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7(a) Loan Program

The 7(a) Loan Program is SBA’s primary program for helping start-up and existing small businesses, with financing guaranteed for a variety of general business purposes. SBA does not make loans itself, but rather guarantees loans made by participating lending institutions. In this way, taxpayer funds are only used in the event of borrower default. This reduces the risk to the lender but not to the borrower, who remains obligated for the full debt, even in the event of default.

Credit Union Eligibility Requirements

To participate in the 7(a) Loan Program, a lender must meet the following requirements as indicated in the Code of Federal Regulations:

  1. Have a continuing ability to evaluate, process, close, disburse, service and liquidate small business loans;
  2. Be open to the public for the making of such loans (and not be a financing subsidiary, engaged primarily in financing the operations of an affiliate);
  3. Have continuing good character and reputation, and otherwise meet and maintain the ethical requirements as identified in 13 CFR Sec. 120.140;
  4. Be supervised and examined by a state or Federal regulatory authority, satisfactory to SBA.

How Credit Unions Can Participate

Credit Unions among other lenders participate with SBA on a deferred basis to provide small business loans that are structured under 7(a) guidelines. Lending partners must execute the Deferred Participation Agreement (form linked below), which establishes the terms under which SBA will guarantee a loan submitted by the lender. When a lending partner applies to SBA for a guaranty on a proposed loan, it must certify that it would only make the loan if SBA guarantees it. SBA then decides whether to guarantee the loan based on the information provided in the loan application.

When a loan is guaranteed by SBA, certain conditions are imposed on the lending institution. Some of these conditions are related to how the lender must close and administer the account; others are imposed on the borrower, and pertain to the business or its owner(s). The borrower must agree to these requirements as a condition for obtaining the loan. If a guaranteed loan defaults, the lender may request SBA to purchase the guaranteed portion. SBA offers its lending partners a variety of methods for applying for a guaranty on proposed loans. The differences are related to the levels of authority and responsibility the lender and SBA have in making decisions associated with processing, closing, and administering each loan. Lenders are given authority to take on more of these responsibilities based on their experience and performance with SBA. The better a lender has conducted its analysis and performed administrative functions in the past, the more likely SBA will not have to re-analyze or check these factors in the future.)