SBA Loan Guarantees: The Cornerstone of SBA Lending

Prudent Lenders is committed to making it easy for lenders to implement and manage U.S. Small Business Administration (SBA) loan programs. Highlighted below is key information about the SBA guarantee – what it is, how it differs between various SBA loan programs and the fee structures associated with lenders and their borrowers.

As always, if you need additional information or assistance, our team is a phone call away.

Benefits of the SBA loan programs

The SBA’s guarantee is the cornerstone of its loan programs, which have tremendous benefits for borrowers and lenders alike. SBA programs provide additional and beneficial lending opportunities for small business clients who land just outside your institution’s conventional lending criteria. In addition, SBA programs:

• Provide a useful credit enhancement that, in turn, reduces your institution’s risk, meaning you can confidently make more and better loans.
• Allow you to keep the financing door open for small business borrower, helping to increase customer loyalty and retention.
• Enable you to expand your small business portfolio and increase your institution’s profitability.

What is the SBA guarantee?

While many lenders are familiar with the basics of the SBA loan guarantee, there are a few key points worth highlighting. SBA guarantees are the hallmark of the SBA program and they:

• Reduce lenders’ financial risks by guaranteeing a percentage of all SBA-backed loans made to small businesses, typically covering 50 percent to 85 percent of each loan.
• Make it possible for lenders to lend to borrowers in industries that may be otherwise hard to finance, or for small business clients who may have difficulty obtaining traditional bank loans.
• Enable lenders to provide financing with competitive terms to small businesses when traditional or conventional funding is otherwise unavailable.

SBA guarantees differ between loan programs

SBA-backed programs have differing loan-guarantee percentages, based on the loan product and the loan amount.

If you’d like to know the loan-guarantee maximum for a particular loan product or situation, call Prudent Lenders or see pages 146-148 in the SBA’s SOP.

What are the fees associated with an SBA guarantee?

With SBA-backed loans, the SBA calculates guarantee fees for both lenders and borrowers:

• Borrower fee: This is a one-time fee that lenders can pass on to borrowers and it’s determined by the total portion of the loan that’s guaranteed by the SBA.
• Lender fee: This fee is only paid by lenders and can’t be passed onto borrowers. It’s set at the time of the loan approval and is based on the outstanding principal balance of the guaranteed portion of each loan. Lenders pay this fee monthly as part of the 1502 loan-status report. (When you work with Prudent Lenders, we can take care of these reports for you.)

Typically, when SBA authorizations are issued on loans, both the borrower fees and lender fees are stated. It can also be calculated in E-tran, the SBA’s electronic loan-servicing system. In either case, Prudent Lenders will work with the SBA to get this information for you and your clients.

Let us do the heavy lifting

When you partner with Prudent Lenders, you minimize the time and resources spent on learning and applying SBA rules. We offer unparalleled assistance servicing your SBA loan portfolio, including taking the necessary steps to protect your loan guarantees.

Get in touch today if you have questions regarding SBA guarantees or any other SBA-backed loan matter. Not a partner yet? Contact us to learn how Prudent Lenders can help get your SBA program up and running with no fixed costs.