Inside the SBA Loan Program: A Short Course

The SBA loan program provides loan guarantees to lenders that provide business loans to existing and start-up companies.  There are various programs available that help participating private lenders extend funding in order to help businesses grow and become successful.

It should be noted that the SBA, which is the U.S. Small Business Administration, does not make loans directly to businesses, with the exception of the disaster loan program discussed below.  The SBA guarantees loans made to businesses, which helps private lenders feel more comfortable about extending financing.

Types of SBA Loan Guarantee Programs

The types of loan guarantee programs available include the basic 7(a) and 504 loan guarantee programs.  These programs are extended to business start-ups and established enterprises that are looking for ways to enter new markets, build plants and factories or increase their business operations.  The SBA also uses its loan guarantee programs as a way to not only encourage entrepreneurship but also create jobs. Business and job creation are both important tools for economic growth in the United States and the SBA is one of the agencies on the forefront of this goal.

SBA Basic 7(a) Program

The 7(a) program provides guarantees to banks and other participating private lenders.  The lenders make loans to a business enterprise in exchange for a guarantee of up to 90 percent of the loan amount by the government.  This means that if the small business fails, the bank will receive from the government 90 cents on every 1 dollar loaned.

This guaranteed helps the small business negotiate a better fee and loan rate than what may generally be available without the backing of the government.  The 7(a) program is available to most every business that qualifies as a small business and is still based on the creditworthiness and profitability of the business.

SBA 504 Program

The 504 loan program is the “brick and mortar” lending facility for business that wish to expand their plants and other physical facilities.  A business can borrow up to a maximum of $1,500,000 in the program toward a building or construction project.  For every $50,000 borrowed under the 504 program, a business must create or retain 1 job.  This caveat allows the SBA’s mission of creating business and economic opportunity as well as creating and preserving jobs for workers.

SBA Disaster Loan Program

The Disaster Loan program is the only form of direct lending that is provide by the SBA.  The SBA, through FEMA, makes available small loans to businesses affected by some catastrophic natural event.  The funding is used to help a business get reestablished and operating soon after the effects of a storm, hurricane, flood or fire have been cleared away.

There are other programs available for businesses through the SBA.  A look at a participating lender’s website or the SBA will help a business owner determine their qualification for assistance and the steps needed to secure funding.