The “SBA” in SBA loans stands for the Small Business Administration. The Small Business Administration is a federal agency dedicated to helping entrepreneurs improve their small businesses, take advantage of contracting opportunities, and get better access to conventional small business loans. The SBA uses federal money to guarantee a percentage of loans administered by traditional banks, so those financial institutions have more incentive to lend money to small businesses.

Simply put, the SBA backs up a portion of the bank’s small business loan, meaning less risk for lenders. And less risk for lenders means that more small business owners will be considered for the traditional longer-term, lower-rate financing that comes from banks. Because of this guarantee, banks are more inclined to lend you money even if you don’t fit their strict credit criteria. They can service a whole different set of customers than usual—without making too many sacrifices.