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Loan guarantees or  section 7(a) loans are the most widely used and basic support provided by the federal government in USA under the small business administration (SBA) to small businesses in the country. Money is lent to the small business by banks and commercial lenders, the SBA only provides a guarantee.   

The lenders for 7(a) loans choose to structure loans according to SBA requirement and receive a guarantee on part of  the loan. The risk that the buyer will not repay the loan is shared between the SBA and the lender. The commercial lenders will  lend the entire amount and administer the loan. The loan  has to be first approved by the lender, only then it can be structured according to 7 (a) criteria.

The loans are available to most US businesses which meet the eligibility criteria for size, should operate in USA and should have some funds invested initially. There may be some additional considerations for certain business types like franchises, recreational facilities and clubs, farms and agricultural businesses, fishing vessels, medical facilities. The maximum loan  amount is US $2 million and SBA's maximum exposure is  US$1.5 million.

A 7(a) loan can be used to establish a new business or in the operation and acquisition of  an existing business.  It is used to purchase land or buildings, equipment, machinery, furniture, supplies, working capital needs. It cannot be used to refinance existing debt or to reimburse funds owed to the owner of  the business.