The SBA offers private lenders a guarantee on loans made to qualified small businesses. If the borrower fails to pay the loan, the lender can usually obtain up to 85 percent of the outstanding loan principal from the SBA. The government guarantee encourages lenders to grant credit that otherwise would not be available on reasonable terms and conditions. Commercial lenders often prefer a SBA-guaranteed small businesses loan because the federal guarantee not only reduces the lender's risks, but the bank has a readily available secondary market in which to sell the guaranteed portion of the loan. In addition, the guaranteed portion of the loan does not count against the federally mandated reserve funds that banks must maintain as protection against loan losses.
What are the most popular SBA loan guarantee programs? We discuss: