Default rates for SBA Loans

August 02, 2021

by an investor from The University of Chicago - Booth School of Business in Louisville, KY, USA

I've often heard people say that SBA loans have default rates below 2%. This has been used as a justification for highly leveraged acquisitions ~90% LTV and to minimize the risk of personal guarantees. But then I see the figures in the article linked below that "More than 1 in 6 loans (17.4%) awarded from 2006 through 2015 went into default..." In specific sectors the default rate is much higher, like 42.8% in multi-family housing construction. Does anyone have a comment from experience or hard data on this?
https://www.nerdwallet.com/article/small-business/study-1-in-6-sba-small-business-administration-loans-fail

Reply by an intermediary
in Port St. Lucie, FL, USA

SBA7A can be used for equipment purchase, Start-ups, working capital, business acquisition and real estate purchase. If its a "business acquisition" (typically 10yr term) including real estate (typically 25yr term), then what the SBA allows is a blended term of 15 yr to 17yr for the loan. Like I said, it all depends on the scenario and the lender. We have access to 150 lenders so it gives us quite a bit of flexibility to make almost any scenario work. Here to help my friend. My email is: redacted I am not on searchfunder to often, but you can reach me anytime via email. Have a blessed day.

Reply by a lender
from University of Missouri in St. Louis, MO, USA

Hi Patrick, remember that while the SBA borrowers on this forum are highly educated borrowers with access to capital, the average 7A borrower isn’t. A lot of large banks do thousands of tiny SBA loans every year at retail branches where they get CRA credit. As a result the high default rate might be a bit misleading for the purposes of this forum. More relevant would be if someone could find data on search fund defaults.

+9 more replies.

Join the discussion