The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. The SBA helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships with public and private organizations, SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam.
Economic Development Specialist/Public Information Officer
U.S. Small Business Administration
10 Causeway Street, Room 265
Boston, MA 02222
While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. Whether you’re starting a business or expanding one, sufficient ready capital is essential.
Before inquiring about financing, ask yourself the following:
There are two general types of financing: equity and debt financing. The more money, or equity, you have invested in your business, the easier it is to attract financing. If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, you should increase your equity before you borrow additional money. That way you won’t be over-leveraged to the point of jeopardizing your company’s survival.
Equity financing can be sought from non-professional investors such as friends, relatives, employees, customers, or industry colleagues, although venture capitalists are the most common source. Most specialize in one or a few closely related industries. Most venture capitalists prefer three-to-five-year old companies that have the potential to become major regional or national businesses and return higher-than-average profits.
There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the SBA are the most common. Many state and local governments have small business lending programs. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller.
Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available.
Check out the SBA Loan Programs section of www.SBA.gov for more information on SBA lending. If you’re ready to begin the loan application process, start with SBA’s online Lender Match – a free online referral tool that connects small businesses with participating SBA-approved lenders.