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Home > Financing > SBA Loans > How it Works

While "a maze of red tape" comes readily to mind at the thought of government involvement, SBA loans are relatively easy to complete, if the borrower has thoroughly prepared himself and has the requisite information readily available. The mechanics of the transaction are usually as follows:

1. The business applies to the bank for a loan.
2. The bank decides it needs a government guarantee from the Small Business Administration in order to extend credit to the potential borrower.
3. The bank approves the term loan, subject to SBA guarantee.
4. The bank applies to the district SBA office for the guarantee.
5. The SBA approves or disapproves the guarantee, notifying the bank by letter.
6. The bank notifies the owner. If the credit is approved the bank may be able to disburse some funds against the guarantee as soon as it has the letter.
7. The SBA lawyers prepare the loan documents and send them to the bank.
8. The bank disburses the funds and administers the loan until it has been paid in full. The bank will apply to the SBA for any changes in the loan agreement during subsequent years. The SBA would become directly involved only in the case of default where the company's assets must be liquidated to pay off the loan.