Practical Tips for Lenders: Navigating the Gauntlet of Government-Guaranteed Loans

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Government-guaranteed loans have long assisted lenders by bolstering private credit structures where lenders may otherwise hesitate to extend credit. For instance, in 2011 the United States Department of Agriculture’s Rural Development Program alone provided nearly $900 million in funding through various loan programs in Washington state. Lenders also often turn to the Small Business Administration’s (“SBA”) guaranteed loan programs to bolster credit, including SBA’s 7(a) Loan Program or 504 Loan Program. The primary benefit of these programs is that the government’s guarantee is an “obligation supported by the full faith and credit of the United States” and is “incontestable” by the agency, except in limited circumstances involving fraud or misrepresentation.

While these government-guaranteed loan programs can provide substantial benefit to lenders, they also can involve rigorous application processes that can perplex even the most sophisticated lenders. Federal agencies often require a tremendous amount of documentation, and the process can drag on for months (or even years) as the lender and agency at tempt to make sure every thing is properly in place.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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