Frequently Asked Questions

For Lenders

Why should our bank incorporate SBA-guaranteed loan programs as part of our commercial lending strategy?

There is a strong case to be made for lenders using SBA loan programs. We see the following as key reasons:

  • It helps community lenders serve a larger, more diverse pool of businesses and commercial borrowers. Read more here.
  • When used to extend credit to more C&I businesses, it helps to diversify portfolios and avoid over-concentration in commercial real estate. Read more here.
  • It creates a valuable source of non-interest income when selling the guaranteed portion of the loan. Read more here.
  • It allows banks to significantly expand commercial lending volume and increase overall profitability without adding any fixed expense. Read more here.
Are only a select group of businesses eligible for SBA loans?

On the contrary, most small, for-profit businesses are eligible for SBA loans. They aren’t just for small start-ups! Primarily, eligible businesses must meet the following criteria:

  • Be located in the U.S.
  • Operate for-profit in an eligible industry (the list of ineligible business types is relatively short.)
  • Have owner equity in the business.
  • Meet size requirements, which vary by industry and can be quite large.

LendXP provides lenders with complete eligibility guidance and conducts a thorough borrower review up-front to save valuable time.

Do all loans require a personal guarantee?

Any loan the SBA guarantees requires at least one personal guarantor and a personal guarantee from all owners of 20% or more of the borrowing entity. 

Can a business obtain a guarantee for their loan without sufficient collateral?

For the SBA, the loan amount is determined by the borrower's need and the ability to repay the loan. The SBA will take all available collateral. If all available collateral is insufficient to secure the loan on a liquidated basis, the borrower can still obtain the loan.

Does a borrower need to put a second mortgage on his or her home?

Regarding the SBA, if there isn’t enough collateral to secure the loan on a liquidated basis, the borrower will need to provide a secured personal guarantee. This means they will need to pledge personal real estate, but only to the extent that they are short on collateral.

Can the guaranteed portion of the loan be sold in secondary market?

Yes! Many banks use this strategy to produce noninterest income and collect it in the same year the loan is sold. Banks with a high loan-to-deposit ratio can sell the guaranteed portion of loans as a method to manage their outstanding loan balances. 

Are companies that are highly leveraged or have a negative worth still eligible?

Yes, the SBA will still guarantee a loan to a borrower who is highly leveraged or has a negative net worth, provided a reasonable likelihood of repayment is established. The SBA has no leverage guidelines for borrowers.

What are the maximum terms on guaranteed loans?

Up to 25 years for an SBA loan secured by real estate, 10 years on everything else. Up to 30 years for a USDA Business & Industry loan secured by real estate, up to 10 years for a loan secured with equipment, and up to 7 years for a loan secured by working capital assets. Other USDA programs, such as Community Facilities and 538 Multi-Family Housing can have longer terms, if the useful life of the project supports it.

What are the interest rates?

The SBA sets maximum rates lenders can charge. The specific rate will be determined by the lender, not to exceed SBA maximums.

What is the interest rate adjustment period?

For the SBA, the pricing can adjust monthly, quarterly, annually, every 3 years, or every 5 years. All of the prior mentioned adjustment periods constitute a variable rate loan. A fixed rate loan is exactly that: fixed for the life of the loan with no rate adjustments possible.

The USDA will allow the adjustment period to be set by negotiation between the lender and the borrower.

For lenders interested in selling the guaranteed portion, the secondary market prefers a monthly or quarterly adjustment period.