What Is the Small Business Administration (SBA)?

Definition, History, and Programs of the SBA

Small business owner in kitchen checking supplies on tablet
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The U.S. Small Business Administration (SBA) is an independent agency of the federal government, with a mission to help Americans start, build, and grow businesses. 

The SBA can be a helpful resource for many business owners. In this article, you’ll learn exactly what the SBA is, how it works, what services it offers, and how the agency was established. 

What Is the Small Business Administration (SBA)?

In 1953, the SBA was created by the federal government with the following mission in mind: 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 is the only cabinet-level federal agency fully dedicated to small businesses. It acts as a go-to resource and voice for small businesses, providing counsel, capital, and expertise.

Acronym: SBA

How the SBA Works

The SBA empowers entrepreneurs and small business owners with the resources and support they need to start, grow or expand their businesses, or recover from a declared disaster. It remains true to its mission by offering services through an extensive nationwide network of field offices and partnerships with public and private organizations.

The SBA provides financial counseling, government contracts, loans, loan guarantees, and other types of support to small businesses. Instead of providing direct loans, the SBA typically partners with banks, credit unions, and other lenders; however, its disaster loan program and Program for Investment in Micro-Entrepreneurs (PRIME) are both exceptions. 

The SBA has four main programs in place, all of which are free to any small business that applies.

Access to Capital

The federal government partially guarantees SBA loans made by its partner banks, credit unions, or other lenders. With help of its partner constituents, various financing options are supplied to small businesses that may be denied funding under conventional lending guidelines. The SBA loan programs vary in purpose, helping businesses do everything from get out of debt to expand. 

Entrepreneurial Development

The SBA offers free counseling and low-cost training in more than 1,800 areas across the country for both entrepreneurs and small businesses. Through grant funds, the agency runs over 1,000 services such as Small Business Development Centers, Women’s Business Centers, and SCORE chapters—a volunteer-based mentor group that pairs new entrepreneurs with retired and experienced leaders in the field.

Government Contracting

The Government and Contracting SBA Office collaborates with federal departments and agencies to guarantee that 23% of prime federal contracts go to small businesses. It’s required that at least 5% of the total is given to women-owned businesses and disadvantaged businesses, and at least 3% is given to disabled, veteran-owned businesses, as well as certified HUBZone (Historically Underutilized Business Zones) businesses.

Advocacy

The SBA promotes the agenda of small businesses and monitors the small business environment. It evaluates congressional legislation, assesses the impact of regulations, and testifies on behalf of small businesses. 

Small businesses experiencing financial hardship right now should visit the SBA’s Recovery hub to connect with its resource partner nationwide network.

What Businesses Can Get SBA Help?

The SBA has a range of definitions unique to each industry regarding what qualifies as a small business. This information will tell you which businesses are eligible for government contracts or loan programs.  

America’s small businesses are defined as any business that:

  • Is established for profit 
  • Has a business located in the country, and operates mainly within the U.S. or makes a significant contribution to the economy through taxes or use of domestic products, materials or labor
  • Is a sole proprietorship, partnership, or corporation
  • Is owned and operated independently
  • Is not dominant in its field (measured nationally)

For local resources, visit the SBA’s online directory.

History of the SBA

While the SBA was officially created by Congress in 1953, it’s the result of several different government agencies that were established earlier, largely in response to the strains put on small businesses during the Great Depression and World War II.

Early versions of the SBA include:

  • The Reconstruction Finance Corporation (RFC): This was a federal lending program established in 1932 to help mitigate the financial crisis of the Great Depression.
  • The Smaller War Plants Corporation (SWPC): Founded in 1942, the SWPC gave smaller businesses an opportunity to compete in the production of war material.
  • Small Defense Plants Administration (SDPA): Created during the Korean War in 1951, the SDPA’s purpose was to handle small business concerns and certify those that could fulfill government contracts.

In 1952, when a move was made to dissolve the RFC, President Dwight Eisenhower initiated the creation of the SBA to Congress to continue the duties of the earlier agencies.

Six years later, the Small Business Investment Company (SBIC) Program was added to the SBA in an effort to regulate and aid in the provision of funds for privately owned venture capital investment firms. The Equal Opportunity Loan (EOL) Program was then established in 1964 to assist small business owners who live below the poverty line and struggle to attract financial backing. 

The SBA serves more than 1 million entrepreneurs and small business owners yearly through a budget of $985 million, and has at least one office in every state. Its programs now include specialized outreach to women, minorities, and armed forces veterans, among others. 

Key Takeaways

  • The SBA was established in 1953 to aid, counsel, assist, and protect small businesses
  • It’s the only go-to resource and advocate for small businesses that is backed by the strength of the federal government
  • The SBA provides free assistance via four main programs: Access to Capital, Entrepreneurial Development, Government Contracting, and Advocacy