SBA Loan Requirements: What You Need To Know About Qualifying For SBA Loans

There are a few general requirements to receive an SBA loan. Borrowers must:

• Have a for-profit business
• Operate or plan to engage in business in the United States or U.S. territories
• Have exhausted other financial resources, including non-SBA business loans
• Have owner’s equity to invest

While most businesses are eligible to receive SBA loans (provided all requirements of the SBA and lender are met), there are certain industries that are ineligible for funding. These include businesses engaged in:

• Investing
• Lending
• Speculation
• Multi-level sales
• Loan packaging
• Gambling
• Illegal activities

Nonprofit organizations, government-owned businesses, and religious organizations are also ineligible.

Business owners that are currently incarcerated or are on parole or probation are not eligible to receive an SBA loan.

In order to qualify as a small business that is eligible for SBA loans, you must meet certain requirements set by the SBA. Size is determined by factors like:

• Number of employees
• Average annual revenue
• Net income
• Tangible net worth

The specific requirements vary by industry. The SBA has provided a size standards table to help you determine if you qualify for SBA funding.

The personal credit requirements for an SBA loan vary by lender. In general, it is recommended to have a personal credit score of at least 680 to qualify. Of course, the higher your score, the higher your odds for approval.

Your credit report will also be a factor in your loan approval. Negative items on your credit report that may disqualify you include:

• Active bankruptcies
• Recent foreclosures
• Past defaults on government loans

Other negative items like late or missed payments will need to be explained to your lender during the application process.

Collateral requirements for SBA loans vary by loan type. For smaller loans, including 7(a) loans of $25,000 or less, collateral is not required. For larger loans, collateral is typically required. The specific amount varies by factors including the type of loan, borrowing amount, and the strength of the borrower’s application.

Collateral is accepted in the form of business assets, including:

• Equipment
• Vehicles
• Inventory
• Accounts receivables
• Commercial real estate

In some cases, personal real estate may be used as collateral.

One thing to note is that the lack of collateral alone won’t disqualify a borrower from receiving an SBA loan, provided the borrower has a strong loan application.

All SBA loans also require all owners with at least a 20% stake in the business to sign a personal guarantee. This means that the owners of the business are held personally liable for the debt if the loan goes into default.

The Standard SBA 7(a) loan is the most common SBA loan. Borrowers can receive up to $5 million to use for nearly any business purpose, including equipment, commercial real estate, or working capital. Interest rates are extremely competitive, and repayment terms of up to 25 years are available.

In addition to the general requirements of the SBA, you may also need to provide a down payment of at least 10%.

The SBA Express loan is nearly identical to the Standard 7(a) loan with a few key differences. Maximum borrowing limits are $500,000, and interest rates are a bit higher, although still competitive.

The main draw of this loan program is that an approval decision is guaranteed within 36 hours.

Like the Standard 7(a) loan, a down payment of at least 10% may be required.

CAPLines are the SBA’s revolving lines of credit that offer flexible funding to small businesses. Borrowers can receive up to $5 million through one of four loan programs for contracts, builders, seasonal expenses, and short-term working capital needs. Repayment terms are up to 10 years.

The requirements for SBA CAPLines are mostly the same as the requirements for the Standard 7(a) loan, with a few additional requirements. Specific requirements vary based on the program selected. Here’s a breakdown of what to expect:

SBA CDC/504 loans are used for commercial real estate purchases, including commercial buildings, renovations, land, and long-term equipment. Maximum borrowing limits are $5 million, although some energy or manufacturing projects may qualify for $5.5 million. Repayment terms are 10, 20, or 25 years.

One of the unique requirements of SBA 504 loans is that borrowers must find two lenders. A Certified Development Company provides up to 40% of project costs. A third-party lender, such as a bank or credit union, provides up to 50% of project costs.

Borrowers of this loan must also be prepared to contribute at least 10% equity. Assets, cash, and other collateral may be used.

If funds are being used to purchase a building, the borrower must occupy at least 51% of the space. The remaining percentage may be rented out. For newly constructed buildings, the owner must occupy at least 60%, with plans to occupy at least 80% within the next 10 years.

SBA Microloans are ideal for newer businesses or businesses that don’t require a lot of capital. Microloans are provided by nonprofit lenders and have borrowing limits of $50,000, which can be used for most business purposes. Repayment terms of up to six years are available.

There are no additional requirements to receive an SBA Microloan. However, one thing to note is that while most nonprofit organizations can’t receive SBA loans, nonprofit childcare centers may qualify for Microloans.

Businesses and individuals impacted by a disaster may be eligible to receive an SBA loan. There are four types of SBA Disaster Loans:

Rates, terms, and borrowing limits vary by loan type.

To be eligible to receive a disaster loan, borrowers must be in an SBA-declared disaster area. Businesses of all sizes, nonprofits, renters, and homeowners may qualify for SBA assistance.

• SBA Form 1919 – Borrower Information Form
• SBA Form 912 – Statement of Personal History
• SBA Form 413 – Personal Financial Statement
• Business licenses & permits
• Federal income tax returns from the last three years
• Resumes for each principal owner
• Overview & history of your business
• Profit & loss statements
• Balance sheets
• Reconciliation of net worth
• Financial projections

Many SBA loans are targeted at established businesses that have been in operation for at least two years. However, there are options available for startups and new businesses.

Because these businesses are newer, they may not have all of the documentation required by the SBA. In these cases, additional information may be required including:

• A detailed business plan
• Proof of industry experience
• Financial projections

If you’re using your SBA loan to acquire a business, you may be required to provide documentation including:

• Balance sheet and P&L for business that is being purchased
• Prior years’ tax returns for the business being purchased
• Franchise or licensing agreements
• Proof of equity injection
• Schedule of inventory, supplies, fixtures, and equipment
• Proposed Bill of Sale