Small Business Administration – Capital, Development & Contracting

The Small Business Administration (SBA) is an agency of the federal government that provides loans, counseling and procurement opportunities with the federal government. Simply stated: “The SBA helps Americans start, build, and grow businesses”. No other resource exists that is as dynamic and beneficial to the small business owner as the SBA.

Most small business owners have a distrust of the government. This is mostly founded in the natural entrepreneurial tendency which is often restricted through regulation by the various governmental levels. However, the small business owner should embrace the opportunities the SBA provides and utilize the resources of the SBA. After all, the owner does pay for this agency through our taxation system. 

What exactly does the SBA provide? Well, following the mission statement, it is designed to start, build, and grow businesses. The SBA provides capital through loans and access to Small Business Investment Companies (SBIC’s).  In addition the SBA has educational resources in helping the small business owner start and manage his venture. There is an entire learning center on the website. The third benefit to the small business owner provides contracting support via education and registering as a government contractor. 

The following sections go into detail and explain each of these three benefits to the small business owner. These sections are detailed and provide an in-depth understanding of the respective benefit to the small business.


When somebody mentions the SBA, almost everyone thinks of this agency lending money to small business. Well, it is true.  It is one of their functions. However, the SBA’s standards to lend money are rigid and strict. The business operation must comply with certain standards to obtain a loan or any form of capital investment. In 2010, the SBA approved more than $30 Billion in loans to small businesses. The average loan size in one of the programs exceeded $600,000.

The SBA does not directly lend the money. Actually, the money is borrowed from a lending institution, a community development organization or a micro-lending institution. The SBA merely guarantees repayment of the loan in case of default. It is almost similar to your parents guaranteeing repayment of your first personal loan. It provides greater assurance to the lender and it allows for better terms. In general, the borrower must comply with the lenders requirements and have limited to no other access to funds to use the SBA guarantee.

The SBA has two distinct loan programs. The first is a general business or 7(a) loan program and the second is referred to as a 504 loan. The following explains these two programs in more detail:

7(a) Loan Program

This is the most popular loan program for the SBA. Over 70% of all loans guaranteed by the SBA are through this program. The average loan was $337,000 in 2012. The business may borrow up to $5,000,000. There are three groupings of loans within this program. The first grouping is real estate based and the loan can have a maturity period not to exceed 25 years. The second grouping is for equipment. The loan maturity period may not exceed 10 years conditioned on the life of the equipment purchased. The final grouping is working capital related. Here the loan may not exceed seven years in amortization for the payback.

In general all profit oriented and United States based businesses may utilize the 7(a) program. The SBA defines who may not use the program. The following is a short list of ineligible businesses:

  • Those businesses in poor standing with any governmental agency – owing taxes, failure to comply with regulations, licensing issues etc. are examples of poor standing;
  • Any business involved in illegal operations: gambling, depiction of sex, or other activities;
  • Any religious, political based, or private club;
  • Businesses involved in lending money;
  • Any form of speculation such as stock purchasing, commodities trading, etc.;
  • Insurance companies, specifically life insurance.

 There are some special considerations provided for certain types of operations such as the following:

  • Franchises except when the Franchisor has too much control over the operation and the business mirrors an employer/employee relationship;
  • Clubs that have an open membership; OR
  • Medical facilities.

 Loan proceeds are used for:

1.  Working capital,
2.   Purchase of equipment, furniture, fixtures, and other long term supplies/materials,
3.   Acquisition of real estate provide the business uses the land and buildings,
4.   Purchase of a business or expansion of an existing operation.

The business owner(s) must have an adequate equity position in the operation in addition to full compliance on the personal level with all governmental authorities. Adequate equity position depends on the nature of the business operation. Those asset purchases that are more marketable have a lower equity requirement such as real estate or vehicles. Here the equity position will average 20 to 25% of the fair market value (FMV) of the asset purchased. Those assets with less of a market as collateral will require more equity investment. Examples include highly specialized manufacturing equipment. Here the owner may have to invest upwards of 50% of the FMV.

The SBA guarantees the loans and the guarantee amounts are up to 85% on loans up to $150,000 and 75% on loans greater than $150,000.

To be eligible the business must fill out an application and provide financial information on the owner(s) and the business. In addition, the business must provide a one year projection of financial information and specifically how the purchase of equipment, real estate, or the working capital impacts the financial projection. In addition, the business must provide personal and business tax returns for the three prior years. Finally, the owner should include any long-term financial obligations such as leases, other debt obligations and/or off the balance sheet financing.

 504 Loan Program

504 loans have an advantage over 7(a) loans in that the interest rate is closely tied to Treasury Notes. Loan maturities are either 10 or 20 years. Overall, the loan amounts are significantly greater than 7(a) loans and the overall cost dollar for dollar is less than 7(a) loans.

This program is designed strictly for the purchase of real estate or improving real estate. In addition, loan proceeds may be used for purchase of long-term equipment, renovating existing facilities for equipment installation, site development and improvements.

The proceeds may not be used for working capital. Only 7(a) proceeds may be used for working capital.

Overall the goal of the program is to create more jobs or retain existing jobs. Secondary goals include revitalizing an economic district, expanding exports, expanding minority, woman or veteran owned businesses. These types of loans are generally available through your community’s economic development or business development agency. The loans are financed through the sale of bonds tied to Treasury rates.


The Small Business Administration offers two types of programs to help small business owners develop their business. The first is Counseling and Training; designed to provide guidance to the small business entrepreneur in starting and operating their business. The second type of program is called Small Business Audiences. This program is oriented towards the minority owned operations. This includes women, Native Americans, minorities, and veterans. The goal of this program is teach how minority owned businesses can interact and acquire government contract work. The following sections describe these two programs further:

Counseling & Training

As a part of the ‘… start, build, and grow businesses’, the SBA offers advice to the small business owner via their learning center. Similar to this website, the SBA is educating the general public on how to start up a business and operate/manage the business. See: Starting and Managing Your Business on the SBA website for more information. The following is just some of the information provided:

  • Creating a Business Plan
  • Choose a Business Structure
  • Registration and Licensing
  • Learn about the Law and Corresponding Regulations
  • How to Finance your Business
  • How to Lead and Grow the Business
  • Guides to Certain Industries

This part of the website provides other resources to assist the small business entrepreneur in getting additional help. These include SCORE, small business development centers, and a mentoring program.

Sometimes there are other opportunities for you, especially if you happen to be defined as a minority owned business. Here the SBA provides an in-depth knowledge resource center called Small Business Audiences.

Small Business Audiences

This section of the website is designed to help the minority owned small business. Each grouping of minority owned businesses is referred to as an audience. Any program or resource designed specifically for this minority group is explained or discussed in the respective section. The following are the top four minority owned groupings and some of the programs or resources available for the respective group:

 Women owned businesses – any business that is at least 51% owned by a woman or women that is/are a US Citizen qualifies for preferred contracting with the federal government. The business requires certification as a women owned business but once qualified, there is much more opportunity to earn contracts with the federal government. Resources available include access to the National Women’s Business Council – a federal advisory council. For more information visit: Women Business Resources.

Native Americans – Native owned businesses do not require certification like the women owned businesses for access to government contracts. There are special resources available strictly for Native American owned businesses. See: Native Americans at the SBA website for more information.

Minorities – the federal government has required set asides to award contracts to minority owned businesses. The SBA provides a Minority Business Development Agency to assist businesses in getting contracts with the federal government. Go to for more information.

Veterans – the SBA provides 16 outreach centers for veterans and disabled veterans. The centers are designed to provide training, mentoring and other business guidance in establishing and operating a business. These centers assist the veteran in applying for government contract work.

Contracting Support

For any small business, the ideal customer is the government. Their checks never bounce! They pay their bills and it is this reason that you should give serious consideration to becoming a government contractor. Well, the Small Business Administration helps the small business owner obtain the necessary documents and certifications to apply for government contract work. Once completed, the small business owner is registered with the federal government and the SBA walks the small business owner through the process of applying for government contracts.

Most small business owners do not realize that the federal government’s goal is to award 23% of all prime government contract dollars to small businesses. In addition, the federal government has statutory goals to meet in awarding contracts to small businesses. 

The end goal for you is to get your business registered in the federal government’s System for Award Management or SAM. The SBA website provides guidance and education in getting your small business registered. 

Summary – Small Business Administration

“The SBA helps Americans start, build, and grow businesses”.

This is achieved by providing access to the capital needed to successfully operate a business. The capital programs include the 7(a) loan program and the 504 loan program. Both help in acquisition of equipment and real estate. The 7(a) program also provides access to lines of credit which is paid back via amortization periods not to exceed seven years.

The next section is development. The SBA fulfills this goal by educating and counseling small business owners. There are two programs. The first is Counseling and Training for the small business owner and the later includes Small Business Audiences to assist minority owned businesses in certification to compete for government contract work.

The third goal of the SBA is to help small business owners acquire government contracts. This is achieved by counseling and helping the owner register with the federal government’s System for Award Management.

If you desire more help, please go to for more information. It is truly one of the few beneficial websites for small business owners. Act on Knowledge.

© 2013 – 2022, David J Hoare MSA. All rights reserved.

error: Content is protected !!