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

There are many reasons why a business owner might be in need of the extra support provided by an SBA (small business administration) loan. Whether you’re looking to expand your business across your state, you need equipment to begin operations, or you’re facing an unexpected setback, it’s always nice to have access to additional cash to keep moving ahead. SBA loans are backed by the government—and that means that the lenders who participate in the program have a guarantee on some portion of the loan. This guarantee by the Small Business Administration represents less risk for the lender and that means greater accessibility to business funds for you. With any type of SBA financing, you will enjoy lower rates and longer repayment terms with a variety of loan sizes.

There are several financing options available to entrepreneurs and small business owners via special programs backed by the Small Business Association. Below you’ll find out what to expect when it comes to SBA loan requirements, as well as an overview of each type of SBA loan.

Types Of SBA Loans

SBA 7(a)

The SBA 7(a) loan is the most common SBA loan. It can be used for nearly any business-related expense and is an excellent way to get the working capital you need to buy property, boost inventory, or even purchase another business. The versatile SBA 7(a) loan covers the broad needs most business owners face, including refinancing business debt. The maximum loan amount for the SBA 7(a) is $5 million. The SBA guarantees a whopping 75% – 85% of a traditional 7(a) loan, making it one of the most desirable SBA loan types. Loan terms vary depending on your loan, but generally, you’ll have up to 25 years for real estate loans and 10 years for all other loan types. Loan approval can take several weeks, so if you’re in a hurry, you’re better off with an SBA Express Loan.

SBA Express Loan

Just like a 7(a), an SBA Express loan can give you the capital you need — but with fewer hoops to jump through. Boasting a fraction of the turnaround time you’d get with a typical SBA 7(a) loan, an SBA express loan can be approved in less than a week. If time is of the essence, this may be the right choice for you. The structure of the loan, and the purposes for which the loan can be used, for are nearly the same for 7(a) and Express Loan products. However, SBA Express Loans max out at $350,000 — and are only backed by the Small Business Administration by 50%. Due to the speed and accessibility of Express Loans, and the higher risk involved for the loan issuer, interest rates are higher. SBA 7(a) loans have better rates but more stringent qualifications, so if you have an investment deal that’s too good to pass up or you just need working capital sooner rather than later, the SBA Express is a good option to have.

CAPLines

A CAPLine loan is an SBA loan that can supplement your revenue cycle with revolving lines of credit. Use this loan for a builders line of credit, contract financing, general working capital needs, and/or any seasonal needs you face. According to SBA regional District Director, Terri Dennison, “Firms with significant fluctuations in cash flow over the course of the business cycle can benefit as well.” For a business with sales that ebb and flow through the year, this type of loan can keep things running smoothly.

504 Certified Development Company Loan Program

For the business owner who has trouble obtaining traditional mortgage financing, the 504 Certified Development Company Loan Program offers a beacon of hope. You can still enjoy a competitive, fixed-rate mortgage financing option with the help of an SBA lender and a certified development company. A 504 Loan allows you to not only buy the land you need but also renovate real estate and purchase needed heavy equipment for your operations. You can get a loan amount of up to 40% of the total project cost, with a cap of $5 to $5.5 million, depending on your business type.

SBA Microlenders

If you’re almost at your financial goal and don’t require a larger loan, an SBA Microlender can help! Business owners who need $500 to $50,000 can get funds to purchase equipment, furniture, supplies, and working capital. Not only that, you can enjoy free business consulting from the SBA microlenders to help you focus on the right goals for financial success.

Disaster Loan Assistance

Regardless of business size, the SBA provides loans to those who require immediate access to funds after a disaster. Whether you need funds to repair or replace damaged items, for machinery or equipment, inventory, business assets, or other types of business expenses, business owners can get low-interest loans to meet these pressing needs when disaster strikes.

Basic SBA Loan Requirements

For the most part, you’ll find that SBA loan requirements are going to be similar across the spectrum of loan products. There are certain umbrella guidelines that cover most SBA loans — for example, most SBA loan products will require businesses to be for-profit, and meet certain size requirements (to be considered a “small business”). Below are some notes to keep in mind when it comes to navigating the different types of SBA loan options.

SBA 7(a) Loan Requirements

The SBA 7(a) may be the most popular of all the SBA loans, but that isn’t to say it’s the fastest or easiest—especially if your business is a startup. However, if you understand that the process can take several weeks and have a good working knowledge of the steps involved, you can avoid some setbacks (and frustrations) along the way.

The first thing to know about SBA 7(a) loan requirements is that you must demonstrate good to excellent credit (at least 600, in general), adequate collateral, and solid cash flow right off the bat. All of this can be accomplished by providing cash flow statements, balance sheets, and income statements with your application. Detailed accounting practices and a solid business plan are your best assets here. If numbers simply aren’t your strong point, get support from a consultant or accountant to help you build a stronger case for your business.

You’ll need to also do the work and prove you have the business management experience over the long haul—after all, this is a long-term business loan. The business plan you present will need to have detailed analysis and projections for the next several years. Utilizing charts and graphs to create a visual case of success will be to your advantage.

SBA 7(a) loans of less than $25,000 do not require collateral. However, to obtain a bigger loan, putting up business collateral will definitely strengthen your case. If you don’t have any collateral, there are other ways to show you are a good candidate, like providing a solid business plan and having excellent credit, as outlined above.

A down payment is an SBA 7(a) loan requirement in certain cases. If you are going to use the loan to buy another business, equipment, or real estate, you’ll need to put at least 10-20% down to qualify.

SBA Express Loan Requirements

The requirements for an SBA Express Loan are significantly less strict than they are for a traditional SBA 7(a) loan, though the tradeoff is higher rates. The things that are going to ultimately matter the most when qualifying for an Express loan are your cash flow (or projected cash flow) as well as your prowess in managing your business. Also up for consideration are things like your credit score and how long you’ve been in business. In general, you’ll need a credit score of 680 or higher to qualify for an Express Loan.

As far as the documents you’ll need to fill out in order to qualify for your loan, you’ll work through a checklist of required forms, including a Borrower Information Form, a Statement of Personal History, and an Agreement of Compliance (if more than $10,000 in loan funds are being used for construction).

CAPLine Loan Requirements

As outlined above, the low rates of CAPLines can help you with your cyclical financing needs. Some of the minimum requirements of an SBA CapLine Loan requirements are below:

  • You must have a credit score of 660
  • You’ll have to pledge future or current accounts receivable, contracts, inventories, purchase orders, or more as collateral for your loan
  • Your business must be at least one year old
  • You need to be able to identify an accurate seasonal pattern of revenue

As with the other types of SBA loans, keeping organized records of all of your finances and monitoring your credit score will support your efforts in qualifying for a CAPLine loan from the SBA.

504 Loan Requirements

If you are looking to finance land or heavy equipment, and are considering the SBA 504 loan, here are some additional requirements you need to be aware of when it comes to getting approved:

  • As the owner, 51% of your building must be occupied by your business
  • Your credit score will need to be over 660
  • Your business’s net worth must be less than $15 million
  • You must be able to pay 10% or more of the project costs for the down payment

Additionally, you’ll need to show your ability to repay the loan, on time, from your operating cash flow. This means that you need to have your business plan and projected cash flow all clearly mapped out for your lender.

It’s also a good idea to check your credit score before getting the process started to address any inconsistencies that may ding your credit. Make sure all of your accounts are current and that you haven’t defaulted on any loans.

SBA Microloan Loan Requirements

As you would to qualify for any SBA loan, you’ll need to share a solid business plan and have a clear map to fiscal victory. The requirements for a microloan, however, differ in a few key ways to requirements for other SBA loans. Because SBA Microloans cap out at much smaller amounts, the maximum repayment time you’ll have is around six years, significantly less time than you’ll have with other types of loans—keep that in mind when you’re considering your options. Additionally, the loan may be on a smaller scale, but you’ll still need to show you have good credit. Collateral is also generally required.

The good news is that both established companies and startups are eligible for SBA Microloans, and though you need to show you have good personal credit, a limited credit history will not be a roadblock for you. If your credit is less than stellar, having a cosigner will strengthen your qualifications.

Disaster Loan Requirements

To receive a disaster loan that’s backed by the SBA, a business must have physical or economic damage that’s caused by an identified disaster. This means that your area will have to be officially designated a declared disaster area by the SBA. If your business is in recovery mode and you need assistance in rebuilding, you’ll also need to meet minimum requirements.

Like you would with any other SBA loans, you’ll need to have good credit. Though there is no specific hard-and-fast score requirement here, you must show you have an acceptable history free of bankruptcy, tax liens, and foreclosures. If you have suffered economic or physical loss from the SBA-identified event, additional qualifications will also be guided by the actual damage to your business.

Ready To Get An SBA Loan?

If you meet the qualifications outlined above, you can begin the application process on the SBA website. That said, we recommend applying to SmartBiz, an online lender that can expedite the SBA loan process, which is traditionally slow.

If you don’t qualify for an SBA loan, or just want to compare business loans, visit this handy comparison chart to learn about more options available to you. The takeaway here is that you have options—use the above resources to move ahead with your business goals this upcoming year.

Before you get started, make sure to check out the current SBA loan rates.

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