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The Small Business Administration (SBA) was created in 1953 by President Eisenhower in an attempt to protect the interests of small businesses in the United States.
I was sent a great infographic (posted below) yesterday outlining the history of the SBA and highlighting some of the Administration’s key contributions to small businesses in America. One of the main roles of the SBA is to help small business receive the loans they need to jumpstart their business. One of the key statistics that the infographic presents to us, is that small business account for almost 50% of the private payroll in the United States. Some more interesting facts presented by the SBA infographic, are embedded in the two graphs at the bottom of the infographic. Hopefully the Small Business Administration can continue their historical trend of aiding small businesses and help them work through the financial situation that has devastated both big and small businesses nationwide. Anson specializes in providing software and technology tutorials in both print and video format. Anson has a degree in International Business and Information Systems from the University of Tampa and also enjoys enjoys traveling and gaming. All this attention might suggest that SBA loans are a major source of small business finance. The SBA’s primary loan program – the 7(a) program – is designed to help businesses that might not otherwise receive outside credit obtain loans by guaranteeing a part of the funding provided by financial institutions.
SBA-guaranteed loans make up a larger fraction of the value of loan portfolios than their share of loans or borrowers because SBA loans tend to be relatively large. A May 2013 Congressional Research Report suggests that the value of all outstanding SBA loans make up a larger fraction of small business lending. The SBA is focused on larger businesses, and every time they back a loan to a bigger business, they create a more unlevel playing field for the smallest businesses.
I can appreciate the theory Scott seems to suggest, but challenge it due to the age of his data. Chuck also mistakenly criticizes the expansion of size standards and loan limits, but both changes were long over due to aggregate inflation and natural expansion of enterprise girth in the small business sector. SBA provides several options to assist financing to very small companies, many outside the 7a and 504 program. Overlooked in all three critical positions above is the fact that these programs greatly assist community banks, those more inclined to assist smaller companies with more than just a credit card.
Smaller banks also need the liquidity afforded by the SBA guarantee that allows the guaranteed portion of the loan to be sold to investors, and for the bank to plow those funds back into their communities.


Facts: Most existing small businesses get funding and loans from Alternative Lenders, not from banks or the SBA.
In 2008, as credit was tightening, I was able to buy a business with the help of an SBA guaranteed loan.
The corollary to Scott’s point that SBA-guaranteed loans make up a very small portion of small business finance is that non-bank finance companies like my firm, Business Financial Services, play an increasingly important role in funding small business. The correlation of SBA 7(a) loan approvals with our nation’s economic performance is strong.
Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over six years using the Microsoft CORREL function.
The SBA currently has a loan portfolio of more than 219,000 individual loans amounting in over 45 billion dollars. Even wise the rise of large corporations, small business still play a significant role in the American economy. We can definitely see that small businesses have felt the effect of current financial situation. President Obama, for instance, believes that “the SBA should be provided additional resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations”, the Congressional Research Service reports. Over the past several years, our legislators have passed several bills to expand SBA funding and to boost the size of the agency’s loan guarantee program, the Congressional Research Service explains. But the data show that SBA-guaranteed loans make up a small portion of the value of small business lending, and that an even smaller fraction of U.S. Comparison of the number of 7(a) loans outstanding in 2011 with Federal Deposit Insurance Corporation (FDIC) estimates of the number of commercial and industrial loans of less than $1 million (a common proxy for small business loans) outstanding in September 2011 shows that the number of 7(a) loans was approximately 1.4 percent of the number of small business bank loans. In 2012, the “total unpaid principal balance” of the SBA’s 7(a) loan guarantee program was $59.4 billion, according to a May 2013 Congressional Research Service report (PDF). That report indicates that the value of the SBA’s portfolio of outstanding loans was $99 billion in fiscal year 2011, amounting to 9 percent of outstanding bank and finance company capital provided to small companies.
Their outsize attention in Washington probably reflects the fact that they are the part of small business finance system that policy makers can influence most directly. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. If the SBA were to go away, it would actually benefit the 26.5 million businesses (98% of all businesses) with 1-19 employees. Sure, in 2007, when the capital markets were overheated, SBA was not the first choice of many lenders but those conditions ended shortly afterwards.


The notion that SBA was solely dedicated to very small companies is not accurate, but neither have they been overlooked. Micro loans are funded through a different channel and deliver plenty of funding through hundreds of lenders nationwide. Smaller banks need the credit enhancement in order to commit to a much longer loan amortization period, up to 25-years for a real estate loan. Many times existing smaller businesses with sales of $500,000 to $5 million pay for their business with current cash flow but when the business needs short term cash to help through an unexpected expense or increase sales, they will turn to Alterative Lenders.
While the process took six weeks, it would have been much harder to get financing from the bank without the SBA. No published data exists, but we estimate that the sector overall provided about $1.5 billion of funding in 2012 and will top $3 billion in 2013, with the growth continuing.
In 2008 and 2009 there were significantly more business closures than openings which, in the previous 3 years, was the opposite. However, the SBA’s 2011 fiscal year report hints that this number includes “defaulted guarantied business loans receivable, direct disaster loans, and direct business loans receivable.” Therefore, this figure may overstate the value of the SBA’s loan portfolio.
According to an article on the New York Times Small Business blog, the volume of SBA-guaranteed 7(a) loans for $150,000 has been flat at about $1.4 million per year 2009 through 2012.
We can also see that the amount of lending to small businesses has dropped drastically in the last two years. However, this fraction is up significantly from the 3.6 percent it composed in 2007, SBA figures reveal. Inclusion of all these big businesses allows the SBA to give much larger loans to fewer, but bigger businesses.
After all, the percentage of businesses that utilized these is way too small to state that this is even a need. In the last few years, SBA loans under $250,000 have steadily decreased, and last year the SBA backed fewer loans under $100,000 than any time in their 60-year history. Recently, I was able to refinance the $200,000 balance without the SBA at a closing cost of approximately $700.



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