Contrary to what many people think, other than under the Disaster loan program, SBA loans are not issued by the SBA. Banks, credit unions, community development organizations, microlending institutions and others actually make the loans. The SBA makes a guarantee (promise) to cover a portion of your lender’s losses — 50 to 85 percent — if you don’t pay as agreed.
The SBA guarantee reduces the risk for lenders, allowing lenders to make loans to businesses that they would otherwise not lend to. For example, businesses with insufficient down payments or collateral for conventional bank loans may be able to qualify for a loan that’s backed by an SBA guarantee. Similarly, borrowers usually receive loans with lower interest rates and longer repayment terms than they would with conventional commercial loans.
Navigating these requirements and the accompanying paperwork can be difficult and is the main reason people think of SBA loans as slow and hard to get. Some of the best SBA lenders, like SmartBiz, have streamlined this process and drastically cut down paperwork and application times. In fact, SmartBiz routinely closes SBA loans in 2 to 3 weeks.