Small Business Administration (SBA): Definition and What It Does

What Is the Small Business Administration (SBA)?

The Small Business Administration (SBA) is a U.S. government agency designed to bolster and promote the economy by assisting the country’s small businesses. Established in 1953, the SBA’s primary function is to counsel individuals who want to start and grow their own businesses. It provides a series of tools on its website to assist new and existing small business owners. The agency is headed by an administrator and deputy administrator and also has a chief counsel for advocacy and inspector general—all of whom are confirmed by the Senate. The SBA has at least one office in every state, the District of Columbia, and various American territories.

Understanding the SBA

The SBA offers substantial educational information with a specific focus on assisting small businesses to develop and grow. As noted above, the agency has numerous tools for businesses that can be accessed on its website, including a small business planner and additional training programs.

According to its website, the SBA provides the following services to small businesses:

• Access to capital: The agency offers a variety of financial resources for small businesses, including microlending, or small loans that are issued to those who wouldn't otherwise qualify for financing. Loans are issued by partner banks, credit unions, and other financial institutions.
• Entrepreneurial development: This is driven by counseling services and low-cost training provided by the SBA and is available to both new and existing business owners in more than 1,800 locations across the United States. There's also a mentor program that connects new business owners with retired and/or existing entrepreneurs.
• Contracting: The SBA reserves 23% in government contracting dollars for small businesses with the help of other federal departments and agencies. The agency guarantees 5% of these contracting dollars for women and another 3% for business owners who are disabled and veterans.
• Advocacy: The agency acts as an advocate by reviewing legislation and protecting the interests of small business owners across the country. The agency also advocates for business owners at the state and federal government levels.

The agency has helped countless small businesses across the country get access to loans, loan guarantees, contracts, and other services.

The SBA Loan Program

The loan programs offered through the SBA are among the agency's most visible offerings, and they come with longer repayment periods for small businesses. The agency doesn’t actually issue loans itself (with the exception of disaster relief loans). Instead, loans are backed or guaranteed by the SBA and issued directly by lenders that meet the agency’s guidelines.

Loans backed by the SBA include:

• The 504 loan (or the grow loan), which provides a small business with up to $5.5 million in financing to buy the fixed assets it needs to run its operations, including real estate.
• The 7(a) loan, which is the agency's primary loan program. The maximum loan amount guaranteed under this program is $5 million.
• A disaster loan is intended to help businesses and homeowners recover from declared disasters.
• Microloans of up to $50,000 (the average amount is about $13,000) are meant to help small businesses and some nonprofit childcare centers start up or expand.

Small businesses qualify for loans more easily when they are guaranteed by the SBA. The agency also allows entrepreneurs to make lower payments for a longer period of time. Despite numerous attempts to do away with the SBA entirely, many political officials and offices continue to support it. The SBA’s ability to offer loans was also significantly strengthened by the American Recovery and Reinvestment Act (ARRA) of 2009 and the Small Business Jobs Act of 2010.

How the SBA Can Help You Start Your Business

The SBA has many resources available for people who want to start their own small businesses. If you have an idea for a business, this section highlights some of these resources, which can take you from start to finish.

Business planning

This section of the website outlines steps and provides resources related to the development of your business. These include conducting relevant market research, developing a business plan, and funding. You can also learn about what you need to do to choose:

• A location for your business
• A suitable business structure
• A business name

The SBA also provides key information about what you need to register your company, as well as how to get the appropriate tax documents, permits, and licenses. You can also find out what you need to open a business bank account.

Launching your business

Launching your business is just as important as starting it, which is why you’ll find some of the same resources from the section above seeping into this one. For instance, choosing your location will depend a lot on local zoning ordinances and laws. It will also affect the kind of incentives and taxes that apply to your organization.

The SBA's website has more information on these topics and also provides information on business insurance, which is a very important part of safeguarding your interests. It helps protect your business from any unforeseen losses that take place during normal operations.

How the SBA Can Help You Manage and Grow Your Business

The agency doesn’t just help people start and launch their own businesses; it also has resources available to help manage and grow them.

Management

You can learn valuable tips and tricks on how to manage your finances, hire employees, and pay taxes. Other important information includes staying compliant, how-tos for purchasing assets, and marketing and sales strategies.

Because cybersecurity is a key threat to many businesses, the SBA also provides some common sense tips to stay safe. This section can help business owners spot some of the most common scams (such as malware and ransomware) and understand and assess their risk. They can also use some of the agency's best practices to avoid cyber attacks and access SBA training and events.

This section also deals with hiring people with disabilities, what to do when you must close your business, and how to recover from disasters.

Growing your business

It isn’t enough just to learn how to start and run your business, which is why the SBA also has resources to help you grow. Some of the aids in this section cover how to access additional funding, how to expand, and what to expect from mergers and acquisitions (M&A).

Part of the SBA’s mandate is to guarantee a certain percentage of federal contracts to small business owners. As such, the agency encourages businesses to become federal contractors and has an easy registration process. You can also get the resources you need to improve your bottom line, via connecting with partners to help export your products and services.

You’ll also find useful information about different types of businesses, such as those owned by women, Native Americans, veterans, minorities, and members of the LGBTQ+ community, as well as rural businesses.

The History of the SBA

The SBA was established by President Dwight Eisenhower when he signed the Small Business Act in the summer of 1953. It replaced the Reconstruction Finance Corporation (RFC), which was created under President Herbert Hoover in 1932 after the Great Depression. The mandate of the newly formed SBA was to aid and protect the country’s small businesses and ensure that they received a fair portion of government contracts and surplus property sales.

The SBA has had a rocky history. In 1996 the agency was under threat of being eliminated by the House of Representatives. However, the agency survived this threat and went on to receive a record budget in 2000. There was also a lot of resistance to its loan program, which led to repeated cuts between 2001 and 2004. That’s when certain SBA expenditures were frozen altogether.

Small business owners were among some of the hardest hit during the COVID-19 pandemic. The SBA helped these owners, providing them with two different types of funding:

• Economic Injury Disaster Loan (EIDL): This program was designed to let businesses use approved funds for working capital and other day-to-day expenses. As capital is loaned, it must be repaid. The SBA stopped accepting applications as of Jan. 1, 2022, and as of May 6, 2022, stopped accepting loan increase requests or requests for reconsideration of loan applications that had previously been declined.
• EIDL Advance Programs: Funds were granted to people who filed for EIDL assistance as long as they met certain criteria. Unlike the loan program, funds approved through this program don’t have to be repaid.

The Bottom Line

The SBA is the federal government’s main resource for nurturing the growth of small businesses in the U.S. It not only provides loans, mostly through third parties, to help start or grow your business; it also offers plenty of programs designed to increase your knowledge and expertise in keeping your business healthy, from how to pay taxes to marketing and sales to cybersecurity and more.

The SBA doesn’t normally issue any grants, except for a few that go to organizations, many of them nonprofit, that promote entrepreneurship in their communities. It also advocates on behalf of small business owners. Local offices exist in all 50 states, the District of Columbia, and American territories. During the COVID-19 pandemic, the SBA provided crucial financial support through both loans and grants to the small-business community, which was gravely impacted by the crisis.