SBA Partners Help Small Businesses

By Henry Wichmann, Jr., and Ken M. Boze

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OCTOBER 2007 - The Small Business Administration (SBA) granted a record dollar value and number of loans during its 2006 fiscal year. The agency’s two primary loan programs led the way: The SBA 7(a) loan guarantee program, mostly used for working capital financing, produced 90,477 loans totaling $13.46 billion, while the 504 Certified Development Company loan program, used for real estate and fixed-asset financing, provided 9,720 loans totaling $5.61 billion. SBA Administrator Steven C. Preston indicated that “Before FY [Fiscal Year] 2002, the programs never produced more than 42,000 loans combined. Since then, loan volume has more than doubled” (Office of Advocacy, U.S. Small Business Administration, “Small Businesses Receive More Than 100,000 SBA-Backed Loans in FY 2006, a Sixth Consecutive Record Year,”

In 2003, the SBA’s 50th anniversary, the Office of Advocacy was charged with implementing the federal Regulatory Flexibility Act (RFA), which required federal agencies to review proposed rules for their effects on small businesses, and to mitigate undue regulatory burdens. President Bush’s Executive Order 13272 required the Office of Advocacy to train the regulatory agencies of the entire federal government on their RFA obligations. The Office of Advocacy reviewed proposed rules affecting small firms, resulting in $6.3 billion in cost savings, with an estimated annual recurring savings of $5.7 billion for small entities.

Small businesses act as a driving force to energize the economy. Statistics from the Office of Advocacy indicate that small businesses represent 99.7% of all employers and employ half of all private-sector employees (“Small Business Drives the U.S. Economy,” 2006, The more than 24 million small businesses generated 60% to 80% of the net new jobs annually over the past decade, while creating more than 50% of the nonfarm private gross domestic product (GDP). Small businesses supplied more than 23% of the total value of federal prime contracts, while accounting for $98 billion in both prime contracts and subcontracts. Small businesses produced nearly 14 times more patents per employee than large businesses, and those patents were twice as likely to be cited. Home-based businesses make up 53% of small firms (see “What is a small business,” 2006, In addition, small companies make up 97% of all identified exporters and produce 26% of the known export value. Exhibit 1 presents a list of 10 reasons to love small businesses.

The SBA leverages its employees as a catalyst to stimulate small business startups and growth through cooperation of partners in the private and public sectors. There are eight important SBA partners: Small Business Development Centers (SBDC), SBA Lenders, Certified Development Companies (CDC), Microlenders, Small Business Investment Companies (SBIC), SCORE counselors, Women’s Business Centers (WBC), and Veterans Business Outreach Centers (VBOC).

The past 50 years have witnessed many SBA success stories. Accountants should be aware of the SBA’s programs to help small businesses. Many of these programs need accountants to be partners by providing accounting and management advice to small businesses. These small companies represent future business, because inadequate accounting is often cited as a major problem area in small companies. Exhibit 2 lists different ways that SBA partners help small businesses.

Small Business Development Centers

The SBDC program is the SBA’s largest resource partner other than financial institutions. The SBDC’s mission is to provide management and technical assistance to current and prospective owner-managers of small businesses. The SBDC consists of the government, private sector, and academia working together to strengthen the small business community. A college or university may be the focal point of an SBDC program. SBDCs are designed to function in the same manner as agricultural extension agents have for ranchers and farmers. The SBDC provides the framework for bringing all government, private sector, and academic programs together at a low cost (or free) to all small business owner-managers. SBDC assistance is tailored to the local community and individual needs. The SBA provides 50% or less of operating funds for each state SBDC, with one or more sponsors providing the rest of the matching funds.

In 2007, 63 lead SBDCs provided a network of more than 1,100 service locations: at least one in every state (Texas has four and California has six), the District of Columbia, Guam, Puerto Rico, American Samoa, and the U.S. Virgin Islands. Through SBDCs and in partnership with the Association of Small Business Development Centers, the SBA offers counseling, training, and technical assistance in all aspects of business management. Assistance is available to anyone starting or improving a small business who cannot afford a private consultant. SBDCs are a one-stop management and technical assistance program for individuals and small companies, offering a wide variety of services, including the following:

  • Preparing business plans (SBDCs are the preeminent business plan writers).
  • One-on-one confidential free counseling to small businesses.
  • Assistance in technology transfer, research, and development.
  • Assistance in finding export opportunities.
  • Providing and maintaining a comprehensive library that contains current information and statistical data.
  • Maintaining a list of local and regional private consultants to whom small businesses can be referred (SCORE).
  • Providing information on regulatory requirements.

SBA Lenders

SBA Lenders are commercial banks, credit unions, savings and loans, and other lenders that provide small businesses with loans structured under the guidelines established by section 7(a) of the original Small Business Act in 1953. The SBA’s 7(a) programs [a variety of SBA Guaranty 7(a) Loan Programs exist] are designed to maximize the money for small businesses while minimizing taxpayer expense. The SBA leverages nongovernment lenders; very few direct government loans are made, except for disaster loans.

SBA Lenders must meet the following criteria to participate:

  • Be able to continuously evaluate, process, close, disburse, service, and liquidate loans.
  • Be open to the public to make loans.
  • Be able to demonstrate good character and maintain a solid reputation.
  • Be supervised and examined by a state or federal regulatory authority.

The lender makes the loan, and the SBA guarantees it. The SBA guarantees up to 85% on loans of $150,000 or less. Loans over $150,000 may be guaranteed up to 75%, but cannot exceed $1.5 million in exposure. The terms are seven to 10 years on working capital loans, but up to 25 years on fixed-asset loans. Interest rates are fixed and variable, tied to a certain percentage above the prime rate.

Eligibility and feasibility criteria. SBA uses eligibility and feasibility criteria to make a loan. Eligibility criteria have to do with meeting size standards, being for-profit, lacking the internal resources to provide financing, and being able to demonstrate the ability to repay. Feasibility criteria have to do with the five Cs of credit (capacity, capital, conditions, collateral, and character), with the SBA and lenders following the same credit guidelines. Repayment of the loan is the primary feasibility consideration, while management ability, good character, owner’s equity, and collateral are also important.

Certified Lenders Program. The Certified Lenders Program (CLP) was developed by the SBA to give special treatment to lenders having a successful track record with the agency and an understanding of its policies and procedures. If the CLP performs a complete analysis, the SBA promises to process the loan quickly. The SBA makes the final credit feasibility and eligibility decision, striving for a three-day turnaround time when arriving at a loan decision. The key to the CLP is the greater utilization of the credit knowledge of the lender to shorten the SBA’s loan processing time. Applications to be a CLP lender are approved and renewed by the SBA district director. CLPs account for 7% of all SBA loan guarantees.

Preferred Lenders Program. The Preferred Lenders Program (PLP) is another attempt by the SBA to streamline its financial assistance to small businesses. The PLP gives preferred lenders the authority to make loan approvals and closings, and do most servicing and liquidations. PLP lenders, which are nominated by the agency, must demonstrate abilities in processing and servicing SBA-guaranteed loans. Applications to be a PLP lender are approved by the associate administrator of financial assistance (AA/FA). Preferred loans account for about 33% of SBA loans.

Becoming a Certified Development Company

The 504 Certified Development Company (CDC) Program is one of the SBA’s oldest and most successful business development organizations. CDCs provide long-term, fixed-asset financing so small businesses can obtain real estate, machinery, and equipment, and expand or modernize. A CDC is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private-sector lenders to provide financing and management assistance to small businesses. About 270 CDCs exist nationwide, each covering a specific geographic area. A CDC must provide at least two 504 loans each year, while its portfolio must demonstrate one job opportunity per $50,000 of funding.

Becoming a Microlender

The Microloan 7(m) Loan Program provides short-term loans of up to $35,000 (averaging about $13,000 each) to small businesses and not-for-profit childcare centers for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery, or equipment. Loan proceeds may not be used to retire existing debt or buy real estate. The SBA makes funds available to nonprofit community-based lenders (intermediate lenders) that make loans to eligible borrowers. The intermediate lenders (IL) make the microloans and provide management and technical assistance. The loans are not guaranteed by the SBA. The IL may not borrow more than $750,000 from the SBA in its first year, while the maximum obligation in later years is $3.5 million.

Small Business Investment Companies

The Small Business Investment Company (SBIC) Program was started by the SBA in 1958 to fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations. In 2005, the SBA had over $6.3 billion invested in 418 funds, $5.1 billion in commitments, and private capital of $12 billion, resulting in total capital resources of $23.4 billion. No tax dollars fund SBIC debentures; they are pooled each year and sold in public markets to private investors in the form of SBA Guaranteed Certificates.

SBICs are SBA-licensed venture capital companies designed to provide equity and debt-financing to small firms. SBICs buy stock or debt securities of small firms and they make long-term loans of no more than 20 years. All SBICs are for-profit businesses.


The Service Corps of Retired Executives (SCORE) is a highly successful SBA counseling program. SCORE is a resource partner with the SBA and one of the best sources of free and confidential small business advice, helping owner-managers from an idea to start-up to success. SCORE is a nonprofit organization for entrepreneurial education and assistance, encouraging the formation, growth, and success of small businesses nationwide. Over the years, SCORE has provided more than 7.5 million small business owner-managers with practical, real-world advice for starting and managing a small business. Today, SCORE provides more than 400,000 counseling and training sessions each year, including more than 100,000 counseling sessions conducted by e-mail.

In 2007, the 374 SCORE chapters in over 800 locations nationwide comprised approximately 10,500 retired and working volunteer counselors experienced as entrepreneurs and corporate managers. SCORE volunteers come from the ranks of businesspeople and professionals, including former retailers, wholesalers, plant managers, accountants, lawyers, bankers, and educators. The SCORE counselors provide free business advice and counseling as a public service:

  • “Ask SCORE” e-mail advice online.
  • Face-to-face counseling.
  • Low-cost workshops at chapter offices.
  • How-to articles and business templates.

Women’s Business Center

The Women’s Business Center constitutes a national network of nearly 100 educational centers to help women start and improve small firms. The WBC’s mission is to level the playing field for women entrepreneurs, giving them the opportunity to overcome the unique obstacles they face in the business world. According to the SBA, there are 9.1 million women-owned businesses employing 27.5 million people and contributing $3.6 trillion to the economy.

The SBA’s Office of Women’s Business Ownership (OWBO) and the Online Women’s Business Center are key institutions. OWBO promotes the growth of women-owned small businesses by counseling, teaching, encouraging, and inspiring women-owned small businesses.

Other services include:

  • Training and technical programs.
  • Access to credit and capital.
  • Access to federal contracts.
  • Access to international trade opportunities.
  • Nationwide network of WBCs in nearly every state.

Veterans Business Outreach Centers

The Veterans Business Outreach Program (VBOP) provides entrepreneurial development services, such as business education, counseling, mentoring, and referrals to eligible veterans owning or considering starting a small business. The SBA has five organizations participating with the VBOP, including the SBDC, SCORE, the WBC, the Business Information Centers (BIC), and the Tribal Business Information Centers. As of August 2006, the VBO centers trained 4,932 veterans and counseled 3,458 of them. The following are services provided by Veterans Business Outreach Centers:

  • Pre-business plan workshops dealing with self-employment.
  • Concept assessment (determining abilities and requirements).
  • Business plan preparations (developing and maintaining a five-year business plan).
  • Comprehensive feasibility analysis (strategic planning portion of the business plan, looking at strengths and weaknesses).
  • Entrepreneurial training and counseling.
  • Mentorship (onsite visits to ensure adherence to the business plan).
  • Information about federal contracting opportunities for service-disabled veterans.
  • Other services (e.g., providing information in areas such as international trade, franchising, internet marketing, and accounting).

Business Plan Observations

Many small business owner-managers may dread the idea of drafting a formal business plan—outlining accounting, marketing, and planning strategies in great detail. After the authors interviewed small business owner-managers and prospective entrepreneurs in Alaska, Colorado, Illinois, Minnesota, Montana, Wisconsin, and Wyoming, they found that many did not complete a business plan. In recent years, however, the SBA and SBA lenders have been asking for business plans with varying levels of detail, depending upon the banker or loan officer.

Many small start-ups neither want to make a business plan nor can afford to pay an accountant to do so. Accountants should refer clients to an SBDC for help preparing a business plan. A CPA firm creates credibility, and avoids wasting time if the new venture does not appear viable.

Business plans should not be an obstacle in starting or improving a business. Business plans have several advantages, such as:

  • Forcing entrepreneurs to consider assumptions related to the business venture.
  • Helping entrepreneurs to decide whether to start a business.
  • Helping entrepreneurs and their accountants decide how much financing is needed.
  • Helping small business managers think through goals and strategies.
  • Developing income statements, balance sheets, cash forecasts, and break-even analysis, all elements of a good accounting system.
  • Identifying strengths and weaknesses.
  • Identifying the customer base for sales.
  • Educating entrepreneurs.

Business plans have a few disadvantages, of course: They are time-consuming to prepare, especially if great detail is required. They may be costly to prepare if an entrepreneur lacks accounting knowledge. And they may be an obstacle to an entrepreneur starting or improving a small business. SBA partners, especially SBDCs, however, can help entrepreneurs prepare business plans. CPAs should not consider the SBDC as a competitor, because owner-managers of small businesses often do not have the money to spend on comprehensive business plans that may reveal a less-than-viable opportunity. The prospective borrower should look for a banker that is easy to work with while realizing the banker and the SBA want to make good loans, backed up with documentation in the form of a business plan.

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Henry Wichmann, Jr., PhD, CPA, is a professor of accounting in the school of management at the University of Alaska– Fairbanks; Ken M. Boze, CPA, CMA, CFM, is a professor of accountancy and the chairperson of the accounting department at the University of Alaska– Anchorage.




















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