How Credit Unions Can Leverage SBA Loans

Small Business Administration (SBA) loans have helped millions of businesses access affordable capital and scale operations. For credit unions, SBA lending offers a way to deepen member relationships, expand commercial offerings, and tap into a growing market of small business owners seeking flexible, long-term financing options. Despite these benefits, many credit unions remain hesitant to enter the SBA space, often due to a lack of resources, underwriting expertise, or perceived complexity.

With proper strategy and guidance, credit unions can turn SBA lending into a high-impact growth channel. In this article, we’ll explore how SBA programs align with credit union values, break down the unique considerations of SBA loans, and highlight how credit unions can mitigate risk and drive growth through strategic partnerships like Cooperative Business Services (CBS).

SBA Lending: A Natural Fit for Credit Union Values

At their core, both SBA and credit unions exist to support underserved communities and empower everyday Americans to build wealth. SBA programs were created to provide credit access to entrepreneurs who might not qualify for conventional loans. Similarly, credit unions operate as not-for-profit cooperatives, prioritizing people over profits and reinvesting earnings into better rates, services, and community initiatives.

Because of this shared mission, SBA lending is a natural fit for credit unions. Popular SBA loan programs like the 7(a) and 504 allow lenders to serve various small businesses while reducing credit risk through government guarantees typically at 75%. This means credit unions can confidently approve loans they may have otherwise denied, especially in cases involving new ventures or borrowers with limited collateral.

One example of this mission in action is through partnership with a Credit Union Service Organization like CBS, that “has facilitated over $400 million in funding to women-owned businesses and $123 million to veteran-owned companies in its 21 years of operation.” The organization plans to expand this work by addressing credit gaps in low-to-moderate income communities, increasing loan volume, and enhancing outreach within its growing network of credit unions (SBA.gov).

In addition to serving existing members, SBA lending attracts new members, including entrepreneurs seeking alternatives to bank financing. Credit unions can stand out as flexible and approachable lenders by offering longer repayment terms and lower down payments. According to the SBA, over $27 billion in 7(a) loans were issued in FY2023, underscoring strong demand for accessible business financing.

CBS helps credit unions align their SBA lending efforts with core institutional values by providing tools and insights that enhance member service while streamlining complex compliance tasks.

What Makes SBA Loans Different?

Unlike conventional commercial loans, SBA loans are governed by a distinct set of requirements designed to protect both borrowers and lenders. Credit unions entering this space must understand the nuances of the SBA’s popular programs:

7(a) Loan Program: The most flexible option, allowing funds to be used for working capital, equipment, inventory, real estate, or even refinancing existing debt. Loan amounts can range from $5,000 to $5 million, with maximum guarantees of 85% for loans under $150,000 and 75% for loans over $150,000. The SBA outlines the 7(a) Loan Program as its primary vehicle for providing financial assistance to small businesses. This program offers loan guarantees to lenders, allowing borrowers who meet specific eligibility requirements to access capital. The SBA’s resources detail everything from application processes to program benefits, making it a valuable reference for understanding how SBA-backed financing supports business growth.

504 Loan Program: Designed for fixed asset purchases—such as real estate, machinery, or long-term equipment—with longer terms and fixed interest rates. These loans often involve a partnership between a credit union, a certified development company (CDC), and the borrower.

SBA loans require robust documentation, including business plans, historical financial statements, cash flow projections, and personal guarantees. Additionally, lenders must follow SBA Standard Operating Procedures (SOPs) to maintain their eligibility for the guarantee—adding an extra layer of oversight not required in conventional lending.

While the process may seem daunting, the risk mitigation it offers is significant. The guarantee means that, in the event of default, the lender can recover a portion of the outstanding loan from the SBA. This makes SBA lending an ideal option for serving first-time business owners or projects that would otherwise fall outside your traditional risk tolerance.

CBS simplifies SBA loan origination by assisting credit unions with borrower screening, document preparation, and navigating SBA requirements—enabling institutions to offer SBA products with confidence and precision.

Managing SBA Loan Risk Without the Burden

While SBA loans help reduce exposure through government guarantees, they still require careful underwriting and portfolio oversight. Loan performance depends heavily on factors like the borrower's experience, industry conditions, collateral, and the quality of financial reporting. That’s why credit unions must apply commercial-grade underwriting even when lending under the SBA umbrella.

Key risk areas include:

• Cash flow predictability
  
  
• Sufficiency of equity injections
  
  
• Viability of business plans
  
  
• Tenant and lease stability for real estate deals
  
  

Without an experienced SBA team, credit unions may feel unprepared to evaluate these risks fully. But with outsourced underwriting support or loan participations, institutions can offer SBA loans without having to build full-scale internal departments.

This is especially relevant for credit unions expanding into commercial real estate or equipment financing for local businesses. A partner like CBS can take on underwriting, provide tenant credit analysis, and deliver real-time market insight—all while supporting SBA compliance documentation, financial modeling, and ongoing portfolio management.

With CBS, your institution gains expert underwriting and SBA loan support designed to reduce risk and increase throughput—giving your team more time to focus on members, not paperwork.

SBA Loans as a Growth Engine for Your Membership

One of the most powerful aspects of SBA lending is its ability to serve as a springboard for long-term member relationships. Entrepreneurs and business owners often need more than just one loan—they need a partner who can help them grow through multiple stages of development. Offering SBA loans enables credit unions to serve this segment more holistically, from initial capital to expansion financing and beyond.

By offering SBA loans, credit unions can:

• Attract new business members from underserved demographics
  
  
• Position themselves as full-service financial partners
  
  
• Generate new non-interest income and increase loan volume
  
  
• Strengthen ties with local chambers of commerce and economic development groups
  
  

SBA lending can also improve public perception. A recent Forbes article highlights that SBA 7(a) loans have long offered low rates and extended repayment terms—benefits that are increasingly appealing as interest rates rise. In 2024 alone, the SBA approved over 70,000 7(a) loans totaling $31.1 billion, up significantly from the 57,362 loans approved the year prior.

Technology is also streamlining the SBA lending process. Small business owners can now upload tax returns, profit and loss statements, and balance sheets, or connect their accounts through third-party services to auto-fill required fields. Behind the scenes, tools powered by Optical Character Recognition (OCR) can extract key data from these documents and calculate crucial underwriting metrics—like the Debt Service Coverage Ratio (DSCR), which typically must meet a 1.25 minimum for SBA approval. This automation reduces manual processing time, expedites financial reviews, and allows lenders to issue decisions more quickly and confidently.

As the article points out, small business owners are consumers too—and they have choices. Credit unions that invest in streamlined SBA workflows and prioritize banking relationships can stand out in a competitive lending landscape, meeting the demand for fast, flexible, and inclusive financial services while growing alongside their members.

CBS not only supports the loan itself—we help your credit union develop a member-first SBA strategy that promotes retention, drives referrals, and supports sustainable commercial growth.

Turning SBA Complexity Into Credit Union Opportunity

SBA lending doesn’t need to be complicated or costly. When structured correctly and supported by expert partners, it becomes a practical extension of your credit union’s community mission and growth strategy. SBA loan programs can help you say “yes” more often—serving members who need startup capital, acquisition funding, or support in scaling their local businesses.

By offering SBA loans, credit unions can:

• Grow commercial lending portfolios
  
  
• Expand member services without adding undue risk
  
  
• Compete directly with banks on deal structure and pricing
  
  
• Strengthen their local economic impact

Contact us today to learn how CBS can help your credit union launch or enhance its SBA lending strategy—so you can serve more members and grow with confidence.

CBS helps credit unions turn SBA opportunities into tangible results—by combining strategic consulting, operational support, and underwriting expertise. Contact us today to learn how your institution can unlock the power of SBA lending, improve your market position, and serve your members in smarter, more impactful ways.