Why SBA?
October 19th, 2018

Since small business owners sometimes have difficulties obtaining loans from banks, one of the tools available to banks to help them is the SBA guarantee.  SBA provides a 75% guarantee across its largest program – the 7a, to banks that request it.  What this does for banks is to allow them to take risks that might be somewhat outside of their normal credit policy and use the SBA guarantee to mitigate that risk.  The SBA has its own credit guidelines that are very similar to banks but with a slightly wider latitude, and banks have to underwrite to SBA guidelines which are very similar to banks.  The same credit quality that banks use is what SBA uses.  So although the SBA guarantee allows a bank to stretch their credit guidelines, it doesn’t want bad loans any more than a bank does.  So a loan that might be considered high-risk to a bank is not likely to be approved by SBA either because its’ funding comes from the Federal Government. 

The most significant benefit of SBA loans is that SBA offers to a borrower considerably lower monthly payments on loans because of the longer amortizations offered by SBA.  Real estate receives a term of up to 25 years, equipment up to 10 years, and working capital 7 to 10 years which can considerably lower borrowers’ monthly cash outflows. 

In SBA’s fiscal year 2018  it approved more than 72,000 loans for a volume of over $30 billion spread over all its’ programs.  Of these 72,000 loans to small business owners, how many might not have gained needed financing were it not for the SBA?  In the world we live in today where the government is not exactly held in the highest regard the SBA loan guarantee is an example of where government can make a significant contribution to small business.

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