SBA's 7(a) programs are designed to
deliver the greatest amount of money to the most small businesses
with the least amount of actual taxpayer expense. To accomplish this,
the SBA currently offers to guaranty loans made by non-Government
lenders rather than provide the loan funds itself. The money comes
from the lenders. Taxpayer funds are only used in the event of borrower
default. This reduces the risk to the lender, but not to the borrower,
since the borrower remains obligated for their full debt, even if
they default.
Banks, savings & loans, credit unions, and other specialized
lenders participate with SBA on a deferred basis to provide small
business loans that are structured under 7(a) guidelines. To participate
lenders must execute an SBA Form 750 Agreement. This is a deferred
participation agreement that establishes the terms under which SBA
will guaranty a loan submitted by the lender.
In order to participate with SBA, a lender must meet the following
requirements as indicated in the Code of Federal Regulations (CFR):
1.) Have a continuing ability to evaluate, process, close, disburse,
service and liquidate small business loans;
2.) Be open to the public for the making of such loans (not be
a financing subsidiary, engaged primarily in financing the operations
of an affiliate);
3.) Have continuing good character and reputation, and otherwise
meet and maintain the ethical requirements as Identified in 13 CFR
Sec. 120.140
4.) Be supervised and examined by a State or Federal regulatory
authority, satisfactory to SBA
When a lender chooses to utilize the SBA guaranty, the lender must
certify that they would only make the loan if SBA provides its guaranty.
The lender applies to SBA for a guaranty on a proposed loan. SBA
will then make its decision whether to guaranty the loan based on
the information provide in the loan application
When a lender's loan is guaranteed by SBA, certain conditions for
guaranty are imposed on the lending institution. Some of these conditions
are related to how the lender must close and administer the account.
Other conditions pertain to the business or its owner(s) and are
imposed on the borrower. The borrower agrees to these requirements
as a condition for obtaining the loan.
If a guaranteed loan defaults, the lender may request SBA to purchase
the guaranteed portion.
To begin the relationship with SBA, a lender should contact the
local SBA Office and inquire about participating with SBA.
SBA offers its participants (the lenders) a variety of methods
for applying for a guaranty on their proposed loans. The differences
between these methods are related to the levels of authority and
responsibility the lender and SBA have in making the decisions associated
with processing, closing, and administering each loan.
Lenders are given authority to take on more of the responsibilities
associated with loan making and administration from SBA, based on
the lenders historical experience and performance with SBA. The
better a lender has conducted its analysis and performed the administration
functions in the past, the more likely SBA will not have to re-analyze
or check these factors in the future.
Certified Lenders Program
Preferred Lenders Program
LowDocumentation Program
SBAExpress Program
Community Express Program
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