How Does the SBA Guaranteed Loan Program Work?

The SBA Guaranteed Loan Program was created to support and strengthen the small businesses that employ our nation. However, is it is important to realize the SBA does not loan money. A traditional lender, such as a bank, loans the money. The SBA then guarantees a portion of the loan, between 30%-90% depending on the loan type. This is similar to being a loan co-signer. This helps lenders be more comfortable with a loan that they might otherwise not approve, such as a loan for a start up, or a borrower that has less collateral than a bank requires.

For example, every SBA 504 loan is made in partnership with a Certified Development Corporation (CDC), the SBA, and a lender. The lender provides up to 50% of the financing. Community Business Finance provides up to 40% of the financing, while the borrower's contribution can be as low as 10%. Community Business Finance provides funding via the sale of a 10-year or 20-year federally insured bond that is sold to private investors. These bonds are backed by the SBA and fully guaranteed by the U.S. Treasury.

SBA loans are low interest loans repaid long term. The SBA also waives certain fees in the loan process. There are no balloon payments, calls or negative loan covenants. This enables borrowers to have more control, more peace of mind, and less lender micro-management.

It is important to remember that the guaranty that SBA provides is only available to the lender. This guaranty assures the lender that the government will reimburse it for its loss if the borrower defaults on the payments, but only up to the percentage of the guaranty. The borrower always remains obligated for the full amount due. This mitigates the risk for the lender, allowing riskier loan approvals for the small business.

Because these loans are not direct from the SBA, business owners must be prepared to discuss their loan proposals in detail with the lenders. Lenders will want to review the business plan, financial statements, and collateral available to secure the loan. Community Business Finance will review these documents with you, determine which SBA Loan Program is best suited for your business needs, work with you to find a lender, and assemble the loan package. Community Business Finance becomes your point of contact for processing your loan application.

Contact Community Business Finance to discuss how the SBA Guaranteed Loan Program can work for your business. Visit our 504 School to learn more about SBA 504 loans. Join our mailing list for more helpful information.

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