The Small Business Administration: Lending Support to the Smaller Moldmaker

The SBA offers a host of programs and assistance to the small shop -- no matter where you are located.

Is the Small Business Administration (SBA) something that sounds vaguely familiar to you, but as busy as you are, you've never taken the time to learn more about it? Are you really aware of why it exists and the many ways it can help your business? The SBA - an independent agency of the federal government - is 100 percent dedicated to fostering the development, growth and success of small enterprises. At a time when the industry is facing many challenges, it seems worthwhile to examine the SBA closely as a possible resource to help keep your business thriving.

According to Judith Roussel, district director of the SBA's Chicago, IL District Office, the SBA - approaching its 53rd year - offers programs and services geared toward providing capital access, entrepreneurial counseling and training, government contracting assistance, and access to online information related to all aspects of business development and ownership. "Our services are delivered through a nationwide network of SBA offices located in 100 cities across the country, as well as through partners and funded organizations in each state," Roussel notes.

The Illinois District Office specifically has 40 employees located in Chicago and is responsible for a branch office located in Springfield, IL, which has nine employees. If you want to take advantage of the many ways that the SBA can provide assistance - whether you are a small business owner or a prospective owner - simply call or visit your local SBA office, or visit a Small Business Development Center (SBDC), which are usually located at participating colleges and universities. Or, you may apply for an SBA loan directly through your bank.

According to Roussel, the SBA has various definitions of a small business that vary by government program and by industry. Some size standards are based on revenue; others are based on number of employees. The complete standards are available on the SBA's website and are published in its regulations handbook. Additionally, there are special emphasis programs, or initiatives, available that focus on service and assistance to women-owned businesses as well as minorities, veterans and the disabled - ensuring that everyone has access to government services.

Finding Funding

The SBA takes a different approach to helping businesses in need. According to Roussel, small business borrowers apply directly to banks and other non-bank lenders. "These lenders have established relationships with the SBA and will deal directly with the SBA for a guarantee of up to 85 percent if they agree to make the loan," she explains. "Our guaranteed portion of a loan may be up to $1 million (more for international trade). The borrower does not have to apply to or deal directly with the SBA. The SBA also provides loan funds to micro-lenders - community-based, non-profit lending organizations - that in turn lend up to $35,000 directly to very small start-ups or home-based enterprises and provide technical assistance to them in an effort to help ensure their operational success."

Roussel adds that working in these public and private partnerships allows the SBA to dramatically increase the amount of the loans and the dollar value the agency is able to fund each year. "By guaranteeing rather than by directly lending, we can ensure that a lot more money goes into the hands of small businesses that need capital," she emphasizes.

The SBA offers two types of loans. The 7A - the most common loan - can be used to purchase equipment, supplies and inventory; can be used for working capital; or used for nearly any other purpose. The 504 loan covers real estate acquisition or construction and major equipment where long-term financing would be needed.

Targeting Training

The SBA also offers education and training to employees of small businesses. According to Roussel, the SBA has ongoing relationships with a number of organizations that specialize in management training and technical assistance. "One such organization - SCORE (Service Corps of Retired Executives) - is a national organization with chapters all around the country," she states. "They work very closely with us, providing regular workshops on starting a small business as well as specific ones geared toward various aspects of running a small business, and offer one-on-one counseling.

"People pay a small fee for the workshop to cover the cost of materials," she continues. "Beyond that, the counseling is free. These are retired, successful business executives or owners who have expertise that they try to match up to the type of business that somebody needs guidance with."

The SBA has another major partner in the form of Small Business Development Centers (SBDCs) - which have locations in every state. "The SBDCs are designed to deliver up-to-date counseling, training and technical assistance in all aspects of small business management," Roussel explains. SBDC services include assisting small businesses with financial, marketing, production, organization, engineering and technical problems and feasibility studies. Special SBDC programs and economic development activities include international trade assistance, technical assistance, procurement assistance, venture capital formation and rural development.

SBDC assistance is tailored to the local community and the needs of individual clients. "Each center develops services in cooperation with local SBA district offices to ensure statewide coordination with other available resources," Roussel adds. "The SBA provides 50 percent or less of the operating funds for each state SBDC; one or more sponsors provide the rest. These matching fund contributions are provided by state legislatures, private sector foundations and grants, state and local chambers of commerce, state-chartered economic development corporations, public and private universities, vocational and technical schools, community colleges, etc."

Cleverly Contracting

Government contracting assistance is another major part of the SBA's operations. "The federal government buys $200 billion a year in goods and services, so literally it buys just about anything you could name," Roussel points out. "There are laws in place that say that the government should do its purchasing to the greatest extent possible from small businesses. There are four main programs: prime contracting assistance, subcontracting assistance, government property sales assistance and the certificate of competency program. The objective of the programs is to assist small businesses in obtaining a fair share of federal government contracts, subcontracts and property sales."

A number of small businesses that want to sell to the government do so through SBA programs that require them to be certified by the SBA as 8(a) contractors, Small Disadvantaged Businesses (SDB) or as qualified HUBZone companies. These certifications allow them to receive sole source contracts or price preferences, or to compete only with other certified companies for contracts under the respective programs.

Prudently Publicizing

The SBA markets extensively through participation in business conferences, seminars, trade shows and other activities, through its funded partners and other organizations. It places Public Service Announcements on radio and TV and produces a live talk show on Public Access TV. Roussel admits that the organization's biggest challenge marketing-wise is to operate within restrictions that the government has in place. "There are resources out there that we can tap into, but we have to operate within certain guidelines," she comments. "For instance, there are restrictions on how, to what level, for what purpose, etc., a private sector organization can put up money for a government function. We have to remain neutral and be careful not to give preference to or endorse organizations."

To that end, Roussel notes that the SBA's priority is to centralize or outsource most "back office" functions and re-train/deploy more staff to help make its presence known and deliver its programs and services through more public/private partnerships. "This fall, we also will launch an exciting new e-procurement program called the SBA Exchange that will revolutionize the way the federal government does business with small businesses and will give more small companies access to government contracting opportunities through the use of technology," she states. This program - Roussel's brainchild and two years in the making - is not only a major undertaking on SBA's part, but the organization also wants all government agencies involved. "We are asking every government agency to adopt it and use this system exclusively for buying from small businesses up to $100,000 purchases," she says.

The SBA might not be the largest agency in the United States, but for those who qualify and use it to their advantage, its impact on small businesses can be powerful. "We have a major mandate and responsibility," Roussel summarizes, "and I think our accomplishments also have been major."

Business Plan Know-How
Have you ever wondered how to write a solid business plan - something that encompasses everything your company is about and the direction you want to take? The Small Business Administration (SBA) spells it out in clear, simple steps.

The body of the business plan can be divided into four distinct sections: 1) the description of the business, 2) the marketing plan, 3) the financial management plan, and 4) the management plan. Addenda to the business plan should include the executive summary, supporting documents and financial projections.

1. Description of the Business
In this section, provide a detailed description of your business. An excellent question to ask yourself is: "What business am I in?" In answering this question, include your products, market and services as well as a thorough description of what makes your business unique.

The business description section is divided into three primary sections: an actual description of your business, the products and/or services you offer and the location of the business.

Description
When describing your business, you should explain the legalities, business type, what your product or service is, why your business will be profitable, when your business will be open and what you have learned about your kind of business from outside sources.

Product/Service
Try to describe the benefits of your goods and services from your customers' perspective. Successful business owners know - or at least have an idea - of what their customers expect from them.

The Location
The location of your business can play a decisive role in its success or failure. Your location should be built around your customers - it should be accessible and it should provide a sense of security.

2. The Marketing Plan
Marketing plays a vital role in successful business ventures. How well you market your business, along with a few other considerations, will ultimately determine your success or failure. The key element of a successful marketing plan is to know your customers.

Competition
Competition is a way of life. It is relatively safe to conclude that business is a highly competitive, volatile arena. Because of this volatility and competitiveness, it is important to know your competitors.

Start a file on each of your competitors. Keep manila envelopes of their advertising and promotional materials and their pricing strategy techniques. Review these files periodically, determining when and how often they advertise. Study the copy used in the advertising and promotional materials, and their sales strategy. Doing so can help you to understand your competitors better and how they operate their businesses.

Pricing and Sales
Your pricing strategy is another marketing technique you can use to improve your overall competitiveness. Get a feel for the pricing strategy that your competitors are using. The key to success is to have a well-planned strategy, to establish your policies and to constantly monitor prices and operating costs to ensure profits.

Advertising and Public Relations
How you advertise and promote your goods and services may make or break your business. Having a good product or service and not advertising is like not having a business at all. Advertising and promotion is the lifeline of a business and should be treated as such.

Devise a plan that uses advertising and networking as a means to promote your business. Remember that the more care and attention you devote to your marketing program, the more successful your business will be.

3. The Management Plan
Managing a business requires more than just the desire to be your own boss. It demands dedication, persistence, the ability to make decisions, and the ability to manage both employees and finances. Your management plan, along with your marketing and financial management plans, sets the foundation for and facilitates the success of your business.

Like plants and equipment, people are resources - they are the most valuable assets that a business has. You will soon discover that employees and staff will play an important role in the total operation of your business. Consequently, it's imperative that you know what skills you possess and those you lack since you will have to hire personnel to supply the skills that you lack. Additionally, it is imperative that you know how to manage and treat your employees.

4. The Financial Management Plan
Sound financial management is one of the best ways for your business to remain profitable and solvent. How well you manage the finances of your business is the cornerstone of every successful business venture. As a business owner, you will need to identify and implement policies that will ensure that you will meet your financial obligations.

To effectively manage your finances, plan a sound, realistic budget by determining the actual amount of money needed to open your business and the amount needed to keep it open. The first step to building a sound financial plan is to devise a start-up budget. Your start-up budget will include such one-time-only costs as major equipment, utility deposits, down payments, etc.

An operating budget is prepared when you are actually ready to open for business. The operating budget will reflect your priorities in terms of how you spend your money, the expenses you will incur and how you will meet those expenses (income). Your operating budget also should include money to cover the first three to six months of operation.

The financial section of your business plan should include any loan applications you've filed, a capital equipment and supply list, balance sheet, breakeven analysis, pro-forma income projections and pro-forma cash flow. The income statement and cash flow projections should include a three-year summary, detailed by month for the first year and detailed by quarter for the second and third years.

Your plan should include an explanation of all projections. Unless you are thoroughly familiar with financial statements, get help in preparing your cash flow and income statements and your balance sheet. Your aim is not to become a financial wizard, but to understand the financial tools well enough to gain their benefits.