As mentioned, SBA stands for Small Business Administration, an organization designed to help small businesses get started, grow, shift, and recover. First started in 1953, the SBA offers multiple services for small business success, including counseling, lending, and contracting.
The Small Business Administration partially guarantees SBA loans, which makes offering these programs more attractive for lenders. The SBA will cover a large portion of the loan amount for the lender (guarantee) in case of a loan default, they will do this so long as the lender that funds the loans follows the SBA’s strict guidelines. This means that lenders assume less risk than other types of loans because the government helps cover the loan in the event of a default.
The governmental guarantee also means that there are some tight standards and requirements for borrowers. However, the loans also offer benefits like lower interest rates, flexible repayment terms, and other incentives.
Businesses apply for these loans through financial institutions such as banks, credit unions, non-bank lenders, or companies like Lendzero. The lender applies to the SBA to confirm their loan guarantee in case of a default. SBA loans also require owners with at least a 20% stake to put up their personal assets as a guarantee. This means that you and your assets serve as collateral for the loan alongside the governmental guarantee.
