no longer producing for the war effort, and many of the returning G.I.'s, either unable or unwilling to find work in large industrial firms, sought out their own business ventures. With the help of families and personal loans, businesses such as camera stores, food services, and car dealerships sprang up across the country. Still, large firms had tremendous advantages over smaller start-ups, and Congress adopted the SBA to help even the playing field.
The act, a massive, verbose document, is at times very specific, and at other times is extremely vague. Currently, 99.7 percent of all employers could be considered small businesses under the SBA. The act sets the following guidelines for determining whether a business falls within its jurisdiction: manufacturing firms with more than 500 employees are small businesses, over 1,500 is not; retail firms with less than $3.5 million in annual sales are considered small businesses, more than $13.5 million are not; wholesale firms with under 500 employees or less are small businesses, over 500 employees are not; Service industries with less than $3.5 million earned are small businesses, more than $14.5 million are not; passenger transportation firms are small businesses with less than 1,500 employees and receipts total less than $3.5 million (except air travel). If a company's numbers fall within any of these prescribed ranges, the SBA can determine whether it merits assistance based on factors of competition and the disadvantages the company faces.
The act favors the disadvantaged, though it does not limit its assistance to members on the basis of race. By SBA standards, any individual unable to compete freely within the open market could be considered disadvantaged. The law views women, low-income individuals, and veterans to be disadvantaged and offers financial assistance for their business entities.
The law does not mention allotment standards. For the purposes of getting financial aid, the act suggests the SBA weigh the disadvantaged status of the applicant, along with the ability to find capital. How the SBA judges "need" can vary from person to person; if one lives in an economically disadvantaged urban area (a "hubzone"), chances of gaining an SBA-approved loan increase. Revitalizing downtrodden areas is one of the extended purposes of the Small Business Act.
The SBA does not make loans to individuals. Instead the SBA guarantees as much as 80 percent of the loan amount to an intermediary institution. With the significant risk reduction, the financial institution is more likely to grant the loan, typically running for six to ten years at about 2 percent below the market interest rate.
SBA guaranteed loans come in various forms. The "7a Loan Guaranty Program" insures 75 percent of loans up to $1 million. The one-page "Low-Doc Loan" can guarantee 80 percent of a loan up to $100,000. The "MicroLoan program" is for very small business owners, guaranteeing loans from under $100 to $25,000. The SBA can also guarantee performance contracts, enabling small business to competitively bid on larger projects. Lines of credit are available through the SBA as well.
Financing education is a big part of the SBA. Most small businesses do not have access to the same type of market research and strategists that are available to big business, and the SBA tries to counter this disadvantage by offering management counseling programs to small business owners. These programs teach buying, producing, and successful administrative methods. The Small Business Institute, founded in 1972, works with the small business community, the SBA, and about 500 colleges to offer training to small business owners and developers.
Many small business owners cannot afford to keep lawyers on their staff. Therefore the SBA works as a legal and political advocate as well. The SBA acts as a spokesperson for small business, representing the small business owner's interest to Congress and other organizations. In February 2003 the advocacy department of the SBA claimed to have saved small business owners $21 billion by working with federal agencies to offer alternatives to "overly burdensome federal regulations."
At the time of the Small Business Act, almost all major government contracts went to large industrial and agricultural firms. The act charged the SBA with procuring top government contracts for small businesses, contracts ranging from food to paper to defense equipment. Currently, about 20 percent of government spending is transacted through small businesses.
When disaster strikes, the SBA is empowered to come to the rescue of small businesses with recovery loans. Since the SBA falls under the executive branch, the president wields control over when these funds are applied, and when the president offers disaster relief, the SBA is authorized to secure the necessary financial resources. By doing so, the SBA helps rebuild towns and cities and ensure overall economic tranquility. For example, within a month after the September 11, 2001, terrorist attacks, the SBA approved over $100 million to help restore businesses in downtown New York City.
The president appoints, with the consent of the Senate, an SBA administrator to run the agency. This administrator has general authority over every aspect of the SBA, from approving assistance loans to sanctioning employees who misappropriate funds. The administrator also chairs the loan policy board, on which the secretary of the treasury and the secretary of commerce sit upon as well. The board, however, is only advisory, and the administrator is not obligated to follow its recommendations.
The creation of the Small Business Administration increased the president's command over the economy. Presidents have used the SBA for various purposes. When U.S. Steel threatened to raise its prices after the negotiated end of a strike, President Kennedy threatened to go to small businesses and the existence of the SBA made the threat real. In the election year of 1972, Richard Nixon used the SBA to help shed his ultra-conservative image by expanding loans, especially to colleges and minorities.
There are over twenty-two million small businesses in the United States. The SBA estimates that more than half of all employees in the U.S. work for a small firm, and that small business employers provide approximately 44.5 percent of payroll in the private sector. Ninety-seven percent of all exporters are small business owners, comprising 29 percent of total exports. The most powerful statistic, however, is that 60 to 80 percent of all new jobs come from small businesses. This number fluctuates when some small businesses grow enough to become classified as large businesses, and when new small businesses are created. From 1999 to 2000, small businesses accounted for 75 percent of all new jobs created.
Immigrants, who make up a large portion of the small business workforce, are not excluded from the opportunities offered by the SBA. Many immigrants are unaware of these opportunities, and some have trouble getting through the legal forms. Still, the SBA views immigrants as vital to small business, and representation and support is available to them.
Altogether the SBA exercises control over a total of more than $45 billion. This includes loan guarantees, disaster relief loans, and business loans. It is the largest small business investment backer in the U.S., and the most powerful advocacy group for small business owners. Since its creation, the SBA has become an integral part of the U.S. economy, guaranteeing approximately $2.8 billion in loans each year.
House of Representatives. The Organization and Procedure of the Federal Regulatory Commissions and Agencies, reprint ed. Washington, DC: U.S. Government Printing Office, 1979.
Parris, Addison W. The Small Business Administration. New York: Frederick A. Praeger, 1968.
Roberson, Cliff. The Businessperson's Legal Advisor, 2nd ed. New York: Liberty Hall Press, 1991.
Small Business Administration. <http://www.sba.gov>.
Small Business Administration
Small Business Administration
What It Means
The Small Business Administration (SBA) is an independent agency of the United States government whose stated mission is “to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.”
Starting a small business is an act of entrepreneurship; that is, the practice of taking initiative and assuming financial risk in order to start a new business or business venture. According to the basic theory of a market economy (an economy, such as that of the United States, based on the buying and selling of goods and services whose prices are affected by supply and demand), businesses should be able to compete against one another in a free and fair environment. In such a business climate, those who have the best ideas, work the hardest, and adopt the most efficient management practices will be most successful. For more than two centuries, American small businesses have embraced this spirit of competition and have been a major source of innovation and economic growth. Nevertheless, even the most promising small businesses must weather a variety of difficulties in their early stages, not least being stiff competition from larger, more established businesses. Thus, the thinking goes, promoting the entrepreneurial spirit by helping people to launch, build, and grow small businesses is not only good for individuals, but it is also good for the country.
The SBA serves as a source of support to these fledgling businesses in a number of ways. Foremost, it helps small businesses get the financing they need by acting as a guarantor (a financial backup) on loans issued by banks and other lenders. In addition, the SBA offers technical training and counseling services; helps small businesses procure government contracts; conducts special outreach programs to encourage business initiatives from women, minorities, and armed forces veterans; offers assistance to those whose businesses are damaged by floods, earthquakes, or other disasters; and provides legal representation and advocacy services to businesses in matters of legislation, regulation, and disputes. The SBA delivers these services to small business owners (and prospective owners) throughout the United States, as well as in Puerto Rico, the U.S. Virgin Islands, and Guam. It operates through a broad network of field offices and in cooperation with various public and private organizations.
When Did It Begin
The SBA was established by the United States Congress under the Small Business Act of July 30, 1953. The agency’s roots go back further, however, to 1932, when President Herbert Hoover chartered the Reconstruction Finance Corporation (RFC), a federal lending program for banks, railroads, farm mortgage associations, and other businesses that were threatened by the financial crisis of the Great Depression (1929 to about 1939). Franklin Delano Roosevelt embraced the agency when he took over as president the following year, and the RFC served as a major resource in implementing the programs of the New Deal, Roosevelt’s program for national economic recovery. From 1932 to 1941 the RFC dispersed nearly $9.5 billion.
Another predecessor of the SBA, the Smaller War Plants Corporation (SWPC), was created in 1942 to make it possible for small businesses to gain a share in the massive World War II production effort. The SWPC was dissolved when the war ended in 1945, and the RFC took over its lending and contract powers. About the same time the Office of Small Business (OSB), a division of the Department of Commerce (the Cabinet department whose mission is to promote national economic growth) began to offer educational resources for small businesses, the idea being that acquisition of knowledge and skills were critical for any business to succeed.
Following the onset of the Korean War in 1950, the Small Defense Plants Administration (SDPA) was formed to review and recommend small businesses that were qualified to receive government war contracts. Finally, when President Dwight Eisenhower signed the Small Business Act in 1953, the important functions of various existing agencies were consolidated into the SBA. Since its inception the SBA has served more than 20 million small businesses.
More Detailed Information
Although poor management is probably the number-one reason why new businesses fail, insufficient or ill-considered financing can also be detrimental. Very few entrepreneurs have enough money to start a new business or expand an existing one without gathering other sources of financing. For most, this means taking out a loan. The SBA helps small business people acquire sound and prudent financing not by extending loans directly but by facilitating loan agreements with outside lenders, such as banks, community development organizations, and microlending institutions (private organizations that extend very small loans).
The SBA’s primary loan program is called the 7(a) Loan Guaranty Program. This program alleviates much of a lender’s risk associated with lending money to unproven businesses, thereby encouraging lenders to extend loans to small business people whose applications they would otherwise likely turn down. Here is an example of how it works.
Hector graduated from cooking school and now wants to borrow $90,000 to open his own restaurant. He submits a loan application to a bank. The application includes Hector’s prospective business plan and many details about his financial situation. As the bank reviews the application, it considers whether it wants to take the risk of loaning money to Hector. If Hector’s situation appears too risky (for example, he already has a substantial student loan debt) for him to merit the loan on his own, the bank will likely ask the SBA to guarantee it. If Hector’s business plan meets SBA criteria, the SBA will guarantee the loan, meaning that if Hector defaults on the loan (if the business fails and he cannot repay it), the SBA will reimburse the bank for the bulk of the money it lent. Usually, the SBA guarantees as much as 80 percent on loans of up to $100,000 and 75 percent on loans of more than $100,000. In most cases the maximum loan the SBA guarantees is $1 million.
The SBA plays another major role by helping small businesses secure a reasonable portion of United States government contracts. Like other organizations, the federal government needs and must buy all kinds of goods and services in order to run, from office supplies, industrial machinery, and weapons to plumbing, architectural services, training courses, and specialized research. Thus many companies bid against one another for the opportunity to their certain goods or services to the government. The winner of the bid is awarded the contract. By maintaining close ties with those in the government who review and select the bids and referring qualified businesses to them, the SBA helps to ensure that smaller businesses do not get squeezed out of the bidding process by larger companies that can usually offer more product at less cost.
Yet another important job for the SBA is to foster the success of small businesses by acting as a central resource for business information, education, guidance, and training. The agency offers extensive information on the Internet as well as free online training courses on a variety of topics, including writing a business plan, identifying target markets, basic accounting, e-mail marketing, and small business taxes. In partnership with nongovernmental organizations such as the Service Corps of Retired Executives (SCORE), it offers mentorship and hands-on advice to new and prospective business owners.
With the rapid growth of the global economy (the term refers to the way new technology has made it increasingly easy for businesses to sell their goods and services all over the world) that began in the 1990s, the SBA has placed new emphasis on international issues through its Office of International Trade (OIT). To help small American businesses export their products (sell them to other countries), the SBA offers special loan guaranty programs, such as Export Express, a pilot program introduced in 1998. In addition, since the passage in 1994 of the North American Free Trade Agreement (NAFTA; a treaty that eased regulations for doing business across the borders of Canada, the United States, and Mexico), the SBA has offered loans under the Community Adjustment And Investment Program (CAIP) to businesses that NAFTA has adversely affected (for example, by the loss of local jobs).
Small Business Administration
SMALL BUSINESS ADMINISTRATION
The Small Business Administration (SBA) is a federal agency that seeks to aid, counsel, assist, and protect the interests of small business. The SBA ensures that small business concerns receive a fair portion of federal government purchases, contracts, and subcontracts, as well as of the sales of government property. The agency is best known for its loans to small business concerns, state and local development companies, and the victims of floods or other catastrophes.
The SBA was created by the Small Business Act of 1953 (67 Stat. 232 [15 U.S.C.A. § 631 et seq.]) and derives its present authority from this act and the Small Business Investment Act of 1958 (15 U.S.C.A. § 661).
The SBA provides guaranteed loans to small businesses to help them finance plant construction, conversion, or expansion and acquire equipment, facilities, machinery, supplies, or materials. It also provides them with working capital. Since 1976 farms have been considered to be small business concerns.
The SBA also provides loan guarantees to finance residential or commercial construction. The administration may finance small firms that manufacture, sell, install, service, or develop specific energy measures. In an effort to reach more businesses, the SBA provides loans and grants to private, nonprofit organizations that, in turn, make small loans and provide technical assistance to small businesses.
Through its Surety Bond Guarantee Program, the SBA helps to make the contract bonding process accessible to small and emerging contractors who find bonding unavailable. A bond is posted as a guarantee that the contracted work will be performed. If the work is not performed, the money pledged in the bond will be used to cover the contractor's default. The SBA program guarantees to reimburse the issuer of the bond up to 90 percent of losses incurred under bid, payment, or performance bonds issued to small contractors on contracts valued up to $1.25 million.
The SBA lends money to help the victims of floods, riots, or other catastrophes repair or replace most disaster-damaged property. Direct loans with subsidized interest rates are made to assist individuals, homeowners, businesses, and small agricultural cooperatives without credit elsewhere that have sustained substantial economic injury resulting from natural disasters.
The administration licenses, regulates, and provides financial assistance to small business investment companies and section 301(d) licensees (formerly minority enterprise small business investment companies). The sole function of these investment companies is to provide venture capital in the form of equity financing, long-term loan funds, and management services to small business concerns.
The SBA works closely with the purchasing agencies of the federal government and with the leading U.S. contractors in developing policies and procedures that will increase the number of contracts awarded to small businesses.
The administration has a number of services that help small firms obtain and fulfill government contracts. It sets aside suitable government purchases for competitive award to small business concerns and provides an appeal procedure for a low-bidding small firm whose ability to perform a contract is questioned by the contracting officer. The SBA maintains close ties with prime contractors and refers qualified small firms to them. In addition, it works with federal agencies in setting goals for procuring prime contracts and subcontracts for small businesses, especially those owned by women and members of disadvantaged groups.
The SBA is recognized for its longtime effort to provide education, counseling, and information to small business owners and prospective owners. It has increasingly relied on forging partnerships with nongovernmental groups to deliver business education and training programs at low cost. For example, the Service Corps of Retired Executives (SCORE) provides one-on-one counseling free of charge.
The Business Information Center (BIC) program is an innovative approach to providing a one-stop location for information, education, and training. Components of BIC include the latest computer hardware and software, an extensive small business reference library, and a collection of current management videotapes.
The SBA also produces many pamphlets and publications about a variety of business and management topics. It has also established SBA Online, a toll-free electronic bulletin board for small businesses.
Minority Enterprise Development
Sections 7(j) and 8(a) of the Small Business Act provide for the Minority Enterprise Development Program, designed to promote business ownership by socially and economically disadvantaged persons. Participation is available to small businesses that are at least 51 percent unconditionally owned, controlled, and managed by one or more individuals determined by the SBA to be socially and economically disadvantaged. Program participants receive a wide variety of services, including management and technical assistance, loans, and federal contracts.
The Office of Advocacy serves as a leading advocate within public policy councils for the more than 22 million small businesses in the United States. The office, which is headed by the chief counsel for advocacy, lobbies Congress, the executive branch, and state agencies concerning the interests and needs of small business. The office also is a leading source of information about the state of small business and the issues that affect small business success and growth.
Women's Business Ownership
The Office of Women's Business Ownership (OWBO) provides assistance to the increasing number of women business owners and acts as their advocate in the public and private sector. It is the only office in the federal government specifically targeted to women business owners, assisting them through technical, financial, and management information and business training, skills counseling, and research.
The OWBO has established 54 training centers in 28 states and the District of Columbia, which provide community-based training for women at every stage of their entrepreneurial careers. In addition, the office created the Women's Network for Entrepreneurial Training, a one-year mentoring program linking experienced entrepreneurs with women whose businesses are poised for growth. This program is designed to help women avoid the common mistakes of new business owners.
Small Business Development Centers
Small Business Development Centers provide counseling and training to existing and prospective small business owners. The 950 centers operate in every state, as well as in Puerto Rico, the U.S. Virgin Islands, and Guam. Each center is a partner with state government in economic development activities to support and assist small businesses.
Between 1953 and 2002 SBA programs assisted almost 20 million small businesses. Between 1991 and 2000 the SBA aided almost 435,000 small businesses in receiving more than $94.6 billion in loans. The SBA continues to increase participation by minority-owned businesses by means of its minority small business program and publication of informational materials in Spanish.
The SBA has its headquarters in Washington, D.C. It maintains ten regional offices and has field offices in most major U.S. cities.
Bean, Jonathan J. 2001. Big Government and Affirmative Action: The Scandalous History of the Small Business Administration. Lexington: Univ. Press of Kentucky.
O'Hara, Patrick D. 2002. SBA Loans: A Step-by-Step Guide. 4th ed. New York: John Wiley and Sons.
Small Business Administration. Available online at <www.sba.gov> (accessed August 12, 2003).
U.S. Government Manual Website. Available online at <www.gpoaccess.gov/gmanual> (accessed November 10, 2003).
Small Business Administration
SMALL BUSINESS ADMINISTRATION
In 2005 small businesses represented 97 percent of all U.S. exporters and 99.7 percent of all employers, created about 75 percent of new jobs, and provided arenas for technological innovation. During the early 1950s, the value of small businesses in providing stability for the U.S. economy was realized.
Prior to that time, big business and industry promises of career success too often proved to be empty, and many disillusioned U.S. workers began to embrace the concept of self-employment. As the number of business entrepreneurs increased, it quickly became apparent that such entrepreneurial endeavors needed a protective umbrella if they were to survive normal start-up difficulties common to small business, not to mention competitive pressures generated by larger organizations.
To address the problem, in 1953 the U.S. Congress approved the Small Business Administration Act, which created the Small Business Administration (SBA). As an independent federal agency, the SBA's mission is to provide postdisaster recovery assistance to communities and to maintain and enhance the national economy by aiding, counseling, assisting, and protecting small-business interests based on two principles: quality-focused management and customer-driven outreach.
Throughout its ten regions, the SBA has seventy district offices across the country and program offices in every state, as well as the District of Columbia, the Virgin Islands, Guam, and Puerto Rico. The SBA is considered the government's most cost-effective economic-development engine, with a 2005 loan portfolio of approximately $45 billion, expected to be dispersed to about 219,000 entrepreneurs to foster small-business development and growth. Further, from fiscal year 1999 to fiscal year 2000, the SBA assisted in obtaining loans of approximately $94.6 billion that went to about 435,000 small businesses, and in 2004 lent about $2.5 billion to almost 18,000 women-owned businesses.
The SBA also assists small businesses recover from catastrophic disasters, such as wildfires, hurricanes, and terrorist attacks. While the fiscal year 2005 budget requested $792 million for such disaster recovery funding, since 2001 disaster relief assistance exceeding $3.3 billion has been provided.
The SBA provides financial assistance in the form of loan guarantees, rather than direct loans, through specialized programs that help entrepreneurs attain the appropriate financial position to initiate their business and overcome the first few lean years of infancy. It also provides counseling and training assistance to female, minority, veteran, and socially and/or economically disadvantaged business owners.
The Office of Women's Business Ownership, for instance, has established a women's business owner representative network in every district office, an Online Women's Business Center accessible through the Internet, and nearly seventy women's business centers in forty states; and the Minority Prequalification Loan Program assists qualified minority-owned, for-profit companies to obtain preapproval for a 7(a) loan guaranty. The 7(a) Loan Guaranty Program assists small businesses unable to secure reasonable funding terms through normal lending channels to obtain funding (i.e., microloans) through private-sector lenders on loans guaranteed by the SBA.
The SBA does not provide grants to start or expand a business, but it does coordinate and disseminate information about resources to facilitate awareness of business initiatives, on consulting or mentoring opportunities for managerial novices, and regarding entrepreneurial success strategies. Further, it provides disaster assistance and has established a unit to coordinate and facilitate technology transfer conferences for small businesses. In an effort to centralize access to a full range of technical and financial assistance for small-business owners located in empowerment zones and enterprise communities, the SBA developed One-Stop Capital Shops. These partnerships between the SBA and a local community offer comprehensive small-business assistance from a unique, easy-to-access retail site located in a distressed area, and they generally target underserved communities or the SBA's new markets.
More information is available from the U.S. Small Business Administration Office of Marketing and Customer Service, 409 Third Street SW, Suite 600, Washington, DC 20414; 202-205-6744 or 1-800-8ASK-SBA; or, http://www.sba.gov.
see also Entrepreneurship
Office of Management and Budget. (2005). Small Business Administration. Retrieved January 31, 2006, from http://www.whitehouse.gov/omb/budget/fy2005/sba.html
Re: Invention. (2004, October.) Re: Ladies—Go long for a loan. Retrieved January 31, 2006, from http://reinventioninc.blogspot.com/archives/2004_10_01_reinventioninc_archive.html
Service Corps of Retired Executives. (2005). Ask SCORE for business advice. Retrieved January 31, 2006, from http://www.score.org
Small Business Administration. http://www.sba.gov
Mary Jean Lush