How does the SBA program work?
A lender provides the actual loan to the borrower in the 7(a) program. The SBA guarantees a portion of the loan (between 50%-85% depending on the program) acting much like a co-signer. This helps lenders be more comfortable with a loan that they might otherwise not approve, such as a loan for a start up, or a borrower that has less collateral than a bank requires. In the case of a 504 loan, the lender makes a first loan on fixed asset being acquired while a certified development company provides a “second lien” debenture to maximize the leverage on fixed asset acquisitions.
