SBA Loan Default Rate Creeping Up to 3.69%

January 13, 2025

by a lender from University of Southern California in Los Angeles, CA, USA

Just wanted to share this data point: The SBA 7(a) loan default rate for FY 2024 is 3.69%. While this is a general rate, default rates for SBA-financed acquisitions are likely 1-2% higher. Still, it’s a helpful proxy for understanding business failure risk in small business acquisitions. SBA loans and business acquisitions via SBA loans are still a great way to build life changing wealth for ambitious operators.

Would love to help you with your SBA loan. The bank pay us after your loan closes, so this is a 100% free service for you. You can reach me here or directly at redacted You can also click here to schedule a meeting with me: https://cal.com/ishan-jetley-3d73m8/30min. Look forward to chatting!

3 Likes

22 Replies

356 Views

Replies

Reply by a lender
from University of Florida in Dallas, TX, USA

I think it is important to understand more of the underlying data utilized here. Primarily, are they utilizing quantity of loans or dollar amount of loans disbursed. My assumption would be quantity of loans. The most recent SBA administration is quickly going down as one of the worst since Reagan, when the SBA was almost eliminated completely. At the most recent NAGGL Convention (National Association of Government Guaranteed Lenders), they showed data that the vast majority of loan defaults were on the smallest of loans ($150k and smaller). These loans exceeded 6% default rate (if memory serves), skewing the figure above higher than normal.

The previous administration removed all barriers to access capital for the smallest of Borrowers. They wanted to be able to walk away from their position saying they enabled any and all businesses access to capital. In reality, this was one of the worst things they could have done. Banks that participated in these small loans lent money to individuals who ordinarily would not have qualified.

A sad aspect of the nature of SBA lending is that the majority of political individuals who shape these rules for a 4-year period leave and never return to the SBA afterwards. New officials come in and try to clean up the mess (as they see it) from a previous administration.

Regardless of this, taking on SBA debt is a significant decision given the Personal Guaranty required on each transaction. Direct industry experience of 3-5 years is an indicator of success my group consistently relies on when we screen our applicants.

Reply by a searcher
from Drake University in Des Moines, IA, USA

This is one data point, but here is why I hate everyone throwing around this number: 1. This is JUST defaults, this number does not include any restructuring of debt agreements (i.e. if a lender chooses to extend amort terms, take interest only payments, etc.). In the conventional debt world, we would have called those "technical" defaults and they absolutely should be included in this number as that is the first sign of trouble, and 2. as the poster mentioned this is an all inclusive figure and does not chop out M&A exclusively. This data is heavily skewed given the amount of businesses taking SBA financing that are not acquisition loans (acquisitions would be a significantly smaller denominator) and my guess is that rate would be more than 1 or 2 % higher. If you asked 10 SBIC firms how many debt restructurings they have had over the 18 months that would probably give you a better idea of what the default rate really is (and that number would be much higher than 5% of the portfolio).

+20 more replies.

Join the discussion