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  1. 1. BUSINESSRESOURCERESOURCESMALLSMALLNATIONALSPRING • connect with us @ on SBA’sRecord Yearpage 31CounselingCapitalContractingPAGE5PAGE10PAGE21
  2. 2. SMALL BUSINESScontentsSPRING NATIONAL ‘12AdvertisingPhone: 863-294-2812 • 800-274-2812Fax: 863-299-3909 • www.sbaguides.comStaffPresident/CEOJoe Jensen jjensen@reni.netEnglish Small Business Resource AdvertisingNicky Harvey nharvey@reni.netMartha Theriault mtheriault@reni.netKenna Rogers krogers@reni.netProductionDiane Traylor dtraylor@reni.netSBA’s Marketing Office:The Small Business Resource Guide is publishedunder the direction of SBA’s Office of Marketing andCustomer Service.Director of MarketingPaula Panissidi paula.panissidi@sba.govEditorial Content marketinghq@sba.govGraphic DesignGary Shellehamer gary.shellehamer@sba.govSBA’s participation in this publication is not anendorsement of the views, opinions, products orservices of the contractor or any advertiser or otherparticipant appearing herein. All SBA programsand services are extended to the public on anondiscriminatory basis.Printed in the United States of AmericaWhile every reasonable effort has been madeto ensure that the information contained hereinwas accurate as of the date of publication, theinformation is subject to change without notice.Neither the contractor, the federal government,or agents thereof shall be held liable for anydamages arising from the use of or reliance on theinformation contained in this publication.SBA Publication # MCS-0018This publication is provided under SBA Contract# SBAHQ05C0014.ReniPublishingPublishers of Small Business ResourceFEATURES4 Administrator’s Letter5 Counseling Getting help to start up, market and manage your business. 5 SBA Resource Partners 6 SBA’s Online Tools and Training 7 Reaching Underserved Communities 8 Are You Right for Small Business Ownership? 9 Writing a Business Plan 10 Capital Financing options to start or grow your business. 10 SBA Business Loans 12 What to Take to the Lender 17 Small Business Investment Company Program 17 Small Business Innovation Research Program 17 Small Business Technology Transfer Program 17 Surety Bond Guarantee Program 19 SBA Loan Program Chart21 Contracting Applying for Government Contracts. 21 How Government Contracting Works 22 SBA Contracting Programs 24 Getting Started in Contracting25 Disaster Knowing the types of assistance available for recovery.26 Advocacy and Ombudsman Watching out for small businessinterests.27 Additional Resources Taking care of start up logistics. 30 Business Organization: Choosing your Structure31 Feature: Building on SBA’s Record Year42 SBA Local Directory Quick and easy way to find any of the 68 districts at your finger tips.On the Cover: Mountain West Precast crewmember Colton Fletcher makes a precast highwaybarrier. Owned by Stephanie Loud, MWP is aconcrete precast company located in Ogden, Utah.As part of SBA’s 8(a) program MWP has grownfrom a staff of 2 to 14 employees in only seven yearsas a state and federal contractor.See more on Mountain West Precaston pg. 40Mountain West Precast crewmember Colton Fletcher.Visit us online: www.sba.gov2 Small Business Resource
  3. 3. 2011 was a record year forthe SBA. We helped over60,000 small businessessecure over $30 billion inlending through our flagship7(a) and 504 programs – anall-time record. We alsoworked with private-sectorpartners to drive a recordamount of capital ($2.8 billion) into thehands of over 1,000 high-growth businessesthrough Small Business InvestmentCompanies.As we entered 2012, the President signeda six-year extension of the Small BusinessInnovation Research program whichsupports small RD companies that driveinnovation and game-changing technologiesto keep America on the cutting edge. Wealso continue to streamline the paperworkon SBA loans in order to help more lendingpartners and their small-business customers.You can check out all of these programs inthis guide. Also, be sure to take a look at allof the SBA’s 2011 accomplishments in thelast few pages.As our economy continues to strengthen in2012, the Obama Administration is focusedon making sure that entrepreneurs and smallbusiness owners have the tools they needto grow and create jobs. After all, half ofworking Americans either own or work for asmall business, and two of every three newjobs are created by small businesses.Finally, check out our online tools. Forexample, at you cantype in your zip code and a few details aboutyour business, and you’ll immediately getconnected to SBA resources in your localarea.America’s small businesses are gearing upto lead our nation’s economic recovery andcreate the jobs we need now. Please feel freeto contact your local SBA office if you haveany questions. We stand ready to help inwhatever way we can.Sincerely,Karen G. MillsAdministratorSmall Business AdministrationEvery year, the U.S. Small Business Administration and its nationwidenetwork of partners help millions of potential and current smallbusiness owners start, grow and succeed.Resources and programs targeting small businesses provide anadvantage necessary to help small businesses compete effectively inthe marketplace and strengthen the overall U.S. economy.SBA offers help in the following areas: • Counseling • Capital • Contracting • Disaster Assistance • Advocacy and the OmbudsmanVisit SBA online at for 24/7 access to small businessnews, information and training for entrepreneurs.All SBA programs and services are provided on a nondiscriminatorybasis.About the SBAwww.sba.govYour Small Business ResourceFROM THE ADMINISTRATORThe U.S. Small Business AdministrationVisit us online: www.sba.gov4 Small Business Resource
  4. 4. Visit us online: Small Business Resource 5COUNSELINGEvery year, the U.S. SmallBusiness Administrationand its nationwide networkof resource partners helpmillions of potential andexisting small business owners start,grow and succeed. Whether your target market is globalor just your neighborhood, the SBA andits resource partners can help at everystage of turning your entrepreneurialdream into a thriving business. If you’re just starting out, the SBAand its resources can help you withloans and business management skills.If you’re already in business, you canuse the SBA’s resources to help manageand expand your business, obtaingovernment contracts, recover fromdisaster, find foreign markets, andmake your voice heard in the federalgovernment. You can access SBA information or visit one of our localoffices for assistance.SBA’S RESOURCEPARTNERS In addition to our district offices whichserve every state and territory, SBAworks with a variety of local resourcepartners to meet your small businessneeds. These professionals can helpwith writing a formal business plan,locating sources of financial assistance,managing and expanding your business,finding opportunities to sell your goodsor services to the government, andrecovering from disaster. To find yourlocal district office or SBA resourcepartner, visit SCORE is a national network ofover 14,000 entrepreneurs, businessleaders and executives who volunteer asmentors to America’s small businesses.SCORE leverages decades of experiencefrom seasoned business professionalsto help small businesses start, growcompanies and create jobs in localcommunities. SCORE does this byharnessing the passion and knowledgeof individuals who have owned andmanaged their own businesses and wantto share this “real world” expertise withyou. Found in more than 370 offices and800 locations throughout the country,SCORE provides key services – bothface-to-face and online – to busyentrepreneurs who are just gettingstarted or in need of a seasonedbusiness professional as a soundingboard for their existing business. Asmembers of your community, SCOREmentors understand local businesslicensing rules, economic conditions andimportant networks. SCORE can helpyou as they have done for more than9 million clients by:• Matching your specific needs with abusiness mentor• Traveling to your place of business foran on-site evaluation• Teaming with several SCORE mentorsto provide you with tailored assistancein a number of business areas Across the country, SCORE offersnearly 7,000 local business trainingworkshops and seminars rangingin topic and scope depending on theneeds of the local business communitysuch as offering an introduction tothe fundamentals of a business plan,managing cash flow and marketing yourbusiness. For established businesses,SCORE offers more in-depth trainingin areas like customer service, hiringpractices and home-based businesses. For around-the-clock business adviceand information on the latest trends goto the SCORE website ( than 1,500 online mentors withover 800 business skill sets answer yourquestions about starting and running abusiness. In fiscal year 2011, SCOREmentors served 400,000 entrepreneurs. For information on SCORE and to getyour own business mentor,, go to www.SCORE.orgor call 1-800-624-0245 for the SCOREoffice nearest you.SMALL BUSINESSDEVELOPMENT CENTERS The U.S. Small BusinessAdministration’s Small BusinessDevelopment Center (SBDC) program’smission is to build, sustain, andpromote small business developmentand enhance local economies bycreating businesses and jobs. Thisis accomplished by the provision andensuing oversight of grants to colleges,universities and state governments sothat they may provide business adviceand training to existing and potentialsmall businesses. The Small Business DevelopmentCOUNSELINGGetting Help to Start Up, Market and Manage Your Business• You get to be your own boss.• Hard work and long hours directly benefit you,rather than increasing profits for someone else.• Earnings and growth potential are unlimited.• Running a business will provide endlessvariety, challenge and opportunities to learn.ON THE UPSIDEIt’s true, there are a lot ofreasons not to start yourown business. But for theright person, the advantagesof business ownership faroutweigh the risks.
  5. 5. Visit us online: www.sba.gov6 Small Business ResourceCenter program, vital to SBA’sentrepreneurial outreach, has beenproviding service to small businessesfor more than 30 years. It is one of thelargest professional small businessmanagement and technical assistancenetworks in the nation. With over 900locations across the country, SBDCsoffer free one-on-one expert businessadvice and low-cost training by qualifiedsmall business professionals to existingand future entrepreneurs. In addition to its core services, theSBDC program offers special focus areassuch as, green business technology,disaster recovery and preparedness,international trade assistance, veteran’sassistance, technology transfer andregulatory compliance. The program combines a uniquemix of federal, state and privatesector resources to provide, in everystate and territory, the foundationfor the economic growth of smallbusinesses. The return on investmentis demonstrated by the program during2011:• Assisted more than 13,660 entrepreneursto start new businesses – equating to 37new business starts per day.• Provided counseling services to over106,000 emerging entrepreneurs andnearly 100,000 existing businesses.• Provided training services toapproximately 353,000 clients. The efficacy of the SBDC programhas been validated by a nationwideimpact study. Of the clients surveyed,more than 80 percent reported that thebusiness assistance they received fromthe SBDC counselor was worthwhile.Similarly, more than 50 percent reportedthat SBDC guidance was beneficial inmaking the decision to start a business.More than 40 percent of long-termclients, those receiving 5 hours or moreof counseling, reported an increasein sales and 38 percent reported anincrease in profit margins. For information on the SBDCprogram, visit’S BUSINESS CENTERS The SBA’s Women Business Center(WBC) program is a network of 110community-based centers which providebusiness training, coaching, mentoringand other assistance geared towardwomen, particularly those who aresocially and economically disadvantaged.WBCs are located in nearly every stateand U.S. territory and are partiallyfunded through a cooperative agreementwith the SBA. To meet the needs of womenentrepreneurs, WBCs offer servicesat convenient times and locations,including evenings and weekends.WBCs are located within non-profit hostorganizations that offer a wide varietyof services in addition to the servicesprovided by the WBC. Many of theWBCs also offer training and counselingand provide materials in differentlanguages in order to meet the diverseneeds of the communities they serve. WBCs often deliver their servicesthrough long-term training or groupcounseling, both of which have shown tobe effective. WBC training courses areoften free or are offered at a small fee.Some centers will also offer scholarshipsbased on the client’s needs While most WBCs are physicallylocated in one designated location, anumber of WBCs also provide coursesand counseling via the Internet, mobileclassrooms and satellite locations. WBCs have a track record of success.In fiscal year 2011, the WBC programcounseled and trained nearly 139,000clients, creating local economic growthand vitality. In addition, WBCs helpedentrepreneurs access more than $134million dollars in capital, representinga 400% increase from the previous year.Of the WBC clients that have received 3or more hours of counseling, 15 percentindicated that the services led to hiringnew staff, 34 percent indicated thatthe services led to an increased profitmargin, and 47 percent indicated thatthe services led to an increase in sales. In addition, the WBC program hastaken a lead in preparing womenbusiness owners to apply for theWomen-Owned Small Business(WOSB) Federal Contract programthat authorizes contracting officers toset aside certain federal contracts foreligible women-owned small businessesor economically disadvantaged women-owned small businesses. For moreinformation on the program, To find the nearest SBA WBC, LEADERS(e200) INITIATIVESBA’s Emerging Leaders (e200)Initiative is currently hosted in 27markets across the country using anationally demonstrated research-basedcurriculum that supports the growth anddevelopment of small to medium-sizedfirms that have substantial potentialfor expansion and community impact.A competitive selection process resultsin company executives participating inhigh-level training and peer-networkingsessions led by professional instructors.Post-training, social and economicimpact results from respondingexecutives who participated in the 2008– 2010 training classes indicate:• More than half of participatingbusinesses reported an increase inrevenue, with an average revenue of$1,879,266.• Participating businesses averaged $2million in revenue, with new cumulativefinancing of $7.2 million secured in 2010.• Nearly half of the participants securedfederal, state, local and tribal contractswith a cumulative total of $287 million.• Approximately half of the participantshave hired new workers, creating 275new jobs in 2010.• All participants were trained onbecoming SBA 8(a) certified firms;nearly 25 percent of respondents arecurrently certified as SBA 8(a) firms,while other participants reported afocused intention on applying to the 8(a)program.• Nearly 50 percent of participatingrespondents were female executivesand 70 percent were minority businessexecutives.• 85 percent of responding executiveswere Satisfied or Very Satisfied with theoverall training series and results.To find out more about this executive-level training opportunity, pleasevisit for host cities,training schedules, and selectioncriteria.SBA’S ONLINETOOLS AND TRAINING SBA’s Small Business TrainingNetwork is a virtual campus completewith free online courses, workshops,podcasts, learning tools and business-readiness assessments.Key Features of the Small BusinessTraining Network:Training is available anytime andanywhere — all you need is a computerwith Internet access.• More than 30 free online courses andworkshops available.• Templates and samples to get yourbusiness planning underway.• Online, interactive assessment tools arefeatured and used to direct clients toappropriate training. Course topics include a financialprimer keyed around SBA’s loan-guarantee programs, a course onexporting, and courses for veteransand women seeking federalcontracting opportunities, as well asan online library of podcasts, businesspublications, templates and articles. Visit for thesefree resources.COUNSELING
  6. 6. Visit us online: Small Business Resource 7 SBA also offers a number of programsspecifically designed to meet the needsof the underserved communities.WOMEN BUSINESS OWNERS Women entrepreneurs are changingthe face of America’s economy. In the1970s, women owned less than fivepercent of the nation’s businesses. Today, they are majority ownersof about a third of the nation’s smallbusinesses and are at least equal ownersof about half of all small businesses.SBA serves women entrepreneursnationwide through its various programsand services, some of which are designedespecially for women. The SBA’s Office of Women’s BusinessOwnership (OWBO) serves as anadvocate for women-owned businesses.OWBO oversees a nationwide networkof 110 women’s business centers thatprovide business training, counselingand mentoring geared specifically towomen, especially those who are sociallyand economically disadvantaged. Theprogram is a public-private partnershipwith locally-based nonprofits. Women’s Business Centers servea wide variety of geographic areas,population densities, and economicenvironments, including urban,suburban, and rural. Local economiesvary from depressed to thriving, andrange from metropolitan areas to entirestates. Each Women’s Business Centertailors its services to the needs of itsindividual community, but all offer avariety of innovative programs, oftenincluding courses in different languages.They provide training in finance,management, and marketing, as well asaccess to all of the SBA’s financial andprocurement assistance programs.CENTER FOR FAITH-BASED ANDNEIGHBORHOODPARTNERSHIPS Faith-Based and NeighborhoodPartnerships know their communities,and they have earned the communitiestrust. Because of their credibility,they are uniquely positioned to buildawareness of programs that encourageentrepreneurship, economic growth andjob creation. SBA is committed to reachingout to faith-based and communityorganizations that are eligible toparticipate in the agency’s programs byinforming their congregants, membersand neighbors about SBA’s programs.In particular, many faith-based andcommunity non-profit organizationscan provide a local financing optionfor entrepreneurs by becoming SBAMicroloan Intermediaries. An SBAMicroloan Intermediary often acts asa bank for entrepreneurs and smallbusinesses that might otherwise beunable to find access to capital.VETERANS AND RESERVISTSBUSINESS DEVELOPMENT Veterans, service-disabled veteransand Reserve and National Guardmember entrepreneurs receivespecial consideration in all of SBA’sentrepreneurial programs and resources.Each year, the Office of VeteransBusiness Development (OVBD)reaches thousands of veterans, ReserveComponent members, transitioningservice members and others who are –or who want to become – entrepreneursand small business owners. OVBDdevelops and distributes informationalmaterials for entrepreneurship such asthe Veterans Business Resource Guide,VETGazette, and Getting VeteransBack to Work. In addition, thereare 16 Veterans Business OutreachCenters strategically located throughoutthe country that provide both onlineand in-person training, counseling,mentoring, workshops, referrals, andmore. Each of the SBA’s 68 DistrictOffices also has a designated veteran’sbusiness development officer. The SBA offers special assistance forsmall businesses owned by activatedReserve and National Guard members.Any self-employed Reserve or Guardmember with an existing SBA loan canrequest from their SBA lender or SBAdistrict office loan payment deferrals,interest rate reductions and other reliefafter they receive their activation orders.In addition, the SBA offers speciallow-interest-rate financing to smallbusinesses when an owner or essentialemployee is called to active duty. TheMilitary Reservist Economic InjuryDisaster Loan Program (MREIDL)provides loans up to $2 million to eligiblesmall businesses to cover operating coststhat cannot be met due to the loss of anessential employee called to active dutyin the Reserves or National Guard. Among the SBA’s unique services forveterans are: an Entrepreneurship BootCamp for Veterans with Disabilities inpartnership with 6 top U.S. universities(, a programto reach women veteran-entrepreneurs( , and a program forReserve Component family memberscalled Operation Endure and Grow( For more information about smallbusiness lending programs for veteranbusiness owners and Reserve orGuard members who are activated,including Patriot Express, microloans,and Advantage loans, see the sectionon Access to Capital. To learn moreabout the Veterans Business Outreachprogram or find the nearest SBA VBOC,visit AMERICANBUSINESS DEVELOPMENT The SBA Office of Native AmericanAffairs (ONAA) ensures AmericanIndians, Alaska Natives and NativeHawaiians seeking to create, developand expand small businesses havefull access to the necessary businessdevelopment and expansion toolsavailable through the agency’sentrepreneurial development, lending,and contracting programs. ONAAprovides a network of training (includingthe online tool “Small BusinessPrimer: Strategies for Growth”) andcounseling services and engages innumerous outreach activities, such astribal consultations, development anddistribution of educational materials,attendance and participation ineconomic development events andassisting these small businesses withSBA programs. Visit for moreinformation.REACHING UNDERSERVED COMMUNITIESCOUNSELING
  7. 7. Visit us online: www.sba.gov8 Small Business Resource Most new business owners whosucceed have planned for every phaseof their success. Thomas Edison, thegreat American inventor, once said,“Genius is 1 percent inspiration and99 percent perspiration.” That samephilosophy also applies to starting abusiness. First, you’ll need to generate a littlebit of perspiration deciding whetheryou’re the right type of person to startyour own business.IS ENTREPRENEURSHIPFOR YOU? There is simply no way to eliminateall the risks associated with startinga small business, but you can improveyour chances of success with goodplanning, preparation, and insight.Start by evaluating your strengthsand weaknesses as a potential ownerand manager of a small business.Carefully consider each of the followingquestions:• Are you a self-starter? It will beentirely up to you to develop projects,organize your time, and followthrough on details.• How well do you get along withdifferent personalities? Businessowners need to develop workingrelationships with a variety ofpeople including customers, vendors,staff, bankers, employees, andprofessionals such as lawyers,accountants, or consultants. Canyou deal with a demanding client,an unreliable vendor, or a crankyreceptionist if your business interestsdemand it?• How good are you at makingdecisions? Small business owners arerequired to make decisions constantly– often quickly, independently, andunder pressure.• Do you have the physical andemotional stamina to run abusiness? Business ownership canbe exciting, but it’s also a lot of work.Can you face six or seven 12–hourworkdays every week?• How well do you plan andorganize? Research indicates thatpoor planning is responsible for mostbusiness failures. Good organization— of financials, inventory, schedules,and production — can help you avoidmany pitfalls.• Is your drive strong enough?Running a business can wear youdown emotionally. Some businessowners burn out quickly from havingto carry all the responsibility for thesuccess of their business on theirown shoulders. Strong motivationwill help you survive slowdowns andperiods of burnout.• How will the business affectyour family? The first few years ofbusiness start-up can be hard onfamily life. It’s important for familymembers to know what to expectand for you to be able to trust thatthey will support you during thistime. There also may be financialdifficulties until the business becomesprofitable, which could take monthsor years. You may have to adjust to alower standard of living or put familyassets at risk. Once you’ve answered thosequestions, you should consider whattype of business you want to start.Businesses can include franchises,at-home businesses, online businesses,brick-and-mortar stores or anycombination of those.FRANCHISING There are more than 3,000 businessfranchises. The challenge is to decideon one that both interests you and isa good investment. Many franchisingexperts suggest that you comparisonshop by looking at multiple franchiseopportunities before deciding on theone that’s right for you. Some of the things you shouldlook at when evaluating a franchise:historical profitability, effectivefinancial management and othercontrols, a good image, integrity andcommitment, and a successful industry. In the simplest form of franchising,while you own the business, itsoperation is governed by the terms ofthe franchise agreement. For many,this is the chief benefit for franchising.You are able to capitalize on a businessformat, trade name, trademark and/or support system provided by thefranchisor. But you operate as anindependent contractor with the abilityto make a profit or sustain a losscommensurate with your ownership. If you are concerned about startingan independent business venture, thenfranchising may be an option for you.Remember that hard work, dedicationand sacrifice are key elements inthe success of any business venture,including a franchise. Visit for moreinformation.HOME-BASED BUSINESSES Going to work used to meantraveling from home to a plant, store oroffice. Today, many people do some orall their work at home.Getting Started Before diving headfirst into a home-based business, you must know whyyou are doing it. To succeed, yourbusiness must be based on somethinggreater than a desire to be yourown boss. You must plan and makeimprovements and adjustments alongthe road. Working under the same roof whereyour family lives may not prove to beas easy as it seems. One suggestion isto set up a separate office in your hometo create a professional environment.Ask yourself these questions:• Can I switch from homeresponsibilities to business workeasily?• Do I have the self-discipline tomaintain schedules while at home?• Can I deal with the isolation ofworking from home?Legal Requirements A home-based business is subject tomany of the same laws and regulationsaffecting other businesses.Some general areas include:• Zoning regulations. If your businessoperates in violation of them, youcould be fined or shut down.• Product restrictions. Certainproducts cannot be produced in thehome. Most states outlaw homeproduction of fireworks, drugs,poisons, explosives, sanitary ormedical products and toys. Somestates also prohibit home-basedbusinesses from making food, drinkor clothing. Be sure to consult an attorney andyour local and state departmentsof state, labor and health to findout which laws and regulations willaffect your business. Additionally,check on registration and accountingrequirements needed to open yourhome-based business. You may needa work certificate or license from thestate. Your business name may needto be registered with the state. Aseparate business telephone and bankaccount are good business practices. Also remember, if you haveemployees you are responsible forwithholding income and social-security taxes, and for complying withminimum wage and employee healthand safety laws.ARE YOU RIGHT FOR SMALL BUSINESS OWNERSHIP?COUNSELING
  8. 8. Visit us online: Small Business Resource 9WRITING A BUSINESS PLAN After you’ve thought about whattype of business you want, thenext step is to develop a businessplan. Think of the business planas a roadmap with milestonesfor the business. It begins as apre-assessment tool to determineprofitability and market share, thenexpands as an in-business assessmenttool to determine success, obtainfinancing and determine repaymentability, among other factors. Creating a comprehensive businessplan can be a long process, and youneed good advice. The SBA and itsresource partners, including SmallBusiness Development Centers,Women’s Business Centers, VeteransBusiness Outreach Centers, andSCORE, have the expertise to help youcraft a winning business plan. SBAalso offers online templates to get youstarted. In general, a good business plancontains:Introduction• Give a detailed description of thebusiness and its goals.• Discuss ownership of the businessand its legal structure.• List the skills and experience youbring to the business.• Discuss the advantages you and yourbusiness have over competitors.Marketing• Discuss the products and servicesyour company will offer.• Identify customer demand for yourproducts and services.• Identify your market, its size andlocations.• Explain how your products andservices will be advertised andmarketed.• Explain your pricing strategy.Financial Management• Develop an expected return oninvestment and monthly cash flow forthe first year.• Provide projected income statements, and balance sheets for a two-year period.• Discuss your break-even point.• Explain your personal balance sheetand method of compensation.• Discuss who will maintain youraccounting records and how they willbe kept.• Provide “what if” statementsaddressing alternative approaches topotential problems.Operations• Explain how the business will bemanaged day-to-day.• Discuss hiring and personnelprocedures.• Discuss insurance, lease or rentagreements, and issues pertinent toyour business.• Account for the equipment necessaryto produce your goods or services.• Account for production and deliveryof products and services.Concluding Statement Summarize your business goalsand objectives and express yourcommitment to the success of yourbusiness. Once you have completedyour business plan, review it witha friend or business associate andprofessional business counselorlike SCORE, WBC or SBDCrepresentatives, SBA district officebusiness development specialistsor veterans business developmentspecialists. Remember, the business plan is aflexible document that should changeas your business grows.COUNSELING
  9. 9. Visit us online: www.sba.gov10 Small Business ResourceMany entrepreneurs needfinancial resources to startor expand a small businessthemselves and mustcombine what they havewith other sources of financing. Thesesources can include family and friends,venture-capital financing, and businessloans. This section of the Small BusinessResource guide discusses SBA’s primarybusiness loan and equity financingprograms. These are: the 7(a) LoanProgram, the Certified DevelopmentCompany or 504 Loan Program, theMicroloan Program and the SmallBusiness Investment CompanyProgram. The distinguishing featuresfor these programs are the total dollaramounts that can be borrowed, the typeof lenders who can provide these loans,the uses for the loan proceeds, and theterms placed on the borrower. Note: The SBA does not offer grantsto individual business owners to start orgrow a business.SBA BUSINESS LOANS If you are contemplating a businessloan, familiarize yourself with theSBA’s business loan programs to seeif they may be a viable option. Keepin mind the dollar amount you seek toborrow and how you want to use theloan proceeds. The three principalplayers in most of these programs arethe applicant small business, the lenderand the SBA. SBA guarantees a portionof the loan (except for Microloans).The business should have its businessplan prepared before it applies for aloan. This plan should explain whatresources will be needed to accomplishthe desired business purpose includingthe associated costs, the applicants’contribution, use of loan proceeds,collateral, and, most important, anexplanation of how the business willbe able to repay the loan in a timelymanner. The lender will analyze theapplication to see if it meets the lender’scriteria and SBA’s requirements. SBAwill look to the lender to do much, if notall, of the analysis before it providesits guaranty on the lender’s loan. Inthe case of microlenders, SBA loansthese intermediaries funds at favorablerates to re-lend to businesses withfinancing needs up to $50,000. TheSBA’s business loan programs provide akey source of financing for viable smallbusinesses that have real potential butcannot qualify for long-term, stablefinancing.7(a) LOAN PROGRAM The 7(a) Loan program is the SBA’sprimary business loan program. Itis the agency’s most frequently usednon-disaster financial assistanceprogram because of its flexibility inloan structure, variety of loan proceeduses, and availability. The program hasbroad eligibility requirements and creditcriteria to accommodate a wide range offinancing needs. The business loans that SBAguarantees do not come from theagency, but rather from banks and otherapproved lenders. The loans are fundedby these organizations, and they makethe decisions to approve or not approvethe applicants’ requests. The SBA guaranty reduces thelender’s risk of borrower non-payment.If the borrower defaults, the lendercan request SBA to pay the lender thatpercentage of the outstanding balanceguaranteed by SBA. This allows thelender to recover a portion from SBA ofwhat it lent if the borrower can’t makethe payments. The borrower is stillobligated for the full amount. To qualify for an SBA loan, a smallbusiness must meet the lender’scriteria and the 7(a) requirements. Inaddition, the lender must certify that itwould not provide this loan under theproposed terms and conditions unlessit can obtain an SBA guaranty. If theSBA is going to provide a lender witha guaranty, the applicant must beeligible and creditworthy and the loanstructured under conditions acceptableto SBA.Percentage of Guarantiesand Loan Maximums The SBA only guarantees a portion ofany particular loan so each loan will alsohave an unguaranteed portion, givingthe lender a certain amount of exposureand risk on each loan. The percentageSBA guarantees depends on either thedollar amount or the program the lenderuses to obtain its guaranty. For loans of$150,000 or less the SBA may guarantyas much as 85 percent and for loansover $150,000 the SBA can provide aguaranty of up to 75 percent. The maximum 7(a) loan amountis $5 million. (Loans made underthe SBAExpress program, which isdiscussed later in this section, have a 50percent guaranty.)Interest Rates and Fees The actual interest rate for a 7(a)loan guaranteed by SBA is negotiatedbetween the applicant and lender andCAPITALFinancing Options to Start or Grow Your BusinessCAPITAL
  10. 10. Visit us online: Small Business Resource 11subject to SBA maximums. Both fixedand variable interest rate structuresare available. The maximum rate iscomprised of two parts, a base rate andan allowable spread. There are threeacceptable base rates (Wall StreetJournal Prime*, London Interbank OneMonth Prime plus 3 percent, and anSBA Peg Rate). Lenders are allowedto add an additional spread to the baserate to arrive at the final rate. Forloans with maturities of less than sevenyears, the maximum spread will be nomore than 2.25 percent. For loans withmaturities of seven years or more, themaximum spread will be 2.75 percent.The spread on loans under $50,000and loans processed through Expressprocedures may be higher. Loans guaranteed by SBA areassessed a guaranty fee. This fee isbased on the loan’s maturity and thedollar amount guaranteed, not thetotal loan amount. The guaranty fee isinitially paid by the lender and thenpassed on to the borrower at closing.The funds to reimburse the lender canbe included in the loan proceeds. On any loan with a maturity of oneyear or less, the fee is just 0.25 percentof the guaranteed portion of the loan.On loans with maturities of more thanone year, the normal guaranty fee is 2percent of the SBA guaranteed portionon loans up to $150,000; 3 percent onloans over $150,000 but not more than$700,000; and 3.5 percent on loans over$700,000. There is also an additionalfee of 0.25 percent on any guaranteedportion over $1 million.* All references to the prime raterefer to the base rate in effect on thefirst business day of the month theloan application is received by SBA.7(a) Loan Maturities SBA loan programs are generallyintended to encourage longer term smallbusiness financing, but actual loanmaturities are based on the ability torepay, the purpose of the loan proceedsand the useful life of the assets financed.However, maximum loan maturitieshave been established: 25 years for realestate; up to 10 years for equipment(depending on the useful life of theequipment); and generally up to sevenyears for working capital. Short-termloans and revolving lines of credit arealso available through the SBA to helpsmall businesses meet their short-termand cyclical working capital needs.Structure Most 7(a) loans are repaid withmonthly payments of principal andinterest. For fixed-rate loans thepayments stay the same, whereasfor variable rate loans the lender canre-establish the payment amountwhen the interest rates change or atother intervals, as negotiated withthe borrower. Applicants can requestthat the lender establish the loan withinterest-only payments during thestart-up and expansion phases (wheneligible) to allow the business time togenerate income before it starts makingfull loan payments. Balloon paymentsor call provisions are not allowed on any7(a) loan. The lender may not charge aprepayment penalty if the loan is paidoff before maturity, but the SBA willcharge the borrower a prepayment feeif the loan has a maturity of 15 or moreyears and is pre-paid during the firstthree years.Collateral The SBA expects every 7(a) loan tobe fully secured, but the SBA will notdecline a request to guaranty a loan ifthe only unfavorable factor is insufficientcollateral, provided all availablecollateral is offered. What these twoCAPITAL
  11. 11. Visit us online: www.sba.gov12 Small Business Resourcepolicies mean is that every SBA loanis to be secured by all available assets(both business and personal) until therecovery value equals the loan amountor until all assets have been pledgedto the extent that they are reasonablyavailable. Personal guaranties arerequired from all the principal owners ofthe business. Liens on personal assets ofthe principals may be required.Eligibility 7(a) loan eligibility is based on fourdifferent factors. The first is size, asall loan recipients must be classified as“small” by SBA. The basic size standardsare outlined below. A more in-depthlisting of standards can be found Size Standards have the followinggeneral ranges:• Manufacturing — from 500 to 1,500employees• Wholesale Trades — Up to 100employees• Services — $2 million to $35.5 millionin average annual receipts• Retail Trades — $7 million to $35.5million in average annual receipts• Construction — $7 million to $33.5million in average annual receipts• Agriculture, Forestry, Fishing, andHunting — $750,000 to $17.5 millionin average annual receipts There is an alternate size standardfor businesses that do not qualify undertheir industry size standards for SBAfunding – tangible net worth($15 million or less) and average netincome ($5 million or less for twoyears). This new alternate makesmore businesses eligible for SBA loansand applies to SBA non-disaster loanprograms, namely its 7(a) BusinessLoans and Development Companyprograms.Nature of Business The second eligibility factor is basedon the nature of the business and theprocess by which it generates income orthe customers it serves. The SBA hasgeneral prohibitions against providingfinancial assistance to businessesinvolved in such activities as lending,speculating, passive investment,pyramid sales, loan packaging,presenting live performances of aprurient sexual nature, businessesinvolved in gambling and any illegalactivity. The SBA also cannot loan guarantiesto non-profit businesses, private clubsthat limit membership on a basisother than capacity, businesses thatpromote a religion, businesses owned byindividuals incarcerated or on probationor parole, municipalities, and situationswhere the business or its ownerspreviously failed to repay a federal loanor federally assisted financing. Documentation requirements mayvary; contact your lender for theinformation you must supply.Common requirements include thefollowing:• Purpose of the loan• History of the business• Financial statements for three years(existing businesses)• Schedule of term debts (existingbusinesses)• Aging of accounts receivable andpayable (existing businesses)• Projected opening-day balance sheet(new businesses)• Lease details• Amount of investment in the businessby the owner(s)• Projections of income, expenses andcash flow as well as an explanation ofthe assumptions used to develop theseprojections• Personal financial statements on theprincipal owners• Resume(s) of the principal owners andmanagers.How the 7(a) Program Works Applicants submit their loanapplication to a lender for the initialreview. The lender will generallyreview the credit merits of the requestbefore deciding if they will make theloan themselves or if they will need anSBA guaranty. If a guaranty is needed,the lender will also review eligibility.The applicant should be prepared tocomplete some additional documentsbefore the lender sends the requestfor guaranty to the SBA. Applicantswho feel they need more help with theprocess should contact their local SBAdistrict office or one of SBA’s resourcepartners for assistance. There are several ways a lendercan apply for a 7(a) guaranty fromSBA. The main differences betweenthese methods are related to thedocumentation which the lenderprovides, the amount of review whichSBA conducts, the amount of the loanand the lender responsibilities in casethe loan defaults and the business’assets must be liquidated. The methodsare:• Standard 7(a) Guaranty• Certified Lender Program• Preferred Lender Program• Rural Lender Advantage• SBA Express• Patriot Express• Export Express• Small Loan Advantage• Community Advantage For the Standard, Certified andPreferred methods, the applicantfills out SBA Form 4, and the lendercompletes SBA Form 4-1. Whenrequests for guarantees are processedusing Express or Advantage methods,the applicant uses more of the regularforms of the lender and just has a fewfederal forms to complete. When SBAreceives a request that is processedthrough Standard or CertifiedLender Program procedures, it eitherreanalyzes or reviews the lender’seligibility and credit analysis beforedeciding to approve or reject. Forrequests processed through PreferredLender Program or Express programs,the lender is delegated the authority tomake the credit decision without SBA’sconcurrences, which helps expedite theprocessing time. In guaranteeing the loan, the SBAassures the lender that, in the event theborrower does not repay the loan, thegovernment will reimburse the lendinginstitution for a portion of its loss. Byproviding this guaranty, the SBA isable to help tens of thousands of smallbusinesses every year get financingthey might not otherwise obtain. After SBA approval, the lenderis notified that its loan has beenguaranteed. The lender then willwork with the applicant to make surethe terms and conditions are metbefore closing the loan, disbursing thefunds, and assuming responsibilityfor collection and general servicing.The borrower makes monthly loanpayments directly to the lender. As withany loan, the borrower is responsible forrepaying the full amount of the loan ina timely manner.What the SBA Looks for:• Ability to repay the loan on time fromthe projected operating cash flow;• Owners and operators who are of goodcharacter;• Feasible business plan;• Management expertise andcommitment necessary for success;• Sufficient funds, including the SBAguaranteed loan, to operate thebusiness on a sound financial basis(for new businesses, this includes theresources to meet start-up expensesand the initial operating phase);• Adequate equity invested in thebusiness; and• Sufficient collateral to secure the loanor all available collateral if the loancannot be fully secured.What To Take To The LenderCAPITAL
  12. 12. Visit us online: Small Business Resource 13Use of Proceeds The third eligibility factor is use ofproceeds. 7(a) proceeds can be usedto: purchase machinery; equipment;fixtures; supplies; make leaseholdimprovements; as well as land and/orbuildings that will be occupied by thebusiness borrower.Proceeds can also be used to:• Expand or renovate facilities;• Acquire machinery, equipment,furniture, fixtures and leaseholdimprovements;• Finance receivables and augmentworking capital;• Finance seasonal lines of credit;• Acquire businesses;• Start up businesses;• Construct commercial buildings; and• Refinance existing debt under certainconditions. SBA 7(a) loan proceeds cannot be usedfor the purpose of making investments.SBA proceeds cannot be used toprovide funds to any of the ownersof the business except for ordinarycompensation for actual servicesprovided.Miscellaneous Factors The fourth factor involves a varietyof requirements such as SBA’s creditelsewhere test and utilization ofpersonal assets requirements, where thebusiness and its principal owners mustuse their own resources before getting aloan guaranteed by SBA. It also includesSBA’s anti-discrimination rules andlimitations on lending to agriculturalenterprises because there are otheragencies of the federal government withprograms to fund such businesses.Generally, SBA loans must meet thefollowing criteria:• Every loan must be for a soundbusiness purpose;• There must be sufficient investedequity in the business so it can operateon a sound financial basis;• There must be a potential for long-term success;• The owners must be of good characterand reputation; and• All loans must be so sound as toreasonably assure repayment. For more information, go PURPOSE7(a) LOAN PROGRAMS The 7(a) program is the most flexibleof SBA’s lending programs. The agencyhas created several variations to thebasic 7(a) program to address theparticular financing need of certainsmall businesses. These special purposeprograms are not necessarily for allbusinesses but may be very usefulto some small businesses. They aregenerally governed by the same rules,regulations, fees, interest rates, etc. asthe regular 7(a) loan guaranty. Lenderscan advise you of any variations.SBAExpressThe SBAExpress guaranty is availableto lenders as a way to obtain a guarantyon smaller loans up to $350,000.The program authorizes selected,experienced lenders to use mostly theirown forms, analysis and proceduresto process, service and liquidate SBA-guaranteed loans. The SBA guaranteesup to 50 percent of an SBAExpress loan.Loans under $25,000 do not requirecollateral. The use of loan proceeds isthe same as for any basic 7(a) loan. Likemost 7(a) loans, maturities are usuallyfive to seven years for working capitaland up to 25 years for real estate orequipment. Revolving lines of credit areallowed for a maximum of seven years.Patriot Express and OtherLending Programs For Veterans The Patriot Express pilot loaninitiative is for veterans and membersof the military community wanting toestablish or expand a small business.Eligible military community membersinclude:• Veterans;• Service-disabled veterans;• Active-duty servicemembers eligiblefor the military’s Transition AssistanceProgram;• Reservists and National Guardmembers;• Current spouses of any of the above,including any servicemember;• The widowed spouse of a servicememberor veteran who died during service or ofa service-connected disability.The Patriot Express loan is offeredby SBA’s nationwide network ofprivate lenders and features the fastestturnaround time for loan approvals.Loans are available up to $500,000 andqualify for SBA’s maximum guaranty of85 percent for loans of $150,000 or lessand 75 percent for loans over $150,000up to $500,000. For loans above$350,000, lenders are required to eitherobtain all collateral or enough collateralso the value is equal to the loan amount,whichever comes first. The Patriot Express loan can be usedfor most business purposes, includingstart-up, expansion, equipmentpurchases, working capital, andinventory or business-occupied real-estate purchases. Patriot Express loans feature SBA’slowest interest rates for business loans,generally 2.25 percent to 4.75 percentover prime depending upon the sizeand maturity of the loan. Your localSBA district office will have a listing ofPatriot Express lenders in your area.More information is available Self-employed Reserve or Guardmembers with an existing SBA loan canrequest from their SBA lender or SBAdistrict office, loan payment deferrals,interest rate reductions and other reliefafter they receive their activation orders.The SBA also offers special low-interest-rate financing of up to $2 million whenan owner or essential employee is calledto active duty through the MilitaryReservist Economic Injury DisasterLoan program (MREIDL) to help coveroperating costs due to the loss of anessential employee called to active duty.Rural Lender AdvantageThe Small/Rural Lender Advantage(S/RLA) initiative is designed toaccommodate the unique loan processingneeds of small community/rural-basedlenders by simplifying and streamliningloan application process and procedures,particularly for smaller SBA loans. Itis part of a broader SBA initiative topromote the economic development oflocal communities, particularly thosefacing the challenges of populationloss, economic dislocation, and highunemployment. Visit for moreinformation.Advantage Loans In early 2011, SBA rolled out twoAdvantage loan initiatives aimedat helping entrepreneurs and smallbusiness owners in underservedcommunities gain access to capital.Both offer a streamlined loan applicationprocess and the regular 7(a) loanguarantee for loans under $250,000. The Small Loan Advantage programis available to lenders participating inthe Preferred Lenders Program. SBAlenders who are not participating in thePreferred Lenders Program can contacttheir local district office to apply. The Community Advantage pilotprogram opens up 7(a) lending tomission-focused, community-basedlenders – such as CommunityDevelopment Financial Institutions(CDFIs), Certified DevelopmentCompanies (CDCs), and microlenders– who provide technical assistanceand economic development support inunderserved markets. More information on both programs isavailable at
  13. 13. Visit us online: www.sba.gov14 Small Business ResourceCAPLines The CAPLines program is designedto help small businesses meet theirshort-term and cyclical working capitalneeds. The programs can be used tofinance seasonal working capital needs;finance the direct costs of performingcertain construction, service and supplycontracts, subcontracts, or purchaseorders; finance the direct cost associatedwith commercial and residentialconstruction; or provide general workingcapital lines of credit. SBA provides upto an 85 percent guarantee. There arefour distinct loan programs under theCAPLine umbrella:• The Contract Loan Program is usedto finance the cost associated withcontracts, subcontracts, or purchaseorders. Proceeds can be disbursedbefore the work begins. If used for onecontract or subcontract, it is generallynot revolving; if used for more thanone contract or subcontract at a time,it can be revolving. The loan maturityis usually based on the length of thecontract, but no more than ten years.Contract payments are generally sentdirectly to the lender but alternativestructures are available.• The Seasonal Line of Credit Programis used to support buildup of inventory,accounts receivable or labor andmaterials above normal usage forseasonal inventory. The businessmust have been in business for aperiod of 12 months and must have adefinite established seasonal pattern.The loan may be used over againafter a “clean-up” period of 30 daysto finance activity for a new season.These also may have a maturity of upto five years. The business may nothave another seasonal line of creditoutstanding but may have other linesfor non-seasonal working capital needs.• The Builders Line Program providesfinancing for small contractors ordevelopers to construct or rehabilitateresidential or commercial property.Loan maturity is generally threeyears but can be extended up tofive years, if necessary, to facilitatesale of the property. Proceeds areused solely for direct expenses ofacquisition, immediate constructionand/or significant rehabilitationof the residential or commercialstructures. The purchase of the landcan be included if it does not exceed 20percent of the loan proceeds. Up to 5percent of the proceeds can be used forphysical improvements that benefit theproperty.• The Working Capital Line isa revolving line of credit (up to$5,000,000) that provides short termworking capital. These lines aregenerally used by businesses thatprovide credit to their customers.Disbursements are generallybased on the size of a borrower’saccounts receivable and/or inventory.Repayment comes from the collectionof accounts receivable or sale ofinventory. The specific structure isnegotiated with the lender. There maybe extra servicing and monitoring ofthe collateral for which the lender cancharge up to two percent annually tothe borrower.International Trade Loan Program The SBA’s International Trade Loan(ITL) provides small businesses withenhanced export financing options fortheir export transactions. It is designedto help small businesses enter andexpand into international marketsand, when adversely affected by importcompetition, make the investmentsnecessary to better compete. The ITLoffers a combination of fixed asset,working capital financing and debtrefinancing with the SBA’s maximumguaranty--- 90 percent --- on the totalloan amount. The maximum loanamount is $5 million in total financing.Guaranty CoverageThe SBA can guaranty up to 90percent of an ITL up to a maximumof $4.5 million, less the amount ofthe guaranteed portion of other SBAloans outstanding to the borrower. Themaximum guaranty for any workingcapital component of an ITL is $4million. Additionally, any other workingcapital SBA loans the borrower has arecounted against the $4 million guarantylimit.Use of Proceeds• For the facilities and equipmentportion of the loan, proceeds maybe used to acquire, construct,renovate, modernize, improve orexpand facilities or equipmentin the U.S. to produce goods orservices involved in internationaltrade.• Working capital is an allowableuse of proceeds under the ITL.• Proceeds may be used for therefinancing of debt structuredwith unreasonable terms andconditions, including any debt thatqualifies for refinancing under thestandard SBA 7(a) Loan Program.Loan Term• Maturities on the working capitalportion of the ITL are typically limitedto 10 years.• Maturities of up to 10 years onequipment unless the useful life exceeds10 years.• Maturities of up to 25 years areavailable for real estate.• Loans with a mixed use of fixed-assetand working-capital financing will havea blended-average maturity.Interest Rates Lenders may charge between 2.25 to2.75 percent above the prime rate (aspublished in the Wall Street Journal)depending upon the maturity of theloan. Interest rates on loans of $50,000and less can be slightly higher.Exporter Eligibility• Applicants must meet the sameeligibility requirements as for the SBA’sstandard 7(a) Loan Program.• Applicants must also establish thatthe loan will allow the business toexpand or develop an export market or,demonstrate that the business has beenadversely affected by import competitionand that the ITL will allow the businessto improve its competitive position.Foreign Buyer Eligibility Foreign buyers must be located inthose countries wherein the Export-Import Bank of the U.S. is notprohibited from providing financialassistance.Collateral Requirements• Only collateral located in theU.S. (including its territories andpossessions) is acceptable.• First lien on property or equipmentfinanced by the ITL or on other assetsof the business is required. However,an ITL can be secured by a second lienposition if the SBA determines there isadequate assurance of loan payment.• Additional collateral, includingpersonal guaranties and those assetsnot financed with ITL proceeds, maybe appropriate.CAPITAL
  14. 14. Visit us online: Small Business Resource 15How to Apply• A small business seeking an ITL mustapply to an SBA-participating lender.The lender will submit a completedApplication for Business Loan (SBAForm 4), including all exhibits, to theSBA. Visit to find yourlocal SBA district office for a list ofparticipating lenders.• A small business exporter wanting toqualify as adversely impacted fromimport competition must submitsupporting documentation that explainsthat impact, and a plan with projectionsthat explains how the loan will improvethe business’ competitive position.Export ExpressSBA Export Express offers flexibilityand ease of use to both borrowers andlenders. It is the simplest export loanproduct offered by the SBA and allowsparticipating lenders to use their ownforms, procedures and analyses. TheSBA provides the lender with a responsewithin 36 hours. This loan is subject to the sameloan processing, closing, servicing andliquidation requirements as well as thesame maturity terms, interest rates andapplicable fees as for other SBA loans(except as noted below).Guaranty Coverage The SBA provides lenders with a90 percent guaranty on loans up to$350,000 and a 75 percent guarantyon loans more than $350,000 up to themaximum of $500,000.Use of Proceeds Loan proceeds may be used forbusiness purposes that will enhance acompany’s export development. ExportExpress can take the form of a termloan or a revolving line of credit. Asan example, proceeds can be used tofund participation in a foreign tradeshow, finance standby letters of credit,translate product literature for use inforeign markets, finance specific exportorders, as well as to finance expansions,equipment purchases, and inventory orreal estate acquisitions, etc.Ineligible Use of Proceeds Proceeds may not be used to financeoverseas operations other than those strictly associated with the marketingand/or distribution of products/servicesexported from the U.S.Exporter Eligibility Any business that has been inoperation, although not necessarily inexporting, for at least 12 full months andcan demonstrate that the loan proceedswill support its export activity is eligiblefor Export Express.Foreign Buyer Eligibility The exporter’s foreign buyer must bea creditworthy entity and the methods ofpayment must be acceptable to the SBAand the SBA lender.How to Apply Interested businesses should contacttheir existing lender to determine if theyare an SBA Express lender. Lendersthat participate in SBA’s Expressprogram are also able to make ExportExpress loans. Application is madedirectly to the lender. Lenders use theirown application material in additionto SBA’s Borrower Information Form.Lenders’ approved requests are thensubmitted with a limited amount ofeligibility information to SBA’s NationalLoan Processing Center for review.Export Working Capital Program The SBA’s Export Working CapitalProgram (EWCP) assists lenders inmeeting the needs of exporters seekingshort-term export working capital.Exporters can apply for EWCP loansin advance of finalizing an export saleor contract. With an approved EWCPloan in place, exporters have greaterflexibility in negotiating export paymentterms — secure in the assurance thatadequate financing will be in place whenthe export order is won.Benefits of the EWCP• Financing for suppliers, inventory orproduction of export goods.• Export working capital during longpayment cycles.• Financing for stand-by letters of creditused as bid or performance bonds ordown payment guarantees.• Reserves domestic working capital forthe company’s sales within the U.S.• Permits increased global competitivenessby allowing the exporter to extend moreliberal sales terms.• Increases sales prospects in under-developed markets which have highcapital costs for importers.• Low fees and quick processing times.Guaranty Coverage• Maximum loan amount is $5,000,000.• 90 percent of principal and accruedinterest up to 120 days.• Low guaranty fee of one-quarter of onepercent of the guaranteed portion forloans with maturities of 12 months orless.• Loan maturities are generally for 12months or less.Use of Proceeds• To pay for the manufacturing costs ofgoods for export.• To purchase goods or services for export.• To support standby letters of credit toact as bid or performance bonds.• To finance foreign accounts receivable.Interest Rates The SBA does not establish orsubsidize interest rates on loans. Theinterest rate can be fixed or variable andis negotiated between the borrower andthe participating lender.Advance Rates• Up to 90 percent on purchase orders.• Up to 90 percent on documentary lettersof credit.• Up to 90 percent on foreign accountsreceivable.• Up to 75 percent on eligible foreigninventory located within the U.S.• In all cases, not to exceed the exporter’scosts.Collateral Requirements The export-related inventory and thereceivables generated by the exportsales financed with EWCP funds willbe considered adequate collateral. TheSBA requires the personal guaranteeof owners with 20 percent or moreownership.How to apply Application is made directly to SBA-participating lenders. Businesses areencouraged to contact SBA staff at theirlocal U.S. Export Assistance Center(USEAC) to discuss whether they areeligible for the EWCP and whether it isthe appropriate tool to meet their exportfinancing needs. Participating lendersreview/approve the application andsubmit the request to SBA staff at thelocal USEAC.U.S. Export Assistance Center There are 20 U.S. Export AssistanceCenters located throughout theU.S. They are staffed by SBA, U.S.Department of Commerce and Export-Import Bank of the U.S. personnel,and provide trade promotion andexport-finance assistance in a singlelocation. The USEACs also work closelywith other federal, state and localinternational trade organizations toprovide assistance to small businesses.To find your nearest USEAC, You can find additional exporttraining and counseling opportunities bycontacting your local SBA office.CAPITAL
  15. 15. Visit us online: www.sba.gov16 Small Business ResourceCERTIFIED DEVELOPMENTCOMPANY LOAN PROGRAM(504 LOANS) The 504 Loan program is an economicdevelopment program that supportsAmerican small business growth andhelps communities through businessexpansion and job creation. This SBAprogram provides long-term, fixed-rate, subordinate mortgage financingfor acquisition and/or renovation ofcapital assets including land, buildingsand equipment. Some refinancing isalso permitted. Most for-profit smallbusinesses are eligible for this program.The types of businesses excluded from7(a) loans (listed previously) are alsoexcluded from the 504 loan program. Loans are provided through CertifiedDevelopment Companies. CDCs workwith banks and other lenders to makeloans in first position on reasonableterms, helping lenders retain growingcustomers and provide CommunityRedevelopment Act credit. The SBA 504 loan is distinguishedfrom the SBA 7(a) loan program in theseways:The maximum debenture, or long-termloan, is:• $5 million for businesses that create acertain number of jobs or improve thelocal economy;• $5 million for businesses that meet aspecific public policy goal, includingveterans; and• $5.5 million for manufacturers andenergy public policy projects.Recent additions to the program allow$5.5 million for each project that reducesthe borrower’s energy consumption byat least 10 percent; and $5.5 million foreach project that generates renewableenergy fuels, such as biodiesel or ethanolproduction. Projects eligible for up to$5.5 million under one of these tworequirements do not have to meet thejob creation or retention requirement, solong as the CDC portfolio average is atleast $65,000.• Eligible project costs are limitedto long-term, fixed assets such asland and building (occupied by theborrower) and substantial machineryand equipment. Working capital is notan eligible use of proceeds, except in atemporary program which is scheduledto expire on September 27, 2012.• Most borrowers are required to makean injection (borrower contribution)of just 10 percent which allowsthe business to conserve valuableoperating capital. A further injectionof 5 percent is needed if the businessis a start-up or new (less than 2years old), and a further injection of 5percent is also required if the primarycollateral will be a single purposebuilding (such as a hotel).• Two-tiered project financing: A lenderfinances approximately 50 percent ofthe project cost and receives a firstlien on the project assets (but no SBAguaranty); A CDC (backed by a 100percent SBA-guaranteed debenture)finances up to 40 percent of the projectcosts secured with a junior lien. Theborrower provides the balance of theproject costs.• Fixed interest rate on SBA loan. SBAguarantees the debenture 100 percent.Debentures are sold in pools monthlyto private investors. This low, fixedrate is then passed on to the borrowerand establishes the basis for the loanrate.• All project-related costs can befinanced, including acquisition (landand building, land and construction ofbuilding, renovations, machinery andequipment) and soft costs, such as titleinsurance and appraisals. Some closingcosts may be financed.• Collateral is typically a subordinatelien on the assets financed; allowsother assets to be free of liens andavailable to secure other neededfinancing.• Long-term real estate loans are up to20-year term, heavy equipment 10 - or20-year term and are self-amortizing.Businesses that receive 504 loans are:• Small — net worth under $15 million,net profit after taxes under $5 million, ormeet other SBA size standards.• Organized for-profit.• Most types of business — retail, service,wholesale or manufacturing. The SBA’s 504 certified developmentcompanies serve their communities byfinancing business expansion needs.Their professional staffs work directlywith borrowers to tailor a financingpackage that meets program guidelinesand the credit capacity of the borrower’sbusiness. For information, PROGRAM The Microloan program providessmall loans ranging from under $500to $50,000 to women, low-income,minority, veteran, and other smallbusiness owners through a networkof approximately 160 intermediariesnationwide. Under this program, theSBA makes funds available to nonprofitintermediaries that, in turn, make thesmall loans directly to entrepreneurs,including veterans. Proceeds can beused for typical business purposes suchas working capital, or the purchase offurniture, fixtures, machinery, supplies,equipment, and inventory. Microloansmay not be used for the purchase of realestate. Interest rates are negotiatedbetween the borrower and theintermediary. The maximum term for amicroloan is 7 years. The program also provides business-based training and technical assistanceto microborrowers and potentialmicroborrowers to help them besuccessful at starting or growing theirbusinesses. Such training and technicalassistance may include general businesseducation, assistance with businessplanning industry-specific training,and other types of training support.Entrepreneurs and small businessowners interested in small amountsof business financing should contactthe nearest SBA District Office forinformation about the nearest MicroloanProgram Intermediary Lender or go
  16. 16. Visit us online: Small Business Resource 17SMALL BUSINESSINVESTMENT COMPANYPROGRAM There are a variety of alternatives tobank financing for small businesses. TheSmall Business Investment Company(SBIC) program fills the gap betweenwhat owners can fund directly and theneeds of the small business for growthcapital. Licensed and regulated by theSBA, SBICs are privately owned andmanaged investment funds that makecapital available to qualifying U.S. smallbusinesses. The funds raise privatecapital and can receive SBA-guaranteedleverage up to 3x private capital, witha leverage ceiling of $150 million perSBIC and $225 million for two or morelicenses under common control. LicensedSBICs are for-profit investment firmswhose incentive is to share in thesuccess of a small business. The SBICprogram provides funding for a broadrange of industries. Some SBICs investin a particular field or industry whileothers invest more generally. For moreinformation, visit BUSINESSINNOVATION RESEARCHPROGRAM The Small Business InnovationResearch (SBIR) program encouragessmall businesses to advance theirtechnical potential from fundscommitted by federal agencies with largeextramural research and developmentbudgets. The SBIR program servesto fund the critical startup anddevelopment stages for a technology andencourages commercialization of thetechnology, product or service. In turn,this stimulates the U.S. economy.SBIR Requirements Small businesses must meet thefollowing eligibility criteria to participatein the SBIR program.• Be 51 percent owned and controlled byone or more individuals who are U.S.citizens or permanent resident aliensin the U.S. or be a for-profit businessconcern that is at least 51 percentowned and controlled by anotherfor-profit business concern that is atleast 51 percent owned and controlledby one or more individuals who arecitizens of, or permanent residentaliens in, the U.S.• Be for-profit.• Principal researcher must be employedby the small business.• Company size cannot exceed 500employees. For more information on the SBIRprogram visit Agencies Each year, the following elevenfederal departments and agencies arerequired to reserve 2.5 percent of theirextramural RD funds for award tosmall businesses through the SBIRprogram: Departments of Agriculture;Commerce; Defense; Education; Energy;Health and Human Services; HomelandSecurity; Transportation; EnvironmentalProtection Agency; National Aeronauticsand Space Administration; and NationalScience Foundation.SMALL BUSINESSTECHNOLOGY TRANSFERPROGRAM The Small Business TechnologyTransfer (STTR) program reservesa specific percentage of federal RDfunding for award to small business andnon-profit research institution partners.Central to the program is expansion ofthe public/private sector partnership toinclude the joint venture opportunitiesfor small business and the nation’spremier nonprofit research institutions.Small business has long been whereinnovation and innovators thrive, butthe risk and expense of conductingserious RD efforts can be beyondthe means of many small businesses.Non-profit research laboratoriesare also instrumental in developinghigh-tech innovations, but frequentlyinnovation is confined to the theoretical.STTR combines the strengths of bothentities by introducing entrepreneurialskills to high-tech research efforts.The technologies and products aretransferred from the laboratory to themarketplace. The small business profitsfrom the commercialization, which, inturn, stimulates the U.S. economy.STTR Requirements Small businesses must meet thefollowing eligibility criteria to participatein the STTR program.• Be 51 percent owned and controlled byone or more individuals who are U.S.citizens or permanent resident aliensin the U.S.• Be for-profit.• Principal researcher need not beemployed by the small business.• Company size cannot exceed 500employees. (No size limit for nonprofitresearch institution). The nonprofit research institutionpartner must also meet certaineligibility criteria:• Be located in the United Statesand be one of the following:• Nonprofit college or university.• Domestic nonprofit researchorganization.• Federally funded RD center.Participating Agencies Each year the following five Federaldepartments and agencies are requiredby STTR to reserve 0.3 percent of theirextramural RD funds for award tosmall business/nonprofit researchinstitution partnerships: Departmentof Defense; Department of Energy;Department of Health and HumanServices; National Aeronautics andSpace Administration; and NationalScience Foundation.SURETY BONDGUARANTEE PROGRAM The Surety Bond Guarantee programis a public-private partnership betweenthe federal government and suretycompanies to provide small businesseswith the bonding assistance necessaryfor them to compete for public andprivate contracting and subcontractingopportunities. The guarantee providesall incentive for sureties to bond smallbusinesses that would otherwise beunable to obtain bonding. The programis aimed at small businesses that lackthe working capital or performancetrack record necessary to secure bondingon a reasonable basis through regularcommercial channels. Through this program, the SBAguarantees bid, payment, performanceand ancillary bonds issued by suretycompanies for individual contracts andsubcontracts up to $2 million. TheSBA reimburses sureties between 70and 90 percent of losses sustained if acontractor defaults on the contract.The SBA has two program optionsavailable, the Prior Approval Program(Plan A) and the Preferred Surety BondProgram (Plan B). In the Prior ApprovalProgram, SBA guarantees 90 percentof surety’s paid losses and expenses onbonded contracts up to $100,000, and onbonded contracts greater than $100,000that are awarded to socially andeconomically disadvantaged concerns,HUBZone contractors, and veterans, andservice-disabled veteran owned smallbusinesses. All other bonds guaranteedin the Plan A Program receive an 80percent guarantee. Sureties must obtainSBA’s prior approval for each bondguarantee issued. Under Plan B, SBAguarantees 70 percent, but sureties mayissue, monitor and service bonds withoutSBA’s prior approval.CAPITAL
  17. 17. Visit us online: www.sba.gov18 Small Business ResourceSOCIAL MEDIAAN ESSENTIAL PART OF YOURMARKETING TOOLKITSocial media marketing is a great toolfor engaging with customers, buildingyour company’s brand, and increasingyour business reach. However, manysmall business owners make themistake of using social media toolssuch as Twitter and Facebook forsimply pushing their messages out.They miss a key communications andmarketing opportunity by not listeningto or joining in the conversations thatare going on. In other words, theyignore the fundamental point of socialmedia - being SOCIAL!Just being on Twitter or Facebook isnot enough. It takes time and effort tobuild a strong social media presence.When it comes to growing your socialmedia presence and seeing a return onyour investment it is easier said thandone.Here’s are three hands-on tacticsthat you can use.1. Determine Where YourCustomers are Online andHow you Can Reach Thema. When considering social media as partof your overall marketing strategy,always start with asking the mostbasic questions: • What is it you want to achieve? • Where is your audience and will they respond?b. Next, make sure your target audienceis on Twitter, Facebook or whateversocial network you are considering,or you may spend a lot of time on achannel that won’t reach your target.You can do this in several ways: • Survey your customers. • Assess what your competition is doing. • Get involved with social networks on a personal level by exploring communities and Facebook fan pages. • Research trends in Twitter topics and try to build a picture of what your target market is doing and sharing on social networks.c. And don’t forget that while these toolsare free, your investment in them isn’t.It takes staff time and resources to usesocial media successfully.2. Use Twitter to Engage andEntice a. Instead of simply Tweeting for Tweeting’s sake, focus on making your Twitter strategy a rich and interactive experience. For example, use Tweets to start discussions on your products, special offers and events. Engage with followers by responding to mentions about your business; addressing their questions and inviting them to check out your website and so on. b. You can track mentions of your company or products in other Tweets using a Twitter application such as Tweetdeck or Hootsuite. c. Don’t be afraid to Tweet often. Anywhere between 5-10 Tweets a day is your target. Also remember to shake your message up. As every good marketer knows, tone and style are a huge factor in ensuring that your message stands out, resonates, and promotes action. Tweeting is like conversation, putting out static updates or statements will fall on flat ears, but engaging, teasing, querying, and showing interest will promote action. So shake your message up, use the words your audience uses, sprinkle in some hashtags and go on and tease a little. So, instead of saying: • We’re giving away 2 bagels for the price of one at BagelFest on Nov 25, 4-8 PM LINK Tweet this: • We know you love them! Get 2 bagels for the price of one on 11/25. Find out where LINK3. Use Facebook to its Fullest Effect As with Twitter, Facebook is a great way for engaging with people who like your brand, want to interact with your business, stay abreast of latest developments, and take advantage of giveaways, contests, surveys, etc. It is also invaluable for brand exposure. While having a Facebook presence doesn’t guarantee a huge uptick in visitors to your website, using it strategically to link back to online blogs, menus, event or newsletter registration landing pages and special offers, can improve site traffic.TIPS FOR INTERACTING WITH YOUR CUSTOMERSCAPITAL
  18. 18. Visit us online: Small Business Resource 19U.S. Small Business Administration Loan Programs, Page AInformation accurate as of 2/23/2012 • All SBA programs and services are provided on a nondiscriminatory basis.7(a) Loan ProgramProgram MaximumAmountUse ofProceedsMaximumInterest RateBenefit toBorrowersMaturity Structure Who QualifiesStandard 7(a):Applicant appliesfor business loanto lender; Lenderapplies to SBAfor guaranty oftheir proposedloan if theydetermine it isnecessary. Loanfrom lender, notSBA.$5 million to anyone business,including affiliatesExpansion/renovation;new construction,purchase land orbuildings; purchaseequipment, fixtures,lease-hold improve-ments; working capital;inventory, businessacquisition, startupsand refinancing undercertain conditions(discuss with lender).Depends on use ofproceeds and abilityto repay. Generallyworking capital andmachinery equipment loanshave 5-10 years;real estate is upto 25 years. Termnegotiated withlender.SBA sets amaximum ratefor both variableand fixed ratesloans (discusswith lender orlocal SBA DistrictOffice for currentinformation).Term loan with onepayment of principaland interest (PI)each month. Interestvariable or fixedas negotiated withlender. Cannot berevolving. SBAcharges a GuarantyFee **Mustbefor-profitandmeetSBAsizestandards;showgoodcharacter,credit,management,andabilitytorepay;mustbeaneligibletypeofbusiness,useproceedsforeligiblepurpose,anddemonstratethatcreditisnototherwiseavailable.Business able toobtain financing whichotherwise would not beprovided due to term,collateral, equity, and/ortime in business. Fixedmaturity; No balloons;No prepayment penaltyif maturity under 15years. Establish orre-affirm businessrelationship with alender.InternationalTrade: Long termfinancing to helpbusinessesengaged inexporting oradverselyimpacted byimports.Same asStandard 7(a).Same asStandard 7(a).Same asStandard 7(a).Same asStandard 7(a).Same asStandard 7(a).Up to 10 years.Same asStandard 7(a).Same asStandard 7(a).Acquire, renovate,modernize facilitiesor equipment used inmaking products orservices to be exported,plus permanent workingcapital and refinancedebt not structured withreasonable terms.Same as Standard7(a). Maximum SBAguaranty amount forworking capital is $4million.Same as Standard7(a) plus businessesmust be engaged orpreparing to engagein internationaltrade or adverselyaffected bycompetition fromimports.Same as Standard7(a) plus long-termfinancing for fixedassets usedto produce productsor services for export.Export WorkingCapital Program:Single transactionor RevolvingWorking Capitallines of credit forexporters.Short-term,working-capital forexporters. Can besingle transaction orrevolving. StandbyLetters of Credit forexport purposes.Generally one year,but can be up to3 years to matcha single transactioncycle.Establishedby lender. NoSBA establishedmaximums.Short term revolvingline of credit basedon borrowingbase or exportpurchase orders.Monthly interestpayments; principalpayments based oncollection of foreignreceivables.Same as Standard7(a) plus musthave been inbusiness for atleast one year andpreparing to engagein or increaseinternational trade.Same as Standard7(a) plus providesworking capital toAmerican Exportersto perform on exporttransactions and/or finance exportreceivables. Abilityto financing standbyletters of credit forexport purposes.CAPLines:Four differentRevolving Linesof Credit,a/k/a Seasonal,Contract Builders,Working CapitalFinances: seasonalworking capital needs,direct cost toperform assignablecontracts, constructioncosts of structure forresale, or advancesagainst existinginventory andreceivables.Revolving line ofcredit with monthlyinterest andprincipal paymentsbased on when thebusiness receivesthe cash for doingthe activity the loanproceeds financed.Same as Standard7(a) plus abusiness that needsthe specializedproceeds thisprogram offers.Same as Standard 7(a)plus provides revolvingworking capital nototherwise availableto perform on anassignable contract, tocover seasonal needs,to build or renovatepersonal or commercialspace, and to obtainfunds against existingcurrent assets. Alsostructured to meetbusiness needs.SBAExpress:Lender approvesthe loan.$350,000. Same as a Standard7(a) or may be usedfor a revolving workingcapital line of credit.Same as Standard7(a) for term loans,Revolving lines ofcredit up to 7 years.Loans $50,000or less:Prime + 6.5%.Loans over$50,000:Prime + 4.5%.Same as Standard7(a) except lenderhas more leeway tostructure repaymentunder their ownrules.Same as Standard7(a) plus Streamlinedprocess; Easy-to-useline of credit and allowsfor a revolving featurewhich Standard 7(a)does not.** The SBA charges the lender a guaranty fee based on the loan’s maturity and the dollar amount which is initially guaranteed.The lender can pass this expense to the borrower and loan proceeds can be used to reimburse the lender.The 7(a) Guaranty Fee Reference Chart (on next page) explains the Agency’s guaranty fee charges.CAPITALSmall LoanAdvantage:lower-dollarloans to under-served areas$250,000.Rural LoanAdvantage:Rural-based orsmall communitylender$350,000.Same asStandard 7(a).Same asStandard 7(a).Same asStandard 7(a).Same asStandard 7(a).Loans up to$150,000: 85%Loans above$150,000: 75%Loans up to$150,000: 85%Loans above$150,000: 75%Same asStandard 7(a).Same asStandard 7(a).Underservedmarkets.Rural and smallcommunity marketsimpacted bypopulation loss,high unemploymentStream-lined applicationStream-lined application
  19. 19. Visit us online: www.sba.gov20 Small Business ResourceU.S. Small Business Administration Loan Programs, Page B Information accurate as of 2/23/20127(a) Loans, continued7(a) GuarantyFee ReferenceChartNOTE 1: The guaranty fee on a $100,000 loan with an 85% guaranty would be 2% of $85,000 or $1,700, of which the lender would retain $425.NOTE 2: The guaranty fee on a $2,000,000 loan with a 75% guaranty ($1.5 million guaranteed portion) would be, 3.5% of $1,000,000 ($35,000) PLUS 3.75% of $500,000 ($18,750), for a total of $53,750.Gross Size of Loan Fees NotesLoans of $150,000 or less (See Note 1).................................2% of guaranteed portion, Lender is authorized to retain..............Maturities that exceed 12 months$150,001 to $700,000 .............................................................3% of guaranteed portion..................................................................Maturities that exceed 12 months$700,001 to $5,000,000 (See Note 2) ...................................3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of......Maturities that exceed 12 monthsthe guaranteed portion over $1,000,000Short Term Loans – up to $5 million.......................................0.25% of the guaranteed portion......................................................Maturities of 12 months or lessNon 7(a) LoansProgram Maturity Structure Who QualifiesMaximumAmountMaximumInterest RateBenefit toBorrowersUse ofProceedsExport Express:Lender approvesthe loan.$500,000.$500,000.Same as SBA Expressplus can be usedfor Standby Lettersof Credit for ExportPurposes. DebtRefinance is notallowed.Same asSBA Express.Same asStandard 7(a).Same asStandard 7(a).Same asStandard 7(a).Same asStandard 7(a).Same asSBA Express.Same asSBA Express.Same asSBA Express.Same as SBAexpress plus loanproceeds must beused to supportexport developmentactivity.Same as SBAExpress plus provideslenders with a higherpercentage guarantywhich can encouragethem to make moreloans to finance exportdevelopment activitiesof small businesses.Standby Lettersof Credit are alsoauthorized.Patriot Express:Lender approvesthe loan.Same as Standard7(a) plus must beowned controlledby one or more ofthe following groupsequaling at least51% total ownership:veteran, active-dutymilitary, reservistor National Guardmember or spouse ofany of these groups,or widowed spouseof service memberor veteran who diedduring service or ofservice connecteddisability.Same as SBAExpress plus provideslenders with a higherpercentage of guarantywhich can encouragethem to make moreloans to qualifiedbusinesses.CommunityAdvantage:AlternativeLenders assistingbusinesseslocated in areaswith high needs.$250,000. Same as Standard 7(a)except cannot be usedto refinance loansmade by or guaranteedby the Dept. ofAgriculture or loansby SBA Micro-Lendersusing their SBAintermediary loan.Same asStandard 7(a)except allowable“Spread” is + 4%over the baserate.Allows mission-oriented lendersfocused oneconomicdevelopmentin underservedmarkets to apply for7(a) guaranty onloan they propose tomake to an eligiblesmall business.Loan eligibilityrequirements aresame as forStandard 7(a) loans,but the businessshould be locatedin an underservedmarket .Borrowers inunderserved marketsget more choices onthe types of lenderswho can providethem financing if theirfinancing needs anSBA guaranty and thetechnical assistanceneeds of the applicantare assessed by thelender.504 Loans:Fixed AssetProject Financingprovided fromthree sources.SBA portion up to$5.0 million.For the acquisition oflong-term fixed-assets,refinancing long termfixed asset debt undercertain conditions, andworking capital on alimited basis.Either 10 or 20 yearterm on the SBA/CDC portion.Check with localSBA DistrictOffice for currentinformation.Financing from1. The CDCCertifiedDevelopmentCompany2. Third PartyLenders3. ApplicantFor profit businessesthat do not exceed$15.0 million intangible net worthand do not have anaverage net incomeover $5 million for thepast 2 years.Fees under 3 percent;long-term fixed rate;low down payment;full amortization; noballoons.Micro-Loans $50,000 totalto one smallbusinessborrower.Furniture, fixtures,supplies, inventory,equipment, andworking capital.Shortest termpossible, not toexceed 6 years.Check with localSBA District Officefor locations oflocally availableintermediarylenders and thencheck with them.Loans throughnon- profit lendingorganizations;technical assistancealso provided.Same as 7(a) – plusloans can be madeto non-profit daycare businesses.Direct loans fromnonprofit intermediarylenders; Fixed-ratefinancing; Verysmall loan amounts;Technical assistanceavailable.CAPITAL
  20. 20. Visit us online: Small Business Resource 21 The U.S. government is the largestsingle purchaser of goods and servicesin the world, buying everything fromarmored tanks to paper clips. Everyyear, the federal government awardsmore than $500 billion in contracts, anda significant share of those contracts arespecifically allotted to small businesses. The Small Business Administrationworks with agencies to award at least23 percent of all prime governmentcontracts to small businesses, withspecific statutory goals for smalldisadvantaged businesses (SDV),businesses that are women-owned(WO) or service-disabled veteran-owned(SDVOSB), or businesses that arelocated in historically underutilizedbusiness zones (HUBZone). The agency ensures that smallbusinesses have access to long-lastingdevelopment opportunities, whichmeans working with small businessesto help them stay competitive, aswell as encouraging federal agenciesto award more contracts to smallbusinesses. The SBA features outreachprograms, matchmaking events, andonline training opportunities; and helpsagencies identify opportunities for smallbusinesses.HOW GOVERNMENTCONTRACTING WORKSSealed bidding vs. Negotiation There are two methods thegovernment uses to purchase goods andservices, sealed bidding and negotiation.The first method, sealed bidding,involves issuing an invitation for bid bya procuring agency. Under the sealedbidding method, a contract is awarded toa responsible bidder who bid, conformingto the invitation for bids, will be mostadvantageous to the Government,considering only price and the pricerelated factors included in the invitationfor bid. The second method, negotiation,involves issuing a request for proposal(RFP) or request for quotation (RFQ).The business with the best proposal interms of technical content, best value,price and other factors generally winsthe contract.Types of Contracts Firm fixed price contracts place thefull responsibility for the costs and riskof loss on the contractor. Firm fixed pricecontracts do not permit any adjustmenton the basis of the contractor’s costsduring the performance of the contract.It provides maximum incentive for thecontractor to control costs and performeffectively and imposes a minimumadministrative burden upon thecontracting parties. This type of contractis used in all sealed bid and somenegotiated procurements. Cost reimbursement contracts providefor the payment of allowable costsincurred by the contractor, to the extentstated in the contract. The contractestablishes a ceiling price, above whicha contractor may not exceed without theapproval of the contracting officer. Costreimbursement contracts are used inresearch and development contracts. Some contracts do not fit neatlyinto these two categories, such astime and material contracts (prices forhourly wages are fixed but the hoursare estimated) and letter contracts(authorizes a contractor to begin workon an urgent requirement).Small Business Set-Asides A “set-aside” for small businessesreserves an acquisition exclusively forsmall business participation. Thereare two ways in which set-asides canbe determined. First, if an acquisitionof goods or services has an anticipateddollar value of at least $3,000 but notexceeding $150,000, it is automaticallyreserved for small businesses. Theacquisition will be set aside only if thecontracting officer determines thereare two or more responsible smallbusinesses that are competitive interms of market prices, quality anddelivery. Second, if an acquisition ofgoods or services is more than $150,000,and if it’s likely offers will be obtainedfrom at least two responsible smallbusinesses, and if awards will be madeat fair market prices, the acquisitionis reserved for exclusively for smallbusiness. Reasonable expectations ofsmall business competition may beevaluated using past acquisition historyof an item or similar items. There are several exceptions andunique rules for specific kinds of smallbusinesses and industries. For Rearchand Development (RD) small businessset-asides, there must be reasonableexpectation of obtaining from smallbusinesses the best scientific andCONTRACTINGApplying for Government ContractsCONTRACTING