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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.
Banks, credit unions and other organizations partner with the SBA to offer SBA loans to small businesses. And while the SBA sets the guidelines for its loan programs, it allows SBA-approved lenders to make credit decisions and set terms for certain loan types. Also, lenders that qualify as Preferred Lenders have loan approval authority delegated to them by the SBA.
Here’s what you need to know about SBA loan requirements and the application process.
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Regardless of your SBA lender or loan program, you’ll need to meet a standard list of eligibility requirements, including:
Business operations
- 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, as well as those primarily engaged in political or lobbying activities.
Location
- Must be physically located and doing business, or proposing to do business, in the U.S or its territories.
Investment
- 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.
Business size
- 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.
Business character
- 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.
The SBA doesn’t set numerical minimums for evaluating your creditworthiness, but lenders are required to analyze your application to make sure you’ll be able to repay this government business loan.
Here’s what a lender will likely use to evaluate your eligibility for an SBA loan:
Personal credit history
You’ll typically need to have good credit — a score of 690 or higher. Again, the SBA does not designate a credit score minimum, so you may have some flexibility depending on your lender and other qualifications.
Business credit history
Similar to your personal credit, you’ll want to have a solid business credit history. For 7(a) small loans (amounts of $500,000 or less), the SBA uses the FICO Small Business Scoring Service, or SBSS, to evaluate your business credit history and prescreen your application.
Currently, you’ll need to receive a score of 155 or higher to pass the prescreen — scores range from 0 to 300. Even if you don’t pass the prescreen, a lender can choose to continue with your application. Preferred SBA lenders can approve applications with a lower SBSS score by completing a cash flow analysis that shows you will be able to repay your loan.
For other types of SBA loans, lenders may also use a business credit score analysis as part of the underwriting process, but there is no SBSS requirement.
Time in business
Although some lenders will work with newer businesses, most will require that you have two or more years in business.
Business finances
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. For 7(a) loans greater than $500,000, 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.
Collateral
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.
» MORE: SBA loan collateral requirements
💡 Nerdy insight
- If you have less than two years in business: It may be difficult to qualify for an SBA loan — instead, learn more about the best startup business loans.
- If you have fair or bad credit: Explore the best business loans for bad credit. Making on-time payments on these loans can help build your credit so that you can qualify for more competitive options in the future.
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 1919, Borrower Information Form.
- SBA Form 912, Statement of Personal History.
- Personal financial statement (you can use SBA Form 413).
- 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.
- Business lease.
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.
» MORE: How to apply for an SBA loan
Some SBA loan programs have unique requirements.
SBA 7(a) loans
The SBA 7(a) loan program covers several different loan types. Requirements are fairly standard across 7(a) loans, with some exceptions related to the use of funds. For example, SBA export loan funds must be used for export sales activities.
In addition, SBA CAPLines of credit — Seasonal CAPLine, Contract CAPLine, Builders CAPLine and Working CAPLine — must be used for short-term or seasonal working capital needs. 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.
For the SBA Working Capital Pilot program, you must have a history of at least 12 full months of operations (i.e. generating revenue from your business operations) and be able to provide timely and accurate financial statements, accounts receivable and accounts payable aging reports and inventory reports.
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, your business must have an average net income of less than $5 million for the past two years and a tangible net worth of less than $15 million. You must also be able to meet job creation or public policy goals laid out by the SBA.
SBA microloans
SBA microloans, on the other hand, can be used for a variety of purposes — working capital or the purchase of inventory, supplies, furniture and equipment, for example. However, loan funds can’t be used to pay off existing debts or purchase real estate.
These smaller loans are issued by intermediary lenders — like nonprofit community organizations — and may have more flexible eligibility criteria compared with other SBA lenders because the intermediaries set their own lending and credit requirements. However, collateral and personal guarantees are generally required.
SBA disaster loans
Four types of SBA disaster loans are available to businesses and individuals who have experienced a declared disaster:
- Physical damage loans. Offered to businesses, nonprofits, homeowners and renters for the repair and replacement of physical assets damaged in a disaster.
- Mitigation assistance loans. Provides funds to make improvements to homes and businesses to prevent future damage from a disaster.
- Economic Injury Disaster Loans (EIDL). Designed to assist small businesses, agricultural cooperatives and private nonprofit organizations who have suffered economic injury due to a declared disaster.
- Military Reservist Economic Injury Disaster Loan (MREIDL). Available to cover operating expenses when a small business has an essential employee who is called to active duty.
SBA disaster loan requirements vary based on the type of loan. Lower credit scores may be acceptable, in some cases. For example, the minimum credit score for the COVID-19 EIDL program was 570 for loans of $500,000 or less and 625 for larger amounts. However, approval is still dependent on the lender’s assessment of your ability to repay the loan. And collateral may be required, depending on the loan type and amount.
» MORE: Can you have multiple SBA loans?
Frequently Asked Questions
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. or its territories 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, may consider working with businesses with lower credit scores.
Qualification requirements are fairly consistent for the different SBA loan types. However, you may find SBA microloans have more flexible requirements because they are offered through intermediary lenders that are nonprofit community-based organizations who set their own lending requirements. The microloan program offers loan amounts up to $50,000 — a relatively small amount when compared to other SBA loan types.