SBA Loan Requirements: Is Your Business Eligible for Financing?
SBA Loan Requirements: Is Your Business Eligible for Financing?
SBA loan requirements vary by lender and individual loan program. In general, though, you’ll need to meet some basic US Small Business Administration criteria — like operating in an eligible industry — and have good credit and solid finances to qualify for these small business loans.

Here’s what you need to know about SBA loan requirements and the application process.

We’ll start with a short questionnaire to better understand your unique business needs.

Once we discover your personalized matches, our team will consult with you on the process to follow.

General SBA loan requirements

Regardless of your lender or SBA loan program, you’ll need to meet a standard list of eligibility requirements, including:

Commercial operations

  • Must be a for-profit, officially registered and legally operating business.

  • Must operate in an eligible industry.

  • Certain types of businesses are not eligible for SBA loans, including businesses involved in lending activities, any business whose primary business is gambling, and churches and other religious organizations.

Location

  • Must be physically located and doing business, or offering to do business, in the United States or its territories.

Investment

Need funding

  • Must have tried to find alternative forms of financing before turning to an SBA loan.

  • Must be able to demonstrate a need for loan funds.

  • Must be able to show the “valid business purpose” for which you plan to use the funds.

size of the company

  • Must be a small business, as defined by the SBA. The definition of small varies by industry and is usually expressed in number of employees or average annual revenue. The SBA offers a interactive tool which helps you determine if you meet this requirement.

Commercial character

  • Cannot be past due on any existing government debt.

  • No one with 20% or more ownership of the company can currently be incarcerated, on probation, on parole, or charged in criminal proceedings.

SBA loan underwriting requirements

The SBA does not set a numerical minimum to assess your creditworthiness, but lenders are required to analyze your application to ensure that you will be able to repay this government business loan.

Here’s what a lender will likely use to assess your eligibility for an SBA loan:

Personal credit history

You will generally need to have good credit – a score of 690 or higher. Again, the SBA does not designate a minimum credit score, so you may have some flexibility depending on your lender and other qualifications.

Business Credit History

Similar to your personal credit, you will want to have a strong business credit history. In many cases, the SBA uses the FICO Small Business Scoring Service, or SBSS, to assess your business’ credit history and prescreen 7(a) loan applications.

Currently, you will need to receive a score of 155 or higher to pass prescreening – scores range from 0 to 300. Even if you do not pass prescreening, a lender may choose to pursue your application. However, lenders can also set their minimum accepted SBSS scores higher than the SBA minimum.

Time spent in business

Although some lenders work with new businesses, most will require you to be in business for at least two years.

business finance

You will need to show strong annual revenue and cash flow forecasts. You shouldn’t have too much existing debt that you can’t afford for this additional financing. You’ll want to have a debt service coverage ratio (also known as DSCR) — which compares your available operating income to your current debts — of 1.15 or higher.

Collateral

For many SBA loan programs, lenders are required to obtain collateral to fully secure the loans, when possible. Acceptable forms of collateral include real estate, equipment and inventory. Lenders, however, cannot refuse loan applications solely because of the lack of adequate collateral.

SBA loan application requirements

To submit your SBA loan application, you will be asked to provide detailed documentation. Some of these requirements vary depending on your lender and loan program, but here are the most common documents and forms you’ll need to provide:

  • SBA Form 1919, Borrower Information Form.

  • SBA Form 912, Declaration of Personal History.

  • Personal financial statement (you can use SBA Form 413).

  • SBA Form 148, Unconditional Guarantee (or lender’s equivalent). The SBA requires anyone with 20% or more ownership of the business to provide an unlimited personal guarantee. Owners with less than 20% ownership can provide full or limited warranty (SBA Form 148L).

  • Company financial statements, such as income statements, balance sheets, and cash flow projections.

  • Tax returns.

  • Detailed list of guarantees.

  • Existing debt schedule, if any.

  • Business certificates or licenses.

  • Loan application history.

  • Resume for every business owner.

  • Presentation and history of the company.

  • Commercial lease.

If you are using your SBA loan to purchase an existing business or purchase real estate, you will have additional application requirements, such as purchase agreements and business appraisals or appraisals.

Program Specific Requirements

Some SBA loan programs have unique requirements.

The SBA 7(a) loan program covers several different types of loans. The requirements are fairly standard for 7(a) loans, with a few exceptions. For example, SBA CAP lines of credit should be used for short-term or seasonal working capital needs.

There are four types of credit lines: Seasonal CAPLine, Contract CAPLine, Builders CAPLine and Working CAPLine. Borrowers must meet product use requirements (eg, be able to show a seasonal activity pattern) in addition to the requirements of Standard 7(a).

SBA 504/CDC loans can only be used to finance capital purchases, such as real estate and major equipment. The SBA also requires that any real estate you purchase with this financing be 51% owner occupied and 60% for new construction.
SBA microloans, on the other hand, can be used for a variety of purposes, but cannot be used to pay off existing debts or buy real estate. These small loans are issued through intermediaries — like nonprofit community organizations — and may have more flexible eligibility criteria compared to other SBA lenders.

Find and compare small business loans

If an SBA loan isn’t right for your business or you want to compare loan options, NerdWallet has a list of small business loans that are best for business owners. All of our recommendations are based on market scope and lender track record and business owner needs, as well as rates and other factors, so you can make the right financing decision.

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