An SBA loan is a small business loan made by a local bank that is in turn guaranteed by the United States Small Business Administration. If the borrower defaults on the loan, the SBA will reimburse the bank for a percentage on the loan loss. The existence of the SBA's guarantee is an inducement for the bank to make loans on terms it would otherwise not make available. The SBA guarantee does not allow the bank to disregard standard commercial underwriting principles such as collateral and personal guarantees. The SBA guarantee does allow the bank to loan more money, extend longer terms, and approve loans to less mature businesses than it otherwise would. The SBA's purpose under these financing programs is to help businesses gain more access to capital thereby creating jobs and expanding the tax base.
