How Banks and the SBA Blame Each Other

Welcome to the Blame Loop

You called the bank. They told you to call the SBA. You called the SBA. They told you to call the bank. You called the bank again. They put you on hold for forty minutes and then disconnected you.

Congratulations. You've just experienced the single most predictable failure mode in American small business lending: the blame loop. Two institutions, both nominally on your side, both structurally incentivized to point at the other one when something goes wrong. And something always goes wrong.

This isn't a bug. It's how the system was designed. The SBA and its approved lenders exist in a relationship that looks like a partnership on paper and functions like a custody dispute in practice, with your loan application playing the role of the child neither parent wants to take responsibility for.

Here's how it actually works, why it keeps happening, and what you can do when you're stuck in the middle of two institutions that would rather blame each other than help you.

How the SBA-Lender Relationship Actually Works

The first thing to understand is that the SBA, in most cases, does not lend you money. This surprises a lot of people. You hear "SBA loan" and you assume the Small Business Administration is writing you a check. They're not. What they're doing is guaranteeing a portion of a loan that a private bank makes to you.

Here's the basic model: you go to a bank. The bank evaluates your application and decides whether to lend to you. If the bank approves, it submits the loan to the SBA for a guarantee. The SBA reviews and, if it agrees, guarantees a percentage of the loan, typically 75% to 85% for standard 7(a) loans. If you default, the SBA pays the bank that guaranteed portion. The bank loses the rest.

In theory, this is supposed to make banks more willing to lend to small businesses they'd otherwise reject. The SBA absorbs most of the risk, so the bank can say yes to borrowers who might not qualify for conventional financing.

In practice, it creates a system with two gatekeepers instead of one. You need the bank to say yes AND the SBA to say yes. And when either one says no, or says nothing at all for months, good luck figuring out which institution is actually holding up your loan.

The bank controls the initial underwriting, the document collection, and the ongoing servicing of your loan. The SBA controls the guarantee approval, the program eligibility rules, and the regulatory framework. Your application lives in the gap between these two authorities, and that gap is where loans go to die.

Why the Bank Says "It's the SBA's Decision"

Banks love to blame the SBA. It's easy, it's consequence-free, and the borrower has no way to verify it in real time.

When your loan application is delayed, the bank's go-to response is some variation of "we're waiting on the SBA." When your loan is denied, it becomes "the SBA wouldn't approve the guarantee." When you ask why your paperwork was requested for the third time, it's "SBA requirements."

Sometimes this is true. The SBA does have its own review process, its own documentation requirements, and its own timeline that the bank cannot control. But here's what the bank won't tell you: in many cases, the bank hasn't even submitted your application to the SBA yet. The delay is on the bank's side, in their own underwriting department, in their own compliance review, in their own backlog of applications being processed by a single overworked loan officer who handles SBA files as a side project because the bank doesn't staff this department properly.

Banks also use the SBA as cover for their own lending decisions. If the bank doesn't want to make the loan but doesn't want to be the one rejecting you, blaming the SBA is the perfect out. "We'd love to help you, but the SBA won't guarantee it." The borrower walks away blaming a faceless government agency instead of the bank that actually made the call.

This isn't speculation. It's a structural feature of the system. The bank faces no consequences for misattributing a delay or denial to the SBA. You can't call the SBA to fact-check the bank's claim in any useful timeframe. By the time you could get someone at the SBA to confirm or deny what the bank told you, weeks have passed and the bank has already moved on.

Why the SBA Says "Talk to Your Lender"

The SBA is equally skilled at deflection, just in the opposite direction.

Call the SBA about a 7(a) loan and the first thing they'll tell you is that the lender handles the application process. Ask about your loan status and they'll direct you back to the bank. Ask why your guarantee hasn't been approved and they'll say the lender hasn't submitted the complete package yet. Every answer routes you back to the institution you just called because they couldn't help you.

The SBA's position is technically defensible. For 7(a) and 504 loans, the lender IS the primary point of contact. The SBA's role is to set the rules and approve guarantees, not to manage individual borrower relationships. But "technically defensible" and "actually helpful" are two very different things, and the SBA has never shown much interest in bridging that gap.

The result is a closed loop. The bank says call the SBA. The SBA says call the bank. You call the bank again. They say they're still waiting on the SBA. Nobody owns the problem. Nobody resolves the problem. The problem just exists, indefinitely, while your business needs capital today.

For disaster loans and EIDL, the SBA IS the direct lender, which means they can't blame a bank. Instead, they blame processing volume, staffing shortages, and system limitations. Different excuse, same outcome: you wait, and nobody can tell you why or for how long.

The Misaligned Incentives

To understand why this blame game never gets fixed, you have to understand what each institution actually gets rewarded for.

Banks earn fees for originating SBA loans. The origination fee, the servicing fee, and the premium they can earn by selling the guaranteed portion of the loan on the secondary market. The bank's incentive is to close loans that are easy to close. Complex applications, borderline credit profiles, unusual business structures? Those take more work for the same fee. The bank's rational move is to prioritize the easy files and let the difficult ones sit.

The SBA, meanwhile, gets rewarded for volume. Every year, the SBA reports to Congress how many loans were guaranteed, how many small businesses were served, how many billions of dollars flowed through its programs. The SBA's incentive is to approve as many guarantees as possible to hit its numbers. Quality of service to individual borrowers doesn't appear in the annual report.

Notice what's missing from both incentive structures: your experience as a borrower. Nobody gets a bonus for answering your phone call. Nobody's performance review includes "resolved borrower complaints in a timely manner." Nobody is measured on how quickly your application moved through the system or whether you received consistent information along the way.

You are an input to both institutions' metrics, not a customer either one is trying to serve. The bank wants your loan on its books for the fees. The SBA wants your loan in its report for the numbers. What you need, actual capital delivered in a reasonable timeframe with clear communication, isn't something either institution is structurally designed to provide.

Preferred Lenders: A Shortcut That Doesn't Always Help

The SBA's Preferred Lender Program gives certain banks delegated authority to approve SBA guarantees without sending each loan to the SBA for individual review. In theory, this should be faster. The bank approves the loan AND the guarantee in-house, cutting the SBA out of the approval chain entirely.

In practice, PLP status means the bank takes on more responsibility for ensuring the loan meets SBA guidelines. Some preferred lenders handle this well and genuinely process SBA loans faster. Others use their delegated authority to be even more conservative than the SBA itself, applying stricter internal standards because they're now on the hook if the guarantee is later challenged.

"Preferred" doesn't mean the bank is preferred by borrowers. It means the bank is preferred by the SBA because it's demonstrated the ability to follow SBA guidelines without supervision. Whether that translates into a better experience for you depends entirely on the individual bank, the individual loan officer, and how seriously that institution takes its SBA lending operation.

Some preferred lenders have dedicated SBA departments with experienced staff. Others have one person who handles SBA files on top of their conventional lending workload. The PLP designation tells you nothing about which type you're dealing with until you're already deep into the application process.

What to Do When You're Stuck in the Middle

If you're caught in the blame loop, here are concrete steps that actually move the needle.

Get everything in writing. When the bank tells you "the SBA is holding things up," ask them to put that in an email. Specify what document or approval the SBA hasn't provided. Most of the time, the bank won't commit to that claim in writing because it isn't true. The act of asking for written confirmation often shakes loose the real answer.

Request a specific point of contact. "Call the bank" is not actionable. Get the name, direct phone number, and email of the specific person handling your file. Do the same at the SBA if your loan involves direct SBA review. When you have a name, you have accountability.

Contact the SBA district office directly. The SBA has district offices across the country. These offices have staff who can look into the status of guarantee requests and sometimes intervene when applications are stuck. They're separate from the national call center and generally more useful.

Involve your congressional representative. Every congressional office has a caseworker who handles constituent issues with federal agencies. They can make formal inquiries to the SBA on your behalf. This doesn't guarantee results, but it creates a paper trail and elevates your case above the standard queue. The SBA responds to congressional inquiries because it has to.

Escalate within the bank. If your loan officer isn't responsive, go above them. Contact the branch manager, the SBA lending department head, or the bank's customer advocacy office. Banks don't like complaints escalating internally because it creates documentation they'd rather not have.

Document the timeline. Keep a log of every call, every email, every document submission with dates. If you eventually need to file a complaint with the SBA Ombudsman or the OIG, a detailed timeline is your strongest evidence.

How to Pick a Lender Who Won't Ghost You

If you haven't applied yet, or if you're starting over after a failed attempt, choosing the right lender matters more than most people realize.

Ask how many SBA loans they closed last year. A bank that closed five SBA loans last year is not going to process yours efficiently. Look for lenders with dedicated SBA departments and meaningful volume.

Ask who will handle your file. You want a named person, not a department. If the bank can't tell you who your loan officer will be before you apply, that's a red flag.

Ask about their average processing time for SBA loans. Vague answers like "it depends" are fine, but they should be able to give you a range. If they can't, they either don't track it or don't want to tell you.

Ask whether they're a Preferred Lender. PLP status isn't a guarantee of quality, but it eliminates the SBA review step from the process, which removes one opportunity for delay and one institution from the blame chain.

Talk to other borrowers. If you know other small business owners who've gotten SBA loans, ask which bank they used and how the experience was. Direct referrals from people who've survived the process are worth more than any bank's marketing materials.

The SBA-lender relationship is not going to change. It's been this way since 1953 and it'll be this way when your grandchildren apply for loans. The only variable you control is which lender you choose to navigate it with. Choose carefully, because once you're in the middle of the blame loop, the only way out is through.