The SBA Loan Guaranty Percentage represents the portion of a loan guaranteed by the Small Business Administration (SBA) to protect lenders against losses if borrowers default. Rather than lending money directly, the SBA backs loans made by banks or other financial institutions by promising to repay a portion of these loans in case of default.
This guarantee reduces the risk for lenders, enabling them to provide financing to small businesses that might otherwise struggle to obtain traditional loans due to limited collateral, credit challenges, or newer operations. The SBA guarantee serves as a form of credit enhancement rather than a direct loan to the business.
For example, with an SBA 7(a) loan of $200,000, the SBA typically guarantees 75% of the loan amount for loans over $150,000. If the borrower defaults and the bank recovers only $30,000 from collateral, the SBA will reimburse 75% of the remaining loss, significantly reducing the lender’s financial exposure.
It is important to note that the SBA’s guaranty protects lenders, not borrowers. If a borrower defaults, they remain fully responsible for repaying the entire loan amount. The SBA usually requires a personal guarantee, allowing it to collect debt from the borrower’s personal assets if necessary.
The maximum SBA loan guaranty percentages vary by program as outlined below (subject to change by the SBA):
- Standard 7(a) Loans: Up to $5 million with 85% guaranty for loans $150,000 or less, and 75% for amounts above $150,000.
- SBA Express Loans: Up to $500,000 with a 50% guaranty.
- Export Express Loans: Up to $500,000 with 90% guaranty for loans up to $350,000, and 75% for higher amounts.
- International Trade Loans: Up to $5 million with up to 90% guaranty.
- 504/CDC Loans: Up to around $5.5 million with 100% guaranty on the SBA/CDC portion.
Understanding the SBA loan guaranty percentage is crucial as it impacts your chances of approval, loan terms, and lender willingness to finance. More information about SBA loans and related topics can be found in our SBA Loan article.
For official details, visit the SBA’s site on 7(a) loans.
Frequently Asked Questions:
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Does the SBA guarantee 100% of SBA loans? Typically, no. Except for the SBA CDC portion in a 504 loan, SBA guaranties are less than 100% to keep lenders invested in loan quality.
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Does a higher guaranty percentage lower my interest rate? Indirectly, yes. A higher guaranty reduces lender risk, sometimes leading to better loan terms within SBA interest rate caps.
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Am I relieved of repayment responsibility if I default? No. The SBA guarantee protects lenders, not borrowers. Borrowers remain fully liable even after SBA compensates the lender.
Understanding these aspects helps small business owners make informed decisions about SBA financing options.
