The Small Business Administration (SBA) collaborates with select commercial lenders that agree to meet SBA guidelines to offer small business loans.
SBA does not directly provide the actual business loan. Rather, SBA provides a partial guarantee that they will repay a certain amount to the lender if a business defaults on its loan payments.
Essentially, the SBA acts as a co-signer for small businesses that may not have the credit history or other collateral to receive a traditional loan. By reducing risk for lenders, SBA helps encourage financial institutions to lend to small businesses.