Small-business owners have a notoriously difficult time securing business loans from banks. Why? Because it’s generally riskier and less profitable to offer smaller loans to smaller businesses than it is to offer bigger loans to large corporations.
But with more than half of the U.S. workforce employed by small businesses, organizations have recognized a need to make growth capital easier to come by for small-business owners. The Small Business Administration (SBA), an arm of the federal government, is one notable group that sponsors programs to make the lives of small-business owners around the country easier.
Here’s an overview to an ongoing program the SBA overhauled in 2011 that makes business capital easier to secure for the country’s small-business owners.
Small Loan Advantage & Community Advantage SBA Loans
The two most notable programs currently being pushed by the SBA are…
- Small Loan Advantage: This program is designed for small businesses that cater to underserved markets. It encourages existing SBA lenders to offer smaller loans – no larger than $350,000. Applicants can complete a pre-approval process by providing certain information to lenders. If the applicant is preapproved for an SBA loan, the lender can fill out the new, streamlined request for SBA backing. Those who pass preapproval may receive a guarantee in as little as a few minutes; those without that approval can expect to wait five to 10 business days.
- Community Advantage: This program makes SBA funding available for the first time to financial institutions with a community presence and a “mission” focus, including those that offer micro loans. The largest loan a group can offer through this program is $250,000. In order to maintain eligibility for these SBA-backed loans, financial institutions must extend at least 60 percent to underserved communities. This is a pilot program set to run for three years (it launched in 2011).
How to Secure SBA Funding for Your Business
So how can a small-business owner secure funding from an SBA-backed lender? The process can start with counseling from one of the SBA’s 900 small business development centers around the country. The counselors will help you evaluate the most promising sources of funding for your business – and they do it free of charge.
To learn more about the SBA’s goals for the Advantage loan programs, check out this video of Karen Mills, head of the SBA, hosted by Inc.com.