SBA makes loans to individual small business firms, providing them with financing when it is not otherwise available through private lending sources on reasonable terms. Many such loans have been made to establish small concerns or to aid in their growth, thereby contributing substantially to community development programs.

SBA loans, which may be made to small manufacturers, small business pools, wholesalers, retailers, service establishments and other small businesses (when financing is not otherwise available to them on reasonable terms), are to finance business construction, conversion, or expansion; the purchase of equipment, facilities, machinery, supplies, or materials; or to supply working capital. Evidence that other sources of financing are unavailable must be provided.

SBA business loans are of two types: ``participation'' and ``direct.'' Participation loans are those made jointly by the SBA and banks or other private lending institutions. Direct loans are those made by SBA alone. To qualify for either type of loan, an applicant must be a small business or approved small business ``pool'' and must meet certain credit requirements. A small business is defined as one which is independently owned and operated and which is not dominant in its field. In addition, the SBA uses such criteria as number of employees and dollar volume of the business.

The credit requirements stipulate that the applicant must have the ability to operate the business successfully and have enough capital in the business so that, with loan assistance from the SBA, it will be able to operate on a sound financial basis. A proposed loan must be for sound purposes or sufficiently secured so as to assure a reasonable chance of repayment. The record of past earnings and prospects for the future must indicate it has the ability to repay the loan out of current and anticipated income.