For SBA lenders
Short answer
Holding the unguaranteed portion means the lender bears 100% of the loss on that portion if the borrower defaults. This exposes the lender to significant credit risk, motivating the sale of the guaranteed portion.
The SBA guaranty only covers a percentage of the loan (e.g., 75% or 85%). The remaining portion is entirely at the lender's risk. If a loan defaults and liquidation proceeds are insufficient to cover the outstanding balance, the lender absorbs the loss on the unguaranteed portion first, before the SBA honors its guaranty on the protected portion. This inherent credit risk is why many lenders sell the guaranteed portion on the secondary market.
A $1 million 7(a) loan with an 80% guaranty ($800,000 guaranteed, $200,000 unguaranteed) defaults. After liquidation, only $150,000 is recovered. The lender loses the full $200,000 unguaranteed portion, and the SBA covers 80% of the remaining $650,000 loss.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
SOP 50 56 - Lender Participation Requirements
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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