SBA Loans: A Step-by-Step Guide

SBA Loans: A Step-by-Step Guide

by Patrick D. O'Hara

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Clearly explains how small business owners without financial or legal backgrounds can obtain a Small Business Administration (SBA) loan. Provides excellent advice on preparing an application package and discusses the multitude of services offered by the SBA free of charge including business classes, publications, technical, procurement and management assistance.


Clearly explains how small business owners without financial or legal backgrounds can obtain a Small Business Administration (SBA) loan. Provides excellent advice on preparing an application package and discusses the multitude of services offered by the SBA free of charge including business classes, publications, technical, procurement and management assistance. Packed with easy-to-follow sample forms and examples to facilitate understanding.

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SBA Loans

A Step-by-Step Guide
By Patrick D. O'Hara

John Wiley & Sons

ISBN: 0-471-20752-7

Chapter One

Small Business Administration Programs

As was stated in the Introduction, there are a number of federally supported programs that regularly make loans available to existing as well as start-up businesses based on specific qualifying factors. Some of these programs have expanded, some have changed their lending policies, and a few are the result of completely new business financing methods. Many of these programs offer some excellent opportunities that were not available a few years ago. If you previously rejected the idea of borrowing money through a federally guaranteed or supported program because of the presumed red tape, you should rethink your decision. The paperwork isn't any more than one would expect in the course of securing other types of financing.

U.S. Small Business Administration

The SBA was established by Congress in 1953 to advise, assist, champion, and counsel the country's small businesses. SBA loans have helped thousands of small businesses to get started, expand, and prosper and have assisted many ambitious men and women in starting their own businesses. Besides providing loans, the SBA has guided many in properly managing their businesses and very often has provided help in procuring sales of the goods and/or services they produce.

The SBA is not permitted to provide a loan to those who canobtain financing from a bank or other private lending source. If the loan (an agreement to make funds available) is not obtainable elsewhere, the SBA will consider providing funds (actual money) on an immediate participation basis with a bank or with a guaranteed loan. The SBA will only consider providing a direct loan (in which both the agreement and the funds originate from the same agency) when these various other loans and funds are not obtainable and funds are available for direct loans.

Product or Service Classification Guidelines

When looking to borrow money to start a new business, be prepared to demonstrate to the SBA (the participating lender) that your product or service is capable of competing successfully in its marketplace. The category into which the SBA classifies your product, whether it is a new or existing item, can be crucial. Many applicants fail to understand that their application's approval or rejection could very well depend on which classification the SBA assigns to their product.

Be sure to clearly point out in your loan application the specific area or field in which your product has the ability to compete successfully. Have all the facts to support your position. For example, if the SBA, following the description of a product you intend to market as an educational game, classified it in the toy category, the chances of having your application approved would be seriously lowered. This would probably be due to the product's estimated market price as an educational game, preventing it from competing in the toy field, which generally has lower prices.

To avoid this pitfall, familiarize yourself with the SBA guidelines. The Standard Industrial Classification Manual, published by the Bureau of Budget, Washington, D.C., is one of the most important publications used by the SBA to assist in designating classifications for products and services. In addition to your description of the product and the SIC Manual, the SBA also uses information from other manufacturing firms that produce similar items.

Remember, the SBA is in business to help you. It is not the SBA's intention to make it difficult for you; thus, it is your responsibility to provide them with all the facts the SBA needs to reach a decision most favorable to you. Also, if you have a unique product, one which calls for an untried manufacturing technique or other such unique process, the SBA may require that the product undergo a feasibility study conducted by an independent organization.

There are approximately 90 SBA district offices, and they are listed for your convenience in Appendix K of this book. Visit the nearest one.

There are some other departments that provide financing and appear to be related to the SBA but are not. One of these is the Minority Business Development Agency (MBDA) in the Department of Commerce, which focuses entirely on aiding minority-owned businesses. Their chief activity, however, appears to be help in financing, and the agency carries out the programs through contracts with firms in the private sector as a system of third-party services-that is, the MBDA pays the firm to provide services to a third party.

The Department of Defense is also especially active in this field, operating its own offices responsible for protecting the interests of small and minority-owned businesses. Major defense programs have individuals assigned especially to see to it that minority firms and other small businesses are given a fair opportunity to pursue and win contracts and subcontracts.

The General Services Administration (GSA) is the federal government's housekeeper, with five subordinate divisions, including the Federal Supply Service. This agency operates 11 business service centers in major cities, whose major function is to help orient you in pursuing government contracts.

SBA One Stop Capital Shops

One Stop shops are partnerships between the local government, SBA, private lending institutions and other service providers that collectively offer an integrated network of business support and lending assistance under one roof. Among the services offered are:

Business loan programs including SBA guaranteed loans, municipal loans, and micro-enterprise loans.

Counseling and technical assistance provided by SBA resources-the Small Business Development Center, One Stop Capital Shop Business Coaches (a group of successful professionals and entrepreneurs who live and work in the community), and the Service Corps of Retired Executives (SCORE).

Training programs such as How to Start and Manage a Small Business, Developing a Business Plan, Financing Your Small Business, Marketing Your Small Business, and Credit Repair.

Private sector financial organizations including banks, factoring companies, and nonprofit community business development corporations provide business loans and financing to qualified small businesses.

Training staff from city, state, and federal agencies provide counseling and guidance to small business owners who are trying to sort out all the government programs and regulations.

Whether it's $2,000, $20,000 or $200,000, One Stop Capital Shop has a loan to fit small business needs. Oakland, California is one of 15 cities in the country to receive SBA One Stop Capital Shops. These shops are an innovative attempt to streamline SBA services by offering all services at one convenient location in the heart of the target community. Each One Stop Capital Shop is designed to address the specific needs of clients.

Anyone who has explored the feasibility of financing a business is familiar with the daunting maze of never ending requests for information about that business. Starting a small business can quickly turn into a nightmare because of the myriad and time consuming details that make the difference between success and failure. That's where One Stop Capital Shops, sponsored by the SBA and the Department of Housing and Urban Development (HUD) in cooperation with local agencies, can help.

Vicki Lee, owner of Raw Energy, a juice bar in Berkeley, California is one of the many entrepreneurs who has taken advantage of shopping for financial aid and business skills under one roof. Visiting the One Stop Capital Shop and taking advantage of its Business Information Center, Vicki Lee turned her dream of opening her own juice bar into a reality. After working a little more than a year in a similar business, Lee had learned a lot about the workings of the industry, and decided she wanted to do her own thing. She needed help. Lee went to the One Stop Capital Shop in downtown Oakland, California where she received assistance in developing business skills and putting together a business plan, and got a $20,000 loan from Pacific Bank. Lee's juice bar opened in Berkeley shortly thereafter.

April Bareng also used the information center to research information for expanding her company Chan-at-Work. Bareng develops a software product called "Conflict Smarts." The program helps youngsters talk out problems peacefully.

The SBA Business Information Center is a high-tech business reference library at the heart of every One Stop Capital Shop. The reference library includes the latest computer hardware and software, CD-Roms, and more than 200 sample business plans developed by the people who publish Entrepreneur magazine. Along with providing research materials, the center provides counselors and free Internet access. The philosophy behind the One Stop Capital Shops is that small businesses are the major key to urban revitalization. "Your dream can come true as a small business entrepreneur," says Rose King, manager of the Business Information Center. King is one of the many people available at the center to guide and coach clients through the development of their business. Although during 1999 about 1,773 clients took advantage of the center, one client commented that it is vastly under-used.

Business planning guide topics include advertising specialties, bakery, bar/tavern, gift basket service, dry cleaning, dating service, coffee house, kiosk and cart business opportunities, flower shop, freelance writing, video arcade, wedding shop, pet shops, and pest control.

Other resources are also available to assist clients with market research, development of marketing tools, and other software-based needs. Information on where to locate a business, equipping a business, taking inventory, hiring personnel, legal requirements, taxes, advertising, and financial management are right at the clients' fingertips. Start-up guides, computer programs for typing business letters, and spreadsheets to create details of the financial condition of the business are in abundance. Also, there are programs for developing business cards and brochures. There are also copy machines and printers available and the center provides free Internet access.

Using the myriad of research materials available at the Business Information Center, Joseph Dwonch was able to write and implement a business plan for his unique coffee catering business. Dwonch, like so many Americans, loves coffee. But, unlike most Americans, Dwonch has mined his love affair with coffee into a business enterprise-Absolute Espresso. Dwonch got the idea for his catering business while attending classes on small business at the local college. Dwonch, 33, originally from Idaho, had been working with friends catering weddings and other functions. Opportunities to branch out on his own came and went. Then, inspired by one of his instructors and with the help of his wife, Miriam, 38, he decided to cater espresso.

Before jumping headlong into the business, Dwonch visited the One Stop Capital Shop. "I went over to SBA and started looking stuff up," Dwonch says. He says, referring to the Business Information Center that is part of the SBA, "They provided every level of resources ... they have a full warehouse of books. I had in mind what I wanted to focus on."

Using the resources available at the One Stop Capital Shop, users like Joseph Dwonch have been able to come up with business plans and get their businesses going. Dwonch's first catering event was for the Spanish Speaking Unity Council. He now caters fashion shows for Macy's Department store. He also caters business meetings, receptions, and hopes soon to extend his business to wedding catering. Dwonch says he has not used the financial assistance available at the One Stop Capital Shop. Instead he has used his own savings and right now is putting all profits back into his company.


Joseph and Margo Dashelle are the owners of Fredrick Douglas Designs, which produces greeting cards and calendars designed for the African-American market. Their company been had been experiencing declining sales and some financial difficulties during the last few years. That's when they decided to seek help from the One Stop Capital Shop. When they arrived, the couple was put in touch with one of the many business coaches who counseled them in marketing and financial management.

Today, Fredrick Douglas Designs is on-track to produce a profit. Sales are up and the financial future looks good, thanks to a bit of professional coaching. "We can now see the light at the end of the tunnel," say the Dashelles.

The business coaches who volunteer their time and expertise at One Stop Capital Shops are successful small business owners and professionals from the community. Many of them are members of Service Corps of Retired Executives (SCORE), a non-profit organization dedicated to helping the small business community through no-fee mentoring, business counseling, and low-cost workshops. SCORE volunteers include both retired and employed small business owners or those who have worked at corporations such as Procter & Gamble, AT&T, and 3M.

While no single person may have all the answers a beginning entrepreneur seeks, with the breadth of the volunteers available, finding the right expert won't be difficult. Coaches are able to answer questions on a variety of topics including business planning, financing, marketing and advertising, cash flow, management, legal aspects of small business, and graphic design. Coaches also are available for confidential, one-on-one or team business counseling.

Those just starting up their own business should take advantage of one of SCORE's popular pre-business workshops. One of these workshops gives an overview of the major concerns entrepreneurs have when starting their own businesses. A variety of other seminars and workshops are designed to help those getting started in the small business world and are provided free-of-charge (or at very low cost) in the evenings and on weekends. These classes are useful in mapping out goals and learning to conquer problems.


The One Stop Capital Shop has been in operation in Oakland, California since November 1996. During that time, it has provided $20 million in Small Business Administration guaranteed loans to 80 businesses. Another $3 million in SBA guaranteed loans in an Empowerment Zone, which includes East Oakland, West Oakland, and the San Antonia/Fruitvale areas, have been given out to 12 businesses. About $16.25 million in city of Oakland Empowerment Zone Flagship loans, which are designed to support and improve the local infrastructure, have been dispersed.


Excerpted from SBA Loans by Patrick D. O'Hara Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Meet the Author

PATRICK D. O'HARA, PhD, is founder of the consulting firm O-TEK Enterprises. He is also the successful author of The Total Business Plan, The Total Marketing and Sales Plan, and SBA Microloan and Specialty Loan Handbook, all published by Wiley.

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