SBA Loan Default Rate Creeping Up to 3.69%

lender profile

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.





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commentor profile
Reply by a searcher
from Brigham Young University in Salt Lake City, UT, USA
SBA loans are great but I think that number is higher. Searchers taking on other jobs to pay for the loan, banks not collecting every detailed financial statement every few months to stay compliant with the SBA so they can't report it, etc.
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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.
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