How does an SBA guarantee work?

Many small business owners in the United States turn to the U.S. Small Business Administration (SBA) loans program when they contemplate additional financing for their business. And it’s not hard to see why. In addition to providing quick financing when needed, the SBA also will guarantee repayments to protect against the borrower defaulting on the loan. This guarantee encourages private lenders to provide funding to qualified businesses.

Here’s how it works:

SBA Loan Guarantee Overview

Simply put, if you, the borrower, defaults on the loan, the lender can turn to the SBA to obtain up to 85% of the outstanding loan amount. This is the government’s way of making it easier for banks and other lenders to grant financing to a borrower whose creditworthiness would not normally meet the qualifying criteria for loans.

Naturally, many lenders often prefer to release funds for an SBA-backed loan since this federal guarantee limits their risk exposure, as well as creates a secondary market to sell the guaranteed portion of the loan. More importantly, financing an SBA-guaranteed loan does not count against the reserve funds that banks are mandated to maintain to protect against loan losses.

How do SBA-guaranteed loans work?

Business owners will typically seek an SBA guarantee when they want to borrow a large sum and are unable to provide sufficient collateral to support the loan application. In this way, the SBA loan guarantee can serve as substitute collateral.

The maximum loan amount for an SBA 7(a) loan guarantee is set at $5 million, with a maximum guaranteed amount of $3.75 million. Loans under $150,000 come with a maximum of 85% guarantee while those over $150,000 are guaranteed at a max of 75%.

What are the requirements for an SBA loan guarantee?

Before you can apply for an SBA loan guarantee, your business must first meet the following criteria:

Fit the SBA’s criteria for small businesses
Be a for-profit business and acceptable to the SBA
Be owned and operated independently
Must not be the dominant entity in its industry
Must have applied for a conventional loan and been denied by the lender

Loan Processing Under the SBA Loan Guarantee Program

There are three main loan types under the SBA loan guarantee program:

Preferred Lender program – Certain lenders in good standing with the SBA have been authorized to approve SBA loan requests unilaterally. Loan processing under this program follows the same guaranteed loan guidelines for 7(a) loans and the SBA generally provides the loan guarantee in as little as 24 hours.

SBA Express Loan Program – These loans are guaranteed up to 50% by the SBA. Lenders use their own application forms and other documentation so it’s easier to process the request. Loan amounts typically range from $50,000 to $350,000 and the SBA can provide the loan guarantee within 24 hours of the request.

Patriot Express Loans – These special business loans can go as high as $500,000 and are available to military personnel and veterans, as well as to spouses of service members who died or got severely injured in the line of duty. Patriot Express Loans are eligible for the SBA’s maximum guarantee of 85% for loans below $150,000, and 75% for loans above $150,000. It also features one of the fastest turnaround times and low interest rates.

Need an SBA-Guaranteed Loan?

SBA loans are a great way to keep your business afloat and explore various opportunities for growth and expansion. Get your SBA-guaranteed business funding here at United Business Loans today. We are the leaders in small business loans and services with over 50 approved lenders to choose from. Call us now to get started.