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SBA Loan Requirements: How to Qualify for Financing
Your business needs to meet eligibility requirements from the government and your lender to get an SBA loan.
Writer | Small business, business banking, business loans
Randa Kriss is a small-business writer who joined NerdWallet in 2020. She previously worked as a writer at Fundera, covering a wide variety of small-business topics including banking and loan products. Her work has been featured by The Washington Post, The Associated Press and Nasdaq, among others. Randa earned a bachelor's degree in English and Spanish at Iona College. Email: <a href="mailto:email@example.com">firstname.lastname@example.org</a>.
Sally Lauckner has over a decade of experience in print and online journalism. Before joining NerdWallet, Sally was the editorial director at Fundera, where she built and led a team focused on small-business content. Her prior experience includes two years as a senior editor at SmartAsset, where she edited a wide range of personal finance content, and five years at the AOL Huffington Post Media Group, where she held a variety of editorial roles. She has a master's in journalism from New York University and a bachelor's in English and history from Columbia University. Email: email@example.com.
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SBA loan requirements vary based on the lender and the individual loan program. In general, however, you’ll need to meet some basic criteria from the U.S. Small Business Administration — like operating in an eligible industry — and have good credit and strong financials to qualify for these small-business loans.
Here’s what you need to know about SBA loan requirements and the application process.
How much do you need?
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
General SBA loan requirements
Regardless of your SBA lender or loan program, you’ll need to meet a standard list of eligibility requirements, including:
Must be a for-profit business, officially registered and operating legally.
Must be operating in an eligible industry.
Certain types of businesses are ineligible for SBA loans, including firms involved in lending activities, any business whose principal activity is gambling and churches and other religious organizations.
Must be physically located and doing business, or proposing to do business, in the U.S or its territories.
As a business owner, you must have invested equity — such as time or money — into the business.
Need for financing
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 “sound business purpose” for which you plan to use the funds.
Must be a small business, as defined by the SBA. The definition of small varies by industry and is generally stated in the number of employees or average annual receipts. The SBA offers an interactive tool that helps you determine whether you meet this requirement.
Cannot be delinquent on any existing government debt obligations.
No one with 20% or more ownership in the business can be currently incarcerated, on probation, on parole or a defendant in a criminal proceeding.
Similar to your personal credit, you’ll want to have a solid business credit history. In many cases, the SBA uses the FICO Small Business Scoring Service, or SBSS, to evaluate your business credit history and prescreen 7(a) loan applications.
Currently, you’ll need to receive a score of 155 or higher to pass the prescreen — scores range from 0 to 300
Although some lenders will work with newer businesses, most will require that you have two or more years in business.
You’ll need to show strong annual revenue and cash flow projections. You shouldn’t have too much existing debt that you can’t afford to take on 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 debt obligations — of 1.15 or higher.
For many SBA loan programs, lenders are required to obtain collateral to fully secure loans, when possible. Acceptable forms of collateral include real estate, equipment and inventory. Lenders cannot, however, deny loan applications solely based on lack of adequate collateral.
To submit your SBA loan application, you’ll be asked to provide extensive documentation. Some of these requirements will vary based on your lender and loan program, but here are the most common documents and forms you’ll need to provide:
SBA Form 148, Unconditional Guarantee (or the lender’s equivalent). The SBA requires that anyone with 20% or more ownership in the business provide an unlimited personal guarantee. Owners with less than 20% ownership may provide a full or limited guarantee (SBA Form 148L).
Business financial statements, such as income statements, balance sheets and cash flow projections.
Income tax returns.
Detailed schedule of collateral.
Existing debt schedule, if applicable.
Business certificates or licenses.
Loan application history.
Resumes for each business owner.
Business overview and history.
If you are using your SBA loan to purchase real estate or an existing business, you’ll have additional application requirements, such as purchase agreements and appraisals or business valuations.
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 CAPLines of credit must 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 requirements related to the use of proceeds (e.g., be able to show a pattern of seasonal activity) in addition to the standard 7(a) requirements.
SBA 504 loans
SBA 504/CDC loans can be used only to fund fixed-asset purchases, such as real estate and large equipment. The SBA requires that any real estate you purchase with this financing is 51% owner-occupied — and 60% owner-occupied for new construction.
To qualify for an SBA 504 loan, you must also be able to meet job creation or public policy goals laid out by the SBA
SBA microloans, on the other hand, can be used for a variety of purposes, but cannot be used to pay for existing debts or purchase real estate. These smaller loans are issued by intermediaries — like nonprofit community organizations — and may have more flexible eligibility criteria compared with other SBA lenders.
SBA disaster loans
SBA disaster loans are only available to businesses and individuals who have experienced a declared disaster. There are four types of disaster loans — Physical damage loans, mitigation assistance, economic injury disaster loans and military reservist loans.
SBA disaster loan requirements vary based on the type of loan, but you’ll generally need good credit and a strong financial history to qualify.
The best business loan is generally the one with the lowest rates and most ideal terms. But other factors — like time to fund and your business’s qualifications — can help determine which option you should choose.NerdWallet recommends comparing small-business loans to find the right fit for your business.
To qualify for an SBA loan, you’ll need to meet minimum requirements set by the U.S. Small Business Administration. You’ll need to be a for-profit small business, based in the U.S. and operating in an eligible industry, among other criteria. You’ll also need to meet minimum requirements set by your lender, which often include good credit and strong finances.
You may be disqualified from getting an SBA loan for a variety of reasons. If you have a new business or bad credit, you may not qualify for a loan. You may not qualify if you’re lacking sufficient collateral to secure your loan, have too much outstanding debt or can’t show your ability to repay new financing.
In general, you’ll need good credit — a personal credit score of 690 or higher — to get an SBA loan. Some lenders, like microlenders or Community Advantage lenders, however, may consider working with businesses with lower credit scores.