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SBA Loans Spur Start-up Growth

Price Waterhouse data regarding the fate of start-ups receiving funds from the Small Business Administration.
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A recent study conducted by Price Waterhouse reveals some interesting data regarding the fate of start-ups receiving funds from the Small Business Administration's 7(a) Guaranteed Business Loan Program. The program, initiated in 1953, is designed to promote small-business formation by guaranteeing long-term loans to those who qualify.

The study compared a randomly selected group of businesses that received 7(a) loans in 1985 with a group of small businesses comparable in size and industry that had not received SBA loans. The comparison was for the period from 1984 to 1989. Here are some highlights:

* 7(a) loan recipients' employment growth was 167%, versus 0% growth for the nonrecipient companies.

* Recipient companies' sales revenues grew at a rate of 300%, compared with 37% for nonrecipient companies.

* The study found that SBA-loan recipients tend to be younger, more aggressive businesses -- start-up and growth companies -- that need more capital than the average small business to finance their ambitions.

* The program plays a strong role in financing the start-up of new businesses. About half of the loan recipients had started businesses using their SBA-guaranteed loans.

* The SBA-backed companies showed a higher survival rate than the nonrecipients. Four years after receiving the loans, more than three-quarters of the SBA recipients were still in business, versus fewer than two-thirds of the comparison group. -- Alessandra Bianchi

How SBA Loans Were Used

SBA Loan

Commercial Loan

Expand business

48%

56%

Stay in business

35

46

Start business

35

16

Purchase business

25

14

Last updated: Nov 1, 1992




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