What Exactly is an SBA Loan?
First, let’s dispel a myth – the SBA doesn’t make direct loans to entrepreneurs to start or grow a business. Instead, it provides a guarantee to banks and lenders for the money they lend to small businesses owners. This guarantee protects the lenders’ interests by promising to pay a portion of the loan back if the business owner defaults on the loan. So when a business applies for an SBA loan, it is actually applying for a commercial loan through a bank or authorized SBA lender, structured according to SBA requirements with an SBA guarantee.
Essentially, SBA loans alleviate the risk associated with lending money to business owners and entrepreneurs who may not qualify for traditional loans – thus opening up lending opportunities to thousands of entrepreneurs, start-ups, growing businesses, minorities, and veterans.