Small Business Administration (SBA) Loans - Lessons for Kenya's Credit Guarantee Scheme for MSMEs

The Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist, and protect the interests of small business concerns. One of the ways the SBA assists small businesses is by providing loans.

SBA loans are designed to help small business owners who may not be able to obtain traditional bank financing. The loans are provided by participating lenders, such as banks and credit unions, but are partially guaranteed by the SBA. This means that if the borrower defaults on the loan, the SBA will reimburse the lender for a portion of the amount that was borrowed.

Over the years, the SBA has developed several loan programs to meet the different needs of small businesses. These programs include;

(a) Loan Program

(b) Microloan Program

(c) The CDC/504 Loan Program

(d) The Disaster Loan Program.

The Loan Program is the SBA's primary program for providing financial assistance to small businesses. It offers loan amounts of up to $5 million for various purposes, such as working capital, purchasing equipment or inventory, and refinancing debt.

The Microloan Program provides loans up to $50,000 to small businesses and nonprofit organizations. These loans are typically used for working capital, inventory, or equipment purchases.

The CDC/504 Loan Program provides long-term, fixed-rate financing to small businesses for the acquisition of fixed assets, such as land, buildings, and equipment.

Finally, the Disaster Loan Program provides low-interest loans to small businesses that have been affected by a declared disaster, such as a hurricane or earthquake.

The Small Business Administration (SBA) has faced several challenges and criticisms. Some of the critical problems or challenges for the SBA include:

1. Limited funding: Despite its essential role in supporting small businesses, the SBA's budget has been consistently limited, making it difficult for the agency to provide the necessary resources and support to small businesses.
2. Complex application processes: Some small business owners have criticized the SBA's loan application processes as being complicated and time-consuming, which can discourage some businesses from applying for loans.
3. Fraud and misuse of funds: The SBA has also faced criticism for fraud and abuse of funds in its loan programs. In recent years, there have been reports of businesses misusing funds from the Paycheck Protection Program (PPP), designed to support businesses affected by the COVID-19 pandemic.
4. Inefficiencies and delays: The SBA has been criticized for inefficiencies and delays in processing loan applications and distributing funds, which can leave small businesses waiting for critical funding and resources.
5. Accessibility and outreach: Some small business owners have also criticized the SBA for not doing enough to reach out to and support underserved communities, such as minority-owned businesses and rural businesses.

In the fiscal year 2021, the SBA approved over $31 billion in loans through the 7(a) Loan Program, financing over 82,000 small businesses. Additionally, over $912 million in loans were approved through the Microloan Program, and over $3.6 billion in loans were approved through the CDC/504 Loan Program.

The Disaster Loan Program provides loans as needed, so the total amount disbursed through this program varies depending on the occurrence and severity of disasters. However, during the COVID-19 pandemic, the SBA approved over $205 billion in Economic Injury Disaster Loans (EIDLs) and over $39 billion in Paycheck Protection Program (PPP) loans which fall under the Disaster Loan Program.

Overall, SBA loans have played a crucial role in supporting small businesses in the United States, providing access to funding that may not have been available otherwise.