Put simply, an SBA loan is a small business loan that is partially guaranteed by the government (the Small Business Administration), which eliminates some of the risk for the financial institution who is issuing the loan.
That’s right. It’s not the SBA who is doing the lending. The SBA works with a network of approved financial institutions that lend money to small businesses more frequently and with better terms because the SBA partially guarantees the loans that these lenders extend to small businesses.
This means that they will back up a part of the loan that a small business receives, so if you’re unable to pay back your SBA loan, the lender knows that the SBA will cover the portion that they guaranteed.
Because SBA loans involve a government entity, their application process is notoriously thorough and often restrictive. If you’re hoping to apply for an SBA loan, you’ll need to prepare a lot of documentation and even more patience.