The U.S. Small Business Administration (SBA) offers loan programs that are designed to help under-served and overlooked small business owners capitalize their companies. The SBA doesn’t lend money directly to small business owners. Rather, it creates lending guidelines for its approved lending partners. These lending guidelines are used by small community banks and other nonprofit lending partners of the SBA. SBA approved lending partners are given a guarantee by the SBA to encourage them to provide small business loans to under-served small business owners.
The SBA guarantees up to 85% of the loan (for loans under $150,000) and 75% for loans over $150,000. This means that up to 75% or 85% of the loan amount will be repaid to the lender (by the SBA) if the borrower defaults for any reason. The SBA takes some of the risk out of offering loans to small business owners. This makes the approval criteria for SBA loans less stringent than traditional bank loans. Small business owners that cannot qualify for traditional bank financing are encouraged to apply for SBA loans.