SBA loans are small business loans provided by private business lenders in which a certain percentage of the business loan is guaranteed by the government. If the small business owner should default on the business loan, the SBA would cover up to 80% of the business lender’s losses.
Since the small business lenders have a reduced amount of risk (being the SBA will cover a percentage of the lenders losses) the banks are much more inclined to approve a business loan that would have been borderline without the SBA loan enhancement.
What are the SBA's Loan Requirements?
- Small business must be for-profit
- Business less than 500 employees and $7.5 million in average annual revenue
- Conduct their business within the U.S.
- Business owner must have equity to get an SBA loan
- Business owner must show a need for the commercial loan
- Small business owner can’t be delinquent on any existing debt to the U.S. government
What Businesses are Ineligible For SBA Loans?
- Financial business engaged in lending
- Life Insurance companies
- Small Businesses located in foreign countries
- Private Clubs
- Government owned entities
- Small businesses primarily engaged in teaching
- SBA Loan packagers earning more than 1/3 of their gross annual revenue from packaging SBA loans
- Small businesses where SBA lender owns an equity interest
- Businesses engaged in lobbying