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The FAQs of SBA Lending

March 4, 2017 / by LendXP


After hundreds of government-guaranteed loans, there are questions we’ve heard many times from banks and borrowers. Let’s review them, in case they’ve crossed your mind, too.


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. The USDA follows this guideline with a couple of notable exceptions, such as loans to co-ops or publicly-traded companies, but the exceptions are limited. Contact LendXP for more information about exempt situations.


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

Yes. The loan amount is determined by a 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?

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 the 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.


Will the government give guaranteed loans to companies that are highly leveraged or have a negative worth?

Yes, the SBA will still guarantee a loan to a borrower who is highly leveraged or has a negative net worth. 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.


What are the maximum interest rates?

The SBA caps the interest rate a bank can charge at the WSJ Prime Rate + 2.75% if the loan is a variable rate loan. The maximum fixed-rate loan (fixed for the life of the loan, no adjustments) is currently 8.66% for loans greater than $50,000.


What is the interest rate adjustment period?

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 adjustment in rates possible.


What questions of yours didn’t we cover? Contact LendXP any time.



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Topics: interest rates, sba lending, Frequently asked questions, Lenders

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