The U.S. economy has been the world’s largest economy for the last 142 years. It holds this position courtesy of the innovativeness and creativity of the American people coupled with strong government-initiated support systems, which foster advancement in all realms of the economy. A good example of the initiatives taken by the American government to promote economic expansion was the enactment of the Small Business Act of 1953 (DeHaven & De Rugy, 2011). This Act facilitated the establishment of an agency known as Small Business Administration (SBA) to foster the development and growth of small businesses across America (About SBA, 2014). This paper examines SBA and its activities in a bid to understand how it contributes to the American economy.
Overview of SBA
SBA is a U.S. federal government agency, whose mandate is to support budding entrepreneurs and small businesses across the country (About SBA, 2014). It replaced the Reconstruction Finance Corporation (RFC), which only focused on reconstruction in the wake of disasters (DeHaven & De Rugy, 2011). The agency has an administrator at its helm, followed by a deputy administrator, and twenty two associate administrators who head each of its 22 departments (About SBA, 2014). After going through a rough time during President Bush’s tenure, President Obama rejuvenated the agency by increasing its budgetary allocations and elevating its administrator to a cabinet status.
SBA operates offices in all the U.S. states. Its state level offices work in liaison with the head office to ensure that each region receives the kind of assistance it needs. Arguably, SBA endeavors to stay true to its mission, which is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters” (About SBA, 2014, par. 2).
SBA’s Operational Strategy
SBA operates a variety of programs, which focus on achieving its objectives. The programs are broadly classified into what it calls the 3 Cs, which are capital, contracts, and counseling (About SBA, 2014). SBA endeavors to achieve its objectives by organizing its 3 Cs into programs, which include entrepreneurial development programs such as Small Business Development Centers, Women’s Business Centers, and Service Corps for Retired Executives (About SBA, 2014). These centers are situated at strategic locations across America and provide aspiring entrepreneurs and small business owners with business ideas and training.
SBA also operates federal contracting and business development programs. Under this category of programs are initiatives such as the Business Development Program, which seeks to uplift the business endeavors of marginalized groups and the HUBZone program, which promotes the development of small companies in historically underutilized business (HUB) zones (About SBA, 2014).
Besides the outlined programs, SBA serves as a guarantor for small business owners seeking credit facilities from the financial institutions (About SBA, 2014). It works with existing financial institutions to ensure that small business operators gain access to the loans.
The Beneficiaries of SBA
The agency serves a wide range of people with a variety of business needs. To begin with, its loan guarantee program assists people with brilliant business ideas, but lack the necessary resources (Tackla, 2003). Additionally, it assists small business operators to expand their businesses. SBA also operates a fixed asset financing program, which targets small business operators who seek to build or purchase premises for their businesses (DeHaven & De Rugy, 2011). This program also supports the purchase of equipment or machinery for small businesses. Apart from small business operators, SBA provides reconstruction support for renters and homeowners in the wake of disasters (About SBA, 2014).
Besides the assistance offered through loan programs, SBA assists marginalized groups within the society to establish businesses and access government contracts (Tackla, 2003). These groups include women, veterans, and other minority groups such as the disabled.
Advantages and Disadvantages of Utilizing SBA Services
Like any in any other case, SBA services have their advantages and disadvantages. Their advantages include convenience, accessibility, and availability of multiple loan options as well as low interest rates and access to counseling services (Tackla, 2003). SBA services are available in all the states of America. The framework it has set up ensures that the most deserving people access the assistance they need. Additionally, there are many options for those seeking assistance. Further, the loan services offered by SBA attract low interest rates. To cap it all, every SBA beneficiary can access relevant training and guidance whenever they need it. Thus, the agency offers assistance and guides its beneficiaries until they are able to move on independently.
Nonetheless, SBA’s services also have a number of disadvantages. Firstly, SBA loans take slightly longer to process compared to conventional credit services (Blackburne, 2014). Secondly, SBA lenders take almost all collateral that a beneficiary may have such that after getting an SBA loan, not much is left to give as collateral to other lenders (Blackburne, 2014). Finally, SBA loans attract prepayment penalties (Blackburne, 2014). The penalties vary in magnitude for different loans, but almost all SBA loans attract prepayment penalties.
Success Rate of SBA Loans
The success rate of SBA loans has been an issue of concern in the recent past. DeHaven and De Rugy (2011) note that between 2001 and 2010, the failure rate of SBA loans was 19.4%. They add that this failure rate is unwarranted, especially considering that the SBA’s programs cover only a small number of businesses across America (DeHaven & De Rugy, 2011). However, it should be noted that if the failure rate was 19.4% during the specified period, the success rate of SBA loans was slightly above 80%. As such, despite the criticism elicited by the agency’s activities, its programs are considerably successful.
An SBA Success Story
There are numerous success stories that are attributable to SBA programs. Each of the regional offices of SBA documents its success stories and posts them on the SBA website to underscore the importance of the agency’s programs. A case in point is the Mainstream Engineering success story, which was posted by the South Florida District office. Mainstream Engineering is a small business that was founded by Robert Scaringe over 25 years ago (South Florida District Office Success Stories, 2014). Over the last 25 years, it has received a total of $61 million in venture capital from the Small Business Innovation Research (SBIR) program run by SBA (South Florida District Office Success Stories, 2014). With this capital, Mainstream Engineering was able to develop 26 different product categories for the federal government. Additionally, Scaringe started three other companies from the proceeds of the products that were developed by Mainstream Engineering (South Florida District Office Success Stories, 2014). Currently, Scaringe is considered one of the most successful small business owners in South Florida.
Conclusion
Apparently, SBA is making a difference in the American economy. Despite criticism, the agency’s programs and activities embody its determination to achieve its objectives. It may be operating at a smaller scale than expected, but the beneficiaries of SBA programs are certainly contributing positively to the development of the American economy. In a nutshell, the agency is a noble idea that should be supported by all Americans.
References
About SBA: The U.S. Small Business Administration. (2014). Web.
Blackburne, G. (2014). SBA loan disadvantages. Web.
DeHaven, T., & De Rugy, V. (2011). Terminating the small business administration. downsizing the federal government.
South Florida District Office Success Stories: The U.S. Small Business Administration. (2014). Web.
Tackla, M. (2003). The ABCs of SBA loans. Web.