US Government Small Business Loan Programs

These Are Mostly Loan 'Programs', Not Direct Loans

US government does not directly extend loan assistance to entrepreneurs. Instead, a number of special programs are administered by the small business support agency, SBA. Even SBA does not disburse the loans directly. Instead, SBA guarantees the loans to small businesses that it approves, and the actual loans are made by third party lenders.

Before we look at SBA loan programs, let us briefly look at financial management. Raising needed money is only one part of financial management, which also involves utilizing that money optimally.

Financial Management

Financial management involves:

• Estimating how much money is needed. Money is needed not only for setting up your business but also for subsequent operations till your cash inflows begin to equal or exceed cash outflows. You would need to invest your own funds into the business to finance one-half to one-third the total needs before you can seek loans.
• Determining for what purpose your small business needs a loan. You need different types of loans for different purposes. For example, you need long-term loans for acquiring equipment and other long-term investment, while a line of credit is appropriate for working capital.
• Raising the money by approaching the best source for the type of loan and making an effective presentation with supporting documentation.
• Using tools like breakeven analysis, discounted cash flow projections and variance analysis for gathering decision-support information and taking appropriate actions.
• Developing budgets for future periods (months, years, etc) that estimate all inflows and outgo's of cash, as well as income, expense and profits during the budget period. The budgets should be reviewed to ensure that the best choices are made and money is being used wisely.
• Monitoring and control through recording actual performance and comparing it with budget estimates. The comparison should cover not only monetary inflows and outflows but also physical results achieved, such as units of products produced and sold.

Financial Assistance from SBA

SBA sets the guidelines for small business loans. Loans are given by SBA's partners consisting of commercial lenders, micro lending institutions and community development organizations. SBA provides guarantees to loan providers to eliminate some of the risk involved in lending to small businesses.

Small businesses approach SBA seeking this guarantee support. Loan guarantee eligibility depends on current government policies and practices, which is tailored to prevailing economic conditions. Guarantees are provided under different programs, such as 7(a), 504 and Micro lending programs, to meet different situations. There is also a loan prequalification program under which SBA helps entrepreneurs with good character, credit record, experience and assessed reliability to prepare a strong loan application.

Approaching SBA for Financial Assistance

You would have the greatest chances of success in getting SBA approval if you approach them with the following information:

• A profile of your business that outlines its nature, sales levels, employee strength, ownership details and experience
• Amount of the loan you are seeking and the purposes for which it will be utilized
• Past financial statements of your business, typically for three years
• Personal financial statements of those owners with a substantial stake in the business
• Details of any collateral security that can be offered for the loan

Advance preparation is the key to success. Try to show that you have a definite business program that needs money for a specific purpose. Emphasize your experience, credit record and past performance details. Above all, explain in convincing detail how you will be able to repay the loan. Be ready with all the supporting documents including financial statements and projections.

Get help for understanding SBA loan programs and preparing your loan proposal. As at the time of writing this article, the Financial Assistance page of SBA website provides comprehensive information on SBA loan programs.

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