How the Program Works

Since a key concept of the 7(a) loan program is that the loan comes from a commercial lender, not the Government, a small business applies directly to a lender for financing. The lender reviews the application and decides if it merits a loan on its own or if it requires additional support in the form of an SBA guaranty. The SBA guaranty assures the lender that if the borrower does not repay the loan, the Government will reimburse the lender for its loss, up to the percentage of SBA's guaranty. However, the small business borrowing the money remains obligated for the full amount due.

If the lender is not willing to provide the loan, even with an SBA guaranty, SBA cannot force the lender to do so. So it is important for applicants to be prepared when they approach a lender; they should know and meet the lender’s criteria and requirements as well as those of the SBA. To be considered for an SBA–backed loan, the applicant must be both eligible and creditworthy.