Loan Guarantee FAQ’s
USBGI’s Loan Guarantee Program enables small businesses to obtain term loans or lines of credit to help them grow and expand their businesses. The program provides a lender with the necessary security, in the form of a partial guarantee, for the lender to approve a loan or line-of-credit.
Money is set aside in a reserve fund to pay anticipated claims on defaulted loans. The reserve fund is maintained by the State of Utah. Fee earnings are used to replenish the reserve and/or pay for administrative costs. USBGI will establish limits on the amount of loans any one lender can originate in the program and/or the amount of credit exposure each dollar in reserves can support (also known as a leverage ceiling). USBGI’s liability is limited to the funds in the reserve fund.
What percentage of the loan can the Guarantee cover?
Coverage is determined by USBGI and lenders, but may not exceed 80% of loan losses; a lender must have at least 20% of its own capital at risk in each loan.
How does USBGI’s loan guarantee program work?
USBGI sets aside funds in a dedicated reserve account to guarantee a specified percentage of each approved loan
What happens in the case of default?
If a borrower defaults on a loan, a lender may submit a claim to USBGI in accordance with the terms of the guarantee agreement.
The guarantee agreement will specify the responsibilities of the lender in pursuing available remedies to collect unpaid principal and interest prior to submitting a claim.
What is the role of the USBGI?
- Issues the loan guarantee to the lender.
- Establishes contracts, budgets, reporting requirements, databases to support the program, and other administrative elements.
- Conducts outreach to inform lenders and trade associations of the existing program; introduces the program by letter or in person, distributes press releases and/or speaks at industry or small business conferences.
What is the role of the Lender?
- Originates, processes, and services loans.
- Submits guarantee applications and underwriting to USBGI for review/approval, and obtains assurances of eligibility from each borrower.
What is the role of the Trustee and the Reserve Fund?
- Invests conservatively as dictated by USBGI’s investment guidelines.
- Pays claims in instances of loan defaults.
- Supplements administrative costs through interest earnings.
Can a lender refinance an existing loan?
If the loan is with an institution other than the institution requesting USBGI support, yes, as long as it meets all other requirements of the program.If the loan is with the same institution than the institution requesting USBGI support, then it must meet the following guidelines:
- The original loan must be matured.
- The new loan must advance new monies.
- The original loan must have been used for eligible business purposes.
- The original loan must not be a troubled debt.
Contact USBGI to ensure eligibility.