SBA loans have a unique history that parallels major events in US history over the last 100-plus years. But, it all started with Herbert Hoover. In the depths of the Great Depression, President Herbert Hoover saw his newly formed Reconstruction Finance Corporation (RFC) as a way get people back to work and get the money flowing again. When World War II rolled around, these financing grants were rolled into the Smaller War Plants Commission (SWPC), which helped small businesses contribute to the manufacturing efforts during WWII.
The Allied victory in World War II ushered in a new age of prosperity for American businesses, and in 1952 the RFC was eliminated as a federal program. But, the elimination of the RFC and SWPC left a void in capital funding. Small businesses were again at the mercy of lenders.
In 1953, Congress passed the “Small Business Act” into law and established the Small Business Administration. The goal of this agency remains largely unchanged: “[to] assist and protect[…] the interests of small business concerns.” And, favorable borrowing rates and terms were very much on the minds of small business owners.
The SBA soon began acting as a direct lender, offering loans directly to small businesses and guaranteeing loans to small businesses through banks. In 1958, The Investment Company Act formed the basis of the Small Business Investment Company (SBIC). This program helped finance and underwrite loans through venture capital investors and privately held financial institutions. Six years later, the SBIC would expand the program to include businesses owners falling below the poverty line.
But, it hasn’t always been smooth sailing. There have been numerous attempts to eliminate the SBA and its programs. The closest the program has come to being defunded completely was in 1996, when the Republic-controlled House of Representatives made a concerted effort to abolish the Small Business Act, which would in turn eliminate the program completely. Fortunately, the program remains intact today and continues to support small businesses throughout the country.