Introduction to Sba loan Guaranty

This article will give you a quick introduction to the topic of Sba loan guaranty. SBA stands for Small Business Administration. Before we get into Sba loan guaranty, it will be helpful for you to understand what exactly a guaranty means.You might know the term guaranty through other terms such as a co-signor. Essential, a guaranty is one that is sought by the bank to get assurance that someone else can repay the loan on your behalf if you cannot pay it back on your own.You can get a guaranty from a government organization, a friend or family member or even an insurance company for that matter. The person who agrees to co-sign or be your guarantor will have to sign paperwork and documentation that will make legally bind them to the loan agreement.People use a third party guarantor or co-signer when they do not have a credit history or if they have bad credit history. Any government funded student loan is a good example of a guaranty in action. A student rarely will have any credit or income sufficient to substantiate a student loan. The government, however, wants as many citizens as possible to become educated. Given this, the government will step in and guarantee the loans will be paid back in certain situations or issue the loans itself.Just like individuals with no or bad credit who usually need a guaranty to obtain a loan, small businesses with little or no history will find it very difficult to obtain a loan from a bank. A bank will usually only lend to businesses that have a good business history with already strong cash flow statements. A small business can avoid this problem by approaching the SBA for a guaranty. The government run SBA will guarantee the repayment of the loan sought by the small business. In many cases, a small business will get an 80% SBA guaranty which means that the SBA will pay 80% of the loan for the small business if it is unable to pay back on its own. When the SBA offers to guaranty 80% of a loan, a bank will be more than willing to award the loan as the risk involved is a lot lower than without a guaranty. If not for a SBA guaranty, a small business owner can also seek guaranty from private parties who can back their loan. To back a loan or to provide guaranty, a private party will need to show proof of assets in the form of cash balances or deposits, real estate equity or investment securities such as stocks and bonds or any other security that can be readily liquidated in the market. This can be rather difficult, which is why most people end up at the doorstep of the SBA sooner or later. The Sba loan guarantee has been a huge help to millions of small businesses. It is not a stretch to success that more than a few successful companies employing thousands of people wouldn't exist today if the SBA program had not been around to provide a helping hand.