What is a Federal Loan Guarantees?

A Federal Loan Guarantee is a promise to a Lender of record that if the Lender makes a loan and services a loan under an Agency's program guidelines and that loan subsequently goes into default, then the Federal Government will honor the guarantee by buying the defaulted loan. The impact on the Lender is to promote loan making where there might not otherwise be a loan. Often, Lenders will not make a loan to a worthwhile small business or rural development due to higher perceived risks of these customer types. Lending is readily available for the economically advantaged (low risk rated) customers. The Loan Guarantee supports lending into opportunity areas with price and term comparable to those offered better risk rated customers. Thus credit is reasonably available to targeted sectors, and public policy goals achieved.