The solution was the creation of the U. S. Small Business Administration with the passing of the Small Business Act of 1953. The most commonly used program is the Guaranteed Loan Program. This program is for any individual needing money to buy a franchise, purchase an existing business, expand an existing business, and, in some cases start a business. Funds can be used to purchase real estate used in the operation of the small business, to provide working capital, to purchase machinery, equipment and vehicles for business use, and the purchase of inventory. With the economy as poor as it is today, commercial banks, savings and loans, thrifts and even finance companies are extremely reluctant to grant the legitimate credit needs of small businesses.
Lenders are concerned about collateral values, examiner criticism and ability to repay.
Because the Government guarantees your loan, the lender is much more likely to approve your loan and on better terms and conditions than you might have gotten on your own. In the vast majority of cases, even if you secure your own loan, it will probably be for a shorter period of time and with a higher rate of interest than what is generally available under the SBA Guaranteed Loan Program. This means much higher monthly payments to you. When obtaining an SBA Guaranteed Loan, depending on the purpose of your loan, you may receive up to twenty-five years to repay. Interest rates on SBA guaranteed loans are usually based upon the lowest Prime Rate published in the Wall Street Journal which is very often lower than what many banks charge on a nationwide basis.