SBA loan program definition

First, it's important to point out that the SBA does not actually make loans to businesses. Rather, it provides loan guarantees for business borrowers seeking a loan from a financial institution, like a bank. If the lender determines that the borrower's financial and credit condition won't justify receiving a loan using standard banking practices, an application for a loan guarantee by the SBA can be made by the bank on behalf of the borrower.

An SBA guarantee assures the lender that in the event the borrower defaults on the loan, the SBA will reimburse the lender for a percentage -- typically 80% -- of the loss. The borrower remains obligated for the full amount due.