Small Business Administration (SBA) loan requirements can be broken down into three main categories. This includes criteria that all borrowers and businesses must meet regardless of the loan program or lender chosen, items that apply to certain types of SBA loans, and lender-specific criteria.
When getting an SBA loan, your business will be evaluated based on its ability to repay a loan. This can involve an assessment of your credit, time in business, and revenue. While SBA loans can involve a lot of paperwork and documentation, they often carry some of the most competitive rates available.
If you’re looking for an SBA provider, we recommend Clarify Capital, a broker with more than 75 lenders in its network. You’ll be able to work with a dedicated advisor who will walk you through the process of getting your loan.
General SBA Eligibility Criteria
Regardless of the type of SBA loan you’re getting, there are eligibility criteria that all borrowers must meet. These are detailed below.
To be eligible for an SBA loan, your business must be for-profit. Your company should have a focus on not only providing a product or service to consumers, but it must do so with the intention of making a profit.
Meanwhile, nonprofits typically are ineligible for SBA loans. Common examples of these organizations include charities, volunteer organizations, and clubs.
If you qualify as a for-profit organization, your business must be registered with any applicable state or federal organizations. It must also be physically located and operate in the US or the US territories.
SBA loans are designed for small businesses, and you’ll need to meet the SBA’s definition of what this is. This is determined primarily by your company’s employee count and revenue and the industry it operates in.
To help make this determination, you can use the SBA’s size standards tool. By answering a few questions about your business, you can get a preliminary determination on whether you might qualify.
For details on what criteria are used, you can view the full description in the online version of the Code of Federal Regulations. There, you’ll find a list of each industry along with the corresponding limits for revenue and employee count.
The SBA considers how your business earns revenue and the character of its leadership team. Businesses deemed to be conducting business in an unethical manner may be ineligible for an SBA loan. The SBA can also consider the legality of your company’s products or services at the state and federal level.
Similarly, the SBA can review actions by individuals on your leadership team. Some examples can include any history of criminal convictions or actions that resulted in the suspension or forfeiture or a professional license or certification.
SBA loans typically aren’t intended as a primary source of funding for businesses. To be eligible for financing, you’ll be expected to have attempted to get financing from other nongovernment lenders first. If you were unsuccessful or the specific type of financing you needed was unavailable, you can then consider applying for an SBA loan.
SBA Loan Requirements by Loan Type
In addition to the general SBA loan requirements listed above, additional items may apply depending on the specific type of SBA loan you’re getting. You can read our guide on the different types of SBA loans to learn more about which one might be best suited for your business.
Here is a brief summary on each type of SBA loan available and what they can be used for:
- SBA 7(a) loans: This is the most common type of SBA loan. You can get up to $5 million in financing that can be used for working capital and other business expenses.
- SBA CAPLines: Businesses with seasonal needs can benefit from this type of loan, as it can also be structured as a revolving line of credit.
- SBA CDC/504 loans: This type of loan can offer up to $5 million in long-term financing for major fixed assets that help with job creation and business growth. Some examples include buildings, land, and machinery.
- SBA export loans: Export loans can be a good option for companies that need to fund overseas sales or operational expenses.
- SBA microloans: With an SBA microloan, you can get up to $50,000 that can be used for business needs such as working capital, inventory, supplies, and more.
- SBA disaster loans: If your business has been affected by a declared disaster, this type of loan can give you funds to restore or continue daily operations.
If you want to get an SBA 7(a) loan, you must not be delinquent on any federal debt. Some examples of federal debt can include student loans, other government loans, and judgments on real estate with amounts owed to the federal government.
You must also not be considered an ineligible business. The SBA has a list of ineligible businesses, and many include those engaged in illegal activities, speculation, gambling, and more. Some examples include:
- Real estate investment firms
- Dealers of rare coins or stamps
- Companies involved in lending money (such as banks, insurance, or leasing companies)
- Pyramid sales plans
For more details on eligibility criteria, rates, and terms, you can read our article covering SBA 7(a) loan requirements.
The SBA CAPLines program is offered in four different formats. You’ll need to meet the standard set of 7(a) criteria, along with an additional set of requirements depending on which CAPLines program you choose. We’ve summarized these programs below, and you can head over to the SBA website for more details on the CAPLines program:
- Seasonal CAPLine: You must be in business for at least one year and demonstrate a pattern of seasonal activity. Proceeds must be used to finance increases in inventory and accounts receivables associated with seasonality.
- Contract CAPLine: You must demonstrate a sufficient amount of expertise, experience, and financial ability to complete the contract in a timely manner. Proceeds must be used to finance the cost of expenses related to specific projects.
- Builders CAPLine: This requires that your business has the experience and licenses to perform the necessary construction or renovation work on a project. You must also have a prior history of successfully bidding on and completing similar projects. Proceeds from a Builders CAPLine must be used for expenses related to the construction or renovation of a specific project.
- Working CAPLine: This requires that your business generate accounts receivable or have inventory. Funds can be used for a variety of daily business expenses, working capital, and other operating needs.
SBA 504 loans are issued through Certified Development Companies (CDCs) and require that your business have:
- A tangible net worth that does not exceed $15 million
- An average net income less than $5 million for the two years preceding your loan application (this figure is measured after deducting federal income taxes paid)
Similar to SBA 7(a) loans, your business must not be involved in any passive or speculative activities. Some examples of this are:
- Businesses that resell collectible items
- Real estate investment firms
- Businesses involved in lending money
To learn more about what it takes to be eligible for this type of loan, head over to our guide on the SBA 504 loan, where we address how it works and who it’s right for.
The most common additional requirements for SBA disaster loans is to provide proof that your business has been impacted by a declared disaster, has been unable to obtain financing from other lenders, and has a need for funding to cover daily operating expenses.
The SBA offers four different types of disaster loans, and the specific requirements can change depending on the type and nature of the declared disaster. To learn more, you can read our guide on SBA disaster loans.
Lender Requirements for SBA Loans
Although some SBA loan qualifications are set by the SBA itself, it leaves many other items up to individual lenders. The specific criteria can vary, but we’ve listed the most commonly reviewed items below.
Your personal and business credit can both be reviewed to determine your eligibility for an SBA loan. Having a history of late payments can make it more difficult to get approved. Credit scores are also important as they are used to illustrate the likelihood you’ll continue making payments in a timely manner based on your previous history.
Personal credit scores typically range from a low of 300 to a high of 850, and it’s recommended that you have at least a 680 to improve your chances of getting approved. If a lender reviews your business credit score, it may use the FICO Small Business Scoring Service, which ranges from 0 to 300. Having a score of 160 will greatly improve your chances of landing an approval.
The DSCR is meant to be used as one indicator of your company’s ability to repay debt, and many lenders look for a DSCR of 1.25x or greater. It is calculated by taking your business annual net operating income and dividing it by its current year obligations. Alternatively, you can use our DSCR calculator.
Some lenders may look at the amount of annual revenue your company earns as a basis for determining your eligibility for an SBA loan. Lenders may also use this information to determine the rate you qualify for.
It’s recommended to be in business for at least two years. Otherwise, you’ll be considered a startup and may have more difficulty getting an SBA loan. This is because startups have a high failure rate.
Although not impossible to get an SBA loan as a startup, the process tends to involve more paperwork and other documentation to allow lenders to better assess the risk associated with lending to you. If you are a startup, we recommend reading our guide on how to get an SBA startup loan.
SBA loans typically require a minimum down payment of 10%. This applies to loans such as 7(a), 504, and microloans. However, keep in mind that although this may be a minimum requirement for many lenders, a larger down payment may be needed if other areas of your business are not as strong. In some cases, down payments may need to be as large as 30%.
Depending on the overall strength of your applications, lenders may sometimes require additional collateral or a personal guarantee. Collateral pledged for a loan reduces a lender’s risk of financial loss because it gives it the right to take possession of it in the event you default on the loan. Similarly, a personal guarantee for a loan means that a lender can pursue your personal assets even if your business defaults.
If your business meets the SBA loan requirements and you are ready to apply, go to Step 3 in our guide on getting an SBA loan, which contains tips on how to find an SBA loan provider.
SBA Loan Alternatives
SBA loans can be difficult to get approved for. Even for businesses that are eligible, funding can often take one to three months to get. If you’re unable to get approved for an SBA loan or need funds more quickly, you can consider the following types of loans. If you decide to move forward, be sure to read our guide on how to get a small business loan:
- Startup business loans: Getting an SBA loan as a startup can be especially difficult, but you do have options elsewhere. Funding options with easier qualification requirements can include home equity loans, credit cards, and personal loans. Learn more in our guide discussing the different types of startup business loans.
- Equipment financing: This can be easier to get because it’s often secured by an asset. This reduces the lender’s risk, which can help with lower rates and fees. You can choose between an equipment loan or lease, depending on how long you want to keep the equipment. For recommendations, head over to our list of the best equipment financing companies.
- Working capital loans: These can be used to cover multiple types of business expenses, such as payroll, rent, and other daily operational costs. To find the best type of loan for your needs, you can check out our top-recommended working capital loans.
SBA loans can offer some of the most competitive rates for business owners. To get an SBA loan, you’ll need to meet various qualification requirements. Some requirements apply to all SBA loans, while others are lender-specific and loan-specific. If you’re unable to get an SBA loan, you can consider alternative financing options that may be able to give you the funding you need.