The Small Business Administration (SBA) is the primary advocate of small business within the federal government. Although it provides many services to the small business community, SBA is best known for its small business loan guarantees.

Through its loan guarantee programs, the SBA provides access to financing for small businesses that cannot obtain financing on reasonable terms through normal lending channels. Commercial lenders are generally reluctant to make business loans to individuals or companies that have insufficient collateral, require longer than normal repayment terms, or that have been in business for less than three years. Each of these factors significantly increases the perceived risk of non-payment to the lender, often resulting in a rejected loan request.

Rather than rejecting the loan request, the lender can ask the SBA to guarantee up to 85 percent of the loan amount, greatly reducing the risk of nonpayment to the lender. In such cases, the small business is able to obtain a loan that otherwise would have been turned down.

SBA-guaranteed loans may be used to start a stand-alone business or franchise, purchase an existing business or independently managed franchise, or finance the following activities in an existing business.

• Purchase of raw materials or inventory.
• Purchase of furniture or fixtures.
• Purchase of machinery or equipment.
• Purchase of land for construction.
• Building construction.
• Leasehold improvement.
• Purchase of real property.
• Working capital needs.
• Refinance of certain debt.

Proceeds from an SBA-guaranteed loan may not be used for:

• Most nonprofit organizations, including consumer cooperatives.
• Gambling and illegal activities.
• Speculative businesses, including wildcatting in oil, dealing in commodity futures, and real estate held for investment purposes.
• Lending or investment concerns such as life insurance companies, investment companies, banks, finance companies, and other businesses whose stock in trade is money.
• Pyramid or multi-level sales plans, characterized by the recruitment of an endless chain of sub-distributors.
• Applicants currently incarcerated, on probation or parole, or who have criminal cases pending against them.
• Construction of certain combined residential/rental space and business buildings.

Jim Stai, District Director
U.S.Small Business Administration
PO Box 3086
657 Second Avenue North, Room 218
Fargo, ND 58108-3086
701-239-5131
TDD: 701-239-5657
Fax: 701-239-5645
www.SBA.gov/nd

U.S. Small Business Administration (SBA)
409 Third Street SW
Washington, DC 20416
800-827-5722
www.sba.gov