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  • - How it Works
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Home > Financing > SBA Loans

Government Guaranteed Loan Programs

There are times that a deserving small business venture cannot obtain adequate financing for start-up or expansion from commercial banks. The primary reason is that the bank considers the proposal as too risky. There are a myriad of reasons for this but, for the business, the bottom line is that the funding that the owners require is not there. In order to minimize the bank's risk in lending money to these ventures, there are a variety of federal, state, and local financing programs available from government entities of which business owners should be aware.

Small Business Administration

The dominant and most comprehensive government loan guarantee program is operated by the Small Business Administration. An SBA guaranteed term loan can be an excellent way of matching loan repayment to the company's annual cash flow. Loan guaranty programs make up the lion's share of SBA financing due to the reluctance of most banks to make long-term loans to small businesses because of the risk involved. The SBA guarantee is an inducement for the bank to make the loan, substantially reducing the bank's share of the loss in case of default. In addition, the bank can sell the guaranteed portion of the loan in a secondary market, freeing the bank's funds for other loans and gaining the bank a fee on the total transaction.

It is important to realize that the SBA guaranty program is designed to provide long-term financing for credit worthy small businesses that cannot quite meet the underwriting criteria of a commercial bank.

Some banks are preferred and certified SBA lenders, which means that they are authorized to analyze and evaluate the loan application package on behalf of the SBA. Once this analysis is completed, the package is forwarded to the SBA for final approval, which takes only a few working days.

If operations expand profitably, SBA loans are like any bank loan. The loan covenants written by the SBA are similar to the covenants of a standard bank term loan. The ongoing administration of the loan is handled by the bank. Periodic modifications in the loan agreement, such as the release of collateral for working capital financing, can be obtained if the company has performed well. Virtually every bank in the Hampton Roads area will make SBA loans under the right circumstances. The best place to begin is where you currently bank. If your bank is reluctant to make an SBA loan, be aggressive in trying elsewhere. Some banks are more active SBA lenders than others.

Small business should expect a compelling reason why they should do business with a bank that does not allow them access to the government loan option. If you are otherwise satisfied with your banking relationship, but the bank does not do SBA loans, there are non-bank SBA lenders that can assist you without impacting your depository relationship.