Before you can become eligible for a U.S. Small Business Association loan program, you have to be turned down for a conventional loan from a commercial lender. At that point you may be eligible under the SBA’s Loan Guarantee Plan or Immediate Participation Plan. If you qualify for one of these loan types, you won’t receive money directly from the SBA but the SBA will guarantee a loan made by a private lender. The SBA has a long list of certified and preferred lenders throughout the United States.
You might find the same lender that otherwise wouldn’t give you the time of day is eager to lend you money under one of the SBA’s loan guarantee programs. This is because the federal guarantee not only reduces the lender’s risks but the bank now has a readily available secondary market for the guaranteed portion of the loan. You will make the monthly loan payments directly to the lender, not to the SBA.
If you later fail to repay the loan, the bank can usually recover up to 75 percent to 80 percent of the outstanding loan principal from the SBA. This guarantee encourages lenders to give credit that otherwise would not be available on reasonable terms and conditions.