Finance free essays: Identifying Funding Requirements
Small businesses have a major contribution to the economy. In the US, for instance, small businesses account for approximately 564percent of sales made by all firms in the private and public sectors. As well, the small business sector is the leading employer, accounting for around 56 percent of all jobs in the US (SBA, 2016a). In order to perform optimally, small businesses require adequate financial support. However, the ability for most owners of small businesses to access loans is limited by the lack of adequate asset base. Also, the conventional bank process takes long. The U.S Small Business Administration (SBA) provides small businesses with better funding alternatives to the traditional loan options to a person seeking to expand a small business. In this regard, this paper explores SBAs funding options available for small businesses. As well, the paper explores the funding requirements stipulated by SBA.
SBA is a government agency through which the US government provides funding to small businesses. SBA supports small businesses through financial institutions. The organization has two funding options for small businesses, namely loans and grants (SBA, 2016b). The organization also directs people seeking to establish or support small businesses to seek financial support from venture capitalists. The organization participates in three programs that provide financial support to small businesses, namely the Basic 7(a) Loan Program, the Microloan Program and the Certified Development Company 504 Loan Program (SBA, 2016c). The programs support individuals planning to start small businesses as well as those seeking to support existing small businesses. The Basic 7(a) Loan Program and the Microloan Program are the best funding options for small businesses since they do not require the owners to have adequate asset base (SBA, 2016c). SBA also provides small businesses with special purpose loans that are meant to support firms that meet the eligibility criteria. The other types of loans offered to small businesses by the SBA are export assistance loans and disaster loans (SBA, 2016c).
For a small business to be eligible for the loans offered by SBA, it must be profit-oriented. Second, the small business must be operating in the US market. Third, the owner must have reasonable equity in the business (SBA, 2016d). Fourth, the owner of the business must provide proof that he/she is unable to adequately access funding from other sources. Fifth, the business must meet qualify as a small business as defined by the SBA. For instance, the firms that qualify as small businesses should have more than 1500 employees SBA, 2016d). Further, the person seeking for a loan should be able to demonstrate that he/she actually needs financial support. Also, the person must show that the loan proceeds will be used for a sound purpose. Last, the person seeking the loan must not have faulted to pay other loans to financial institutions in the US (SBA, 2016d).
SBA, however, makes special considerations to some businesses. The businesses included in the special consideration list of SBA include franchises, recreational facilities, fishing vessels, agricultural and farm businesses, legal allens, medical facilities and parole organizations (SBA, 2016e). The SBA has also identified small businesses that are not eligible for the loans. Small firms that engage in speculation lending and investment, pyramid sales plans and activities, gambling, multi-sales distribution, speculation, loan packaging and illegal activities are not eligible(SBA, 2016e). Further, those who meet the eligibility criteria must have the items needed by the lenders or institutions that SBA deals with. For instance, a person seeking funding to support an existing business must submit resume, business plan, legal documents such as the license, financial statements, income tax returns and a filled loan application form (SBA, 2016f).
Although the SBA gives out grants, profit-oriented organizations are not eligible. Instead, the organization gives grants to non-profit organizations such as institutions engaging in scientific research, schools and healthcare facilities (SBA, 2016g). If a person seeking to establish or to support a small business is not eligible for the SBA loans, he/she can seek financial support from venture capitalists listed in the directory for Small Business Investment Company (SBIC) (SBA, 2016h). SBIC is regulated by SBA, although it makes independent decisions. SBIC is a program that works with licensed investors to provide funding meant for supporting the establishment or expansion of small businesses. The venture capitalists support small businesses with the aim of making profits (SBA, 2016h).
In short, a person seeking funding to expand a small business, who does not have adequate base assets, should focus on accessing the loans offered by SBA. The most suitable loans are those that the organization offers under the Basic 7(a) Loan and the Microloan Programs. However, the person seeking funding should ensure that the business meets the loan eligibility criteria outlined by the SBA. As well, the person must meet the requirements of the lenders or the financial institutions that work with SBA. In case the business is not profit-oriented, the owner can try to seek for a grant. If there is no way to access funding from SBA, a person can seek financial support from venture capitalists through the SBIC program.
SBA (2016a). Small Business Trends. Retrieved from
SBA (2016c). SBA loans. Retrieved from
SBA (2016g). Grants. Retrieved from
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