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# Become an SBA lender

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## Content

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## Why become an SBA lender?

The U.S. Small Business Administration (SBA) guarantees that loans issued by its lending partners will be repaid, which offers benefits to lenders that standard loans do not.

-  Security              SBA will purchase the guaranteed portion of a loan if a borrower defaults.                   
-  More clients              Work with borrowers you typically wouldn’t lend to without an SBA guaranty.                   
-  Favorable rates and terms              An SBA guaranty enables you to offer lower rates and longer terms.                   

## Eligibility requirements for lenders

SBA has three business loan programs: 7(a), CDC/504, and Microloan. Each program has its own lending practices and eligibility requirements for lenders. Review the details of each, then decide which program is best for you.

### 7(a) loan program

Banks, savings and loans, credit unions, and other specialized lenders participate with SBA on a deferred basis to provide small business loans that are structured under 7(a) guidelines. If a borrower defaults on an SBA-guaranteed loan, the lender may ask SBA to purchase the guaranteed portion.

To participate in the 7(a) loan program, a lender must meet the following requirements:
                  - Have a continuing ability to evaluate, process, close, disburse, service, and liquidate small business loans
                  - Be open to the public to issue loans (and not be a financing subsidiary, engaged primarily in financing the operations of an affiliate)
                  - Have continuing good character and reputation, and otherwise meet and maintain the ethical requirements as identified in  13 CFR Part 120.140
                  - Be supervised and examined by a state or federal regulatory authority, satisfactory to SBA or apply as a Small Business Lending Company (SBLC) or Non-Federally Regulated Lender (NFRL) in accordance with SOP 50 56

### CDC/504 loan program

A Certified Development Company (CDC) is a nonprofit corporation set up to contribute to the economic development of its community. CDCs are certified and regulated by SBA. They work with SBA and private-sector lenders to provide growing businesses with long-term, fixed-rate financing for major fixed assets, such as land, buildings, machinery, and equipment.

Typically, a project involving a 504 loan includes:
                  - A loan secured from a private sector lender with a senior lien covering up to 50% of the project cost
                  - A loan secured from a CDC — backed by a 100% SBA-guaranteed debenture — with a junior lien covering up to 40 percent of the total cost
                  - A contribution from the borrower of at least 10% equity of the total project cost

To participate in the CDC/504 loan program, a lender must meet certain requirements, including but not limited to:
                  - Be a nonprofit corporation in good standing
                  - Have a board of directors with at least nine voting directors (additional board of directors requirements are listed in  13 CFR 120.823 )
                  - Have full-time professional management and a full-time professional staff
                  - Meet a minimum level of lending activity

### Microloan program

The Microloan program provides small businesses with small, short-term loans — up to $50,000 — for working capital or to buy inventory, supplies, furniture, fixtures, machinery and equipment. SBA makes funds available to specially designated intermediary lenders, which are non-profit organizations with experience in lending and technical assistance. These intermediaries then issue loans to eligible borrowers.

To participate in the Microloan program, a lender must meet the following requirements: 
                  - Be a private nonprofit, quasi-public, or tribally-owned entity
                  - Have at least one year of experience directly issuing and servicing microloans
                  - Have at least one year of experience providing in-house marketing, management, and technical assistance to its micro-level borrowers

## SBA loan programs comparison

 

## How to apply to be an SBA lender

Contact a lender relations specialist at your local SBA district office to start the application process.