SBA stands for Small Business Administration. The Small Business Administration was formed to help out small businesses, particularly startup companies, with a variety of different things, though the most commonly known service they provide is guaranteeing loans from commercial lenders.
The SBA doesn’t actually provide any funding to any companies. Instead, it provides a guarantee to a lender and a borrower that if the borrower does default on a loan it obtains from the lender, the SBA will pay back most of the loan to the lender.
In many cases, it is difficult for a small business to get a sufficiently-sized loan in order to expand. These companies often work to expand slowly, but that can be hard with competition, poor markets, and other factors interfering. In fact, most small companies go under within a year, and the primary cause is due to insufficient capital. The SBA works to curb the number of small businesses that fail each year. Lenders are normally hesitant to lend to small businesses due to the likelihood of default, but with a guarantee from the federal government that the greater part of the loan will get paid back, the lenders have additional incentive to extend a loan to a small business.
In order to get SBA backing, a company owner, who has to invested at least some money into the business, needs to fill out a form and send it into the SBA. Thereafter a short process is involved wherein the SBA determines whether or not the applicant is qualified, and they will hear back from the SBA within a couple days as to whether they’ve gotten SBA backing.
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