The SBA loan program helps creditworthy small businesses secure financing when they cannot otherwise obtain credit at reasonable terms. The program covers business borrowing requests in which a business has sufficient cash flow to repay a loan but may not have the collateral or history required to get a bank loan.

The SBA also guarantees a portion of the lender’s loan, which is conditional based on the lender following certain SBA requirements. If the borrower defaults, the SBA pays off the guaranteed portion of the remaining loan balance. This conditional guaranty covers a portion of the risk should a business owner default on the repayment of a loan.

The 7(A) Loan Program

The 7(a) loan program is the Small Business Administration’s (SBA) primary program for providing financial assistance to small businesses. The terms and conditions, like guaranty percentage and loan amount, may vary by loan type.

The SBA’s 7(a) loan program can be used to finance a variety of business needs. Borrowers may use the proceeds of a 7(a) guaranteed loan to purchase machinery, fixtures, and supplies; make improvements to land and buildings; finance receivable and augment working capital; acquire and start businesses; and refinance existing debt (under certain conditions).

Traditional 7(a) loans carry no minimum borrowing requirements for businesses and carry a maximum loan amount of $5 million. The regular 7(a) loan program provides an 85% guaranty for loans of $150,000 or less (which decreases to a 75% guaranty for larger loans).

Other, more specialized 7(a) programs have different terms and guaranty amounts.

How can financial institutions request a guaranty from the SBA?

Non-delegated lenders

Non-delegated lenders—typically new or infrequent SBA lenders who haven’t been granted a higher level of authority or delegated status by the SBA—have two options to request an SBA guaranty: 7(a) Small Loans and standard 7(a) processing.