The US economy has continued to flourish, increasing the demand for SBA loans. According to the US Small Business Admission Administration, SBA loans in Michigan alone have grown 15%, setting a new record. The number of loans has increased by 2.6 percent.
In case you are unaware and are looking to get business loans, SBA loans are a small business loan guaranteed by the government. It helps eliminate the risks associated with usual small business loans, meaning the financial institution issuing the loan is far more secure. With the added security, banks are far more likely to back high-risk business ventures, increasing the amount of business growth in the US, which is supporting the economy. SBA loans continue to grow in popularity, making 2018 an ideal time to apply.
It’s cyclical. The economy is stable and thriving because of the increase in SBA loans being made available to small businesses. This, in turn, allows small businesses to develop and offer employment opportunities and innovation, creating a flourishing economy. Without one, the other would not prosper.
How Do SBA Loans Work?
It is vital for you to recognize that it is not the SBA (Small Business Administration) doing the lending. Instead, the SBA works alongside and with a network of approved financial institutions which will lend money to small businesses. This is something you should be aware of if you are looking into how to apply for a small business loan.
With the backing from the SBA, the lender knows that if the small business cannot pay back their SBA loan, the SBA themselves will cover the portion of the loan that they guaranteed.
How Small Business Growth Impacts the Economy
Without small business growth, emerging businesses without tangible assets (land, buildings, and investments) would struggle. Although banks are interested in lending a helping hand to higher-risk businesses, the financial risks involved often keep them from approving loans for small businesses and startups. Without the support of the SBA, it would not be feasible for banks to offer financial help to such risky investments.
It is, however, imperative that small business growth continues to rise. There are a lot of opportunities involved with small business growth, whether they wish to expand, grow or open their doors. SBA loans are designed for such businesses, and will, therefore, contribute to a stronger economy.
Small business impact and offer vitality to specific areas of economic and socioeconomic developments. In particular, small businesses can:
- Spark innovation
- Create jobs and increase employment opportunities
- Provide opportunities for many people, especially women and minorities
- Offer the chance to achieve independence and financial success
According to the SBA, small businesses cultivate more patents than larger companies. In the last four years, small businesses generated 26.5 patents per hundred employees, whereas a large firm only mustered up 1.7 patents.
Large, established businesses have a pre-existing market and audience they are dominating. While some may expand into a new market, many will stick to what they know. Small businesses, though, are adept at finding innovations so that they can break – and disrupt – the market. They need to establish themselves. Otherwise, they will fade into the background, behind the big name brands.
SBA loans allow for disruptive innovation, an innovation that creates a new market, displacing established markets, firms and products. Examples of disruptive innovation include:
- Netflix: Netflix disrupted the DVD renting scene with a mail order DVD service, causing Blockbuster to file for bankruptcy. The company then went on to become the largest video streaming platform and is a prime business model to consider when looking at how to disrupt and industry.
- Amazon: In 1994, Jeff Bezo came up with a new idea of selling books while working on Wall Street. This idea developed into Amazon.com, which reached half a million dollars in its first year.
Small businesses, in particular, tend to offer supportive environments so that they can flourish. Employees within small businesses are rewarded, encouraging workers to harness their creativity. This success has caused larger businesses to adopt downsizing, so that offices resemble those in a small business.
Small businesses constitute a major force in the US economy. When a new business opens their doors, or a small business grows, more jobs are created, increasing employment rates. Infamous small business founders include Bill Gates (Microsoft), Steve Jobs (Apple) and Larry Page and Sergey Brin (Google), all of which innovated an industry but also created hundreds if not thousands of jobs.
The survival of small businesses, though, is poor. The Balance explain that one reason why small businesses fail is because of inexperienced management. Managers do not have the experience or knowledge to run a business, and so they fail because of poor planning. They highlight that one of the key ways to avoid failure is to gain the funding you need before starting your small business. While there are many business loans available, it is SBA loans which allow high-risk businesses to move forward, get business loans and get the backing that is needed. This is because of the payback guarantee.
Opportunities for Women and Minorities
Small businesses are the stepping stone for many entrepreneurs to enter business. Owning a business allows women and minorities to achieve financial and business success, and although the majority of businesses are still owned by certain demographics, there has been a substantial increase in businesses owned by minorities and women over the years.
While SBA loans provide the opportunity for most people to access funding, women, and minorities are given another access road into economic mainstream. There are, of course, a number of business loans for women, however, because SBA loans offer a guarantee payback, women and minorities have a greater chance of expanding or starting a small business that is considered high risk and which may struggle to succeed financial banking from other loan types.
SBA loans are flourishing because the US economy is stable and thriving. Small businesses are encouraged in the US; they offer innovative environments and the chance for creativity to create a life-altering difference.