Understanding Why SBA Loans Attract Prepayment Penalties

Understanding Why SBA Loans Attract Prepayment Penalties

The U.S. economy has been the world’s largest economy for the last 142 years. It holds this position courtesy of the innovativeness and creativity of the American people coupled with strong government-initiated support systems, which foster advancement in all realms of the economy. A good example of the initiatives taken by the American government to promote economic expansion was the enactment of the Small Business Act of 1953 (DeHaven & De Rugy, 2011). This Act facilitated the establishment of an agency known as Small Business Administration (SBA) to foster the development and growth of small businesses across America (About SBA, 2014). This paper examines SBA and its activities in a bid to understand how it contributes to the American economy.

Overview of SBA

SBA is a U.S. federal government agency, whose mandate is to support budding entrepreneurs and small businesses across the country (About SBA, 2014). It replaced the Reconstruction Finance Corporation (RFC), which only focused on reconstruction in the wake of disasters (DeHaven & De Rugy, 2011). The agency has an administrator at its helm, followed by a deputy administrator, and twenty two associate administrators who head each of its 22 departments (About SBA, 2014). After going through a rough time during President Bush’s tenure, President Obama rejuvenated the agency by increasing its budgetary allocations and elevating its administrator to a cabinet status.

SBA operates offices in all the U.S. states. Its state level offices work in liaison with the head office to ensure that each region receives the kind of assistance it needs. Arguably, SBA endeavors to stay true to its mission, which is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters” (About SBA, 2014, par. 2).

SBA’s Operational Strategy

SBA operates a variety of programs, which focus on achieving its objectives. The programs are broadly classified into what it calls the 3 Cs, which are capital, contracts, and counseling (About SBA, 2014). SBA endeavors to achieve its objectives by organizing its 3 Cs into programs, which include entrepreneurial development programs such as Small Business Development Centers, Women’s Business Centers, and Service Corps for Retired Executives (About SBA, 2014). These centers are situated at strategic locations across America and provide aspiring entrepreneurs and small business owners with business ideas and training.

SBA also operates federal contracting and business development programs. Under this category of programs are initiatives such as the Business Development Program, which seeks to uplift the business endeavors of marginalized groups and the HUBZone program, which promotes the development of small companies in historically underutilized business (HUB) zones (About SBA, 2014).

Besides the outlined programs, SBA serves as a guarantor for small business owners seeking credit facilities from the financial institutions (About SBA, 2014). It works with existing financial institutions to ensure that small business operators gain access to the loans.

The Beneficiaries of SBA

The agency serves a wide range of people with a variety of business needs. To begin with, its loan guarantee program assists people with brilliant business ideas, but lack the necessary resources (Tackla, 2003). Additionally, it assists small business operators to expand their businesses. SBA also operates a fixed asset financing program, which targets small business operators who seek to build or purchase premises for their businesses (DeHaven & De Rugy, 2011). This program also supports the purchase of equipment or machinery for small businesses. Apart from small business operators, SBA provides reconstruction support for renters and homeowners in the wake of disasters (About SBA, 2014).

Besides the assistance offered through loan programs, SBA assists marginalized groups within the society to establish businesses and access government contracts (Tackla, 2003). These groups include women, veterans, and other minority groups such as the disabled.

Advantages and Disadvantages of Utilizing SBA Services

Like any in any other case, SBA services have their advantages and disadvantages. Their advantages include convenience, accessibility, and availability of multiple loan options as well as low interest rates and access to counseling services (Tackla, 2003). SBA services are available in all the states of Amer