Private vs. SBA Loan Rates and Terms -- What's Different?

SBA loan rates are the private loan rate that is negotiated between a lender and a borrower. It is important to note here that other than the disaster loan program, the U.S. Small Business Administration (SBA) does not lend money directly to businesses. It provides loan guarantees to lenders who extend loans to existing and start-up businesses. This loan guarantee provides some relief to lenders in order to free up capital for businesses to grow and expand.

Effect of SBA Loan Guarantees

Lenders using the guarantees under programs such as the SBA 7(a) program and 504 loan program are in a better position offer lower loan rates to borrowers than those lenders who do not participate in the SBA loan guarantee programs. The chief difference between SBA loan guarantees and private business loans are the limits placed on borrowers.

SBA 504 Loan Program

The 504 program as an example provides loan guarantees for “brick and mortar” projects and caps the maximum loan to $1,500,000. For every $50,000 of loan dollar, 1 job must be created or retained by borrowers who utilize the program.