There are over 80,000 banks and savings and loan associations in the United States. In addition, there are specialty finance companies that offer various kinds of loan products to help growing businesses manage their working capital.

So, what is the role of the Small Business Administration (“SBA”) in supporting increased lending activity to America’s small business community?

With the exception of certain disaster loan programs, the SBA is not a direct lender to small business owners. But it does play an important role in encouraging regional and national banks to make loans to growing businesses around the country.

The SBA offers certain protections to its member banks should a business borrower default on a loan. This extra loan coverage motivates banks to lend to small businesses. So whereas one non-SBA program lender might say “no” to a business, another bank which is a SBA program lender may say “yes” all because it has a level of loan loss protection from the U.S. Federal Government.

As always, Start on Purpose recommends that business owners compare the rates of at least three vendors whenever making key purchasing, advisor or debt selections. Be a good shopper. While SBA-backed loans can provide longer payment terms for businesses, SBA-backed loans may be more expensive in terms of closing fees and interest rates than local lenders.

The best approach is to try to compare loan terms carefully. Local lenders may also be willing to reduce the terms of a personal guarantee as the business achieves key metrics of financial accomplishment too. As the risk of the loan goes down, the costs of borrowing tend to go down too.