SBA loan requirements vary depending on the lender and the individual loan program. In general, however, you will need to meet some basic US Small Business Administration criteria – such as 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 terms and the application process:
SBA General Loan Conditions
Regardless of your SBA lender or loan program, you will need to meet a standard list of eligibility criteria, including:
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 primarily engaged in gambling, and churches and other religious organizations.
Must be physically located and doing business, or proposing to do business, in the United States or its territories.
As a business owner, you must have invested equity, such as time or money, in the business.
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 demonstrate the “healthy 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 generally expressed as number of employees or average annual revenue. The ASB offers a interactive tool which helps you determine if you meet this requirement.
Cannot be past due on existing government debt obligations.
No person holding 20% or more of the shares of the company may be currently incarcerated, on probation, on parole or as an accused in criminal proceedings.
SBA loan underwriting requirements
The SBA does not set numerical minimums to assess your creditworthiness, but lenders are required to analyze your claim to ensure that you will be able to repay that amount. 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 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, in case you need more options use OakParkFinancial.
Trade credit history
Just like 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’s credit history and screen for 7 (a) loan applications.
Currently, you will need to receive a score of 155 or higher to pass the screening – scores range from 0 to 300. Even if you do not pass the screening, a lender may choose to proceed with your application. However, lenders can also set their minimum accepted SBSS scores higher than the SBA minimum.
Time in business
While some lenders will work with new businesses, most will require you to have at least two years in business.
You will need to present strong annual revenue and cash flow projections. You shouldn’t have too much existing debt that you can’t afford to take on that extra financing. You’ll want to have a debt service coverage ratio (also known as DSCR) – which compares your available operating income to your current debt – of 1.15 or more.
For many SBA loan programs, lenders are required to obtain collateral to fully secure the loans, where possible. Acceptable forms of guarantee include real estate, equipment and inventory. Lenders cannot, however, refuse loan applications solely on the basis of a lack of adequate collateral.
SBA loan application conditions
To submit your SBA loan application, you will be asked to provide full documentation. Some of these requirements vary depending on your lender and loan program, but these are the most common documents and forms you will need to provide:
Form SBA 1919, Borrower Information Form.
SBA Form 912, Declaration of Personal History.
Personal financial statement (you can use the SBA 413 form).
Form SBA 148, Unconditional Guarantee (or Lender’s Equivalent). The SBA requires that anyone holding 20% or more of the company’s shares provide an unlimited personal guarantee. Homeowners with less than 20% ownership can provide a full or limited warranty (Form SBA 148L).
Company financial statements, such as income statements, balance sheets, and cash flow projections.
Detailed calendar of guarantees.
Existing debt maturity schedule, if applicable.
Company certificates or licenses.
History of loan applications.
CV for every business owner.
Presentation and history of the company.
If you are using your SBA loan to buy an existing business or buy real estate, you will have additional application requirements, such as purchase contracts and appraisals or business appraisals.
Program specific requirements
Some SBA loan programs have unique requirements.
The SBA 7 (a) loan program covers several different loan types. Requirements are fairly standard across 7 (a) loans, with some 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 CAP Line, Contract CAP Line, Builders CAP Line and Work CAP Line. Borrowers must meet the requirements related to the use of the product (e.g. be able to show a seasonal business pattern) in addition to standard requirements 7 (a).
SBA 504 / CDC loans can only be used to finance purchases of fixed assets, such as real estate and major equipment. The SBA also requires that any real estate you buy with this financing be 51% owner occupied – and 60% owner occupied for new construction.
SBA microloans, on the other hand, can be used for various purposes, but cannot be used to pay off existing debts or buy real estate. These small loans are issued by intermediaries – like community nonprofit 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 suited for business owners. All of our recommendations are based on the breadth of the market and the lender’s track record and the needs of business owners, along with rates and other factors, so you can make the right financing decision.