Small Business Administration (SBA) loan requirements are determined by both the federal government and the participating lender facilitating the loan. Eligibility criteria can vary depending on the loan program and qualifications required by the issuing lender.
When determining if you meet SBA loan requirements, your business will be evaluated based on its ability to repay a loan. This can include an assessment of your credit, time in business, and revenue. While SBA loan programs can involve a lot of paperwork and documentation, they often carry some of the most competitive rates available in comparison with other small business loans.
General SBA Eligibility Criteria
Regardless of the type of loan you’re looking to get, there are common SBA loan qualifications that are required of a business to be considered eligible. Such requirements include that you:
Operate as a for-profit business in the US
To be eligible for an SBA loan, your business must be considered 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.
If you qualify as a for-profit organization, your business must be registered with any applicable state or federal organization. It must also be physically located and operate in the US or the US territories.
Nonprofits are typically ineligible for SBA loans. Common examples of these organizations include charities, volunteer organizations, and clubs.
Meet the SBA’s definition of a small business
SBA loans are designed to help finance small businesses with limited resources, and you’ll need to meet the SBA’s criteria of what’s defined as a small business. This is determined primarily by your company’s:
- Employee count
- Revenue
- Industry
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.
Are deemed to be of good character
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 levels.
Similarly, the SBA can review actions by individuals on your leadership team. Some examples can include any past history of criminal convictions or actions that resulted in the suspension or forfeiture of a professional license or certification.
Have been unable to get financing elsewhere
SBA loans aren’t typically 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 non-government 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 SBA loan program applicable to your needs. 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.
Below is a brief summary of the various SBA loan programs:
- SBA 7(a) loans:Â 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:Â 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:Â 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:Â This can be a good option for companies needing to fund overseas sales or operational expenses.
- SBA microloans:Â With an SBA microloan, you can get up to $50,000 that can be used for business needs such as working capital, inventory, and supplies.
- SBA disaster loans:Â If your business has been affected by a declared disaster, this type of loan can give you funds to restore or continue daily operations.
To be eligible for 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
The SBA CAPLines program is offered in four different formats. You’ll need to meet the standard set of SBA 7(a) criteria, along with an additional set of requirements depending on which CAPLines program you choose. We’ve summarized these programs below.
- Seasonal CAPLine:Â 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:Â 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:Â 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:Â 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 participating Certified Development Companies (CDCs) approved by the SBA and require that your business has:
- A tangible net worth that does not exceed $15 million
- An average net income of 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
The SBA offers export finance programs including the Export Express Loan, the Export Working Capital Loan, and the International Trade Loan. Depending on the loan type applicable to your needs, qualifications will vary depending on the lender and various compliance requirements necessary for international financing transactions.
You can learn more about SBA export loan programs and their requirements by contacting your local SBA Export Finance Manager or the SBA’s Office of International Trade.
If you’re looking to get a microloan, you can apply for one through an intermediary lender. Generally, these are financed by certain non-profit community-based organizations with lending and business management experience.
Credit decisions and loan terms are set by the SBA-approved intermediary lender. Necessary qualifications are defined by the participating lender, and will likely factor in cash flow, outstanding debts, plans for your business, and the intention of the requested funds. They commonly also require some form of collateral as well as a personal guarantee from the business owner to secure the loan.
Visit the SBA website to find an SBA-approved intermediary in your area and review the necessary requirements.
The most common additional requirement for SBA disaster loans is to provide proof that your business has:
- Been impacted by a declared disaster
- Been unable to obtain financing from other lenders
- A need for funding to cover daily operating expenses
Specific requirements can change depending on the type and nature of the declared disaster.
For further information on SBA loan requirements and how to prepare an application, head over to Step 3 in our guide on getting an SBA loan, which also contains tips on how to find an SBA loan provider.
Lender Requirements for SBA Loans
In addition to SBA-designated requirements, the lender facilitating the loan will have qualification criteria of its own that will need to be met. Such criteria can vary, but generally include the review of the following items:
Both your personal and business credit score can be taken into account when reviewing your creditworthiness when applying for an SBA loan. Most lenders will want to see high credit scores indicative of a strong payment history to help mitigate risk. 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 a calculation based on your company’s annual operating income and debt obligations and is meant to be used as one indicator of your company’s ability to repay debt. Typically, lenders look for a DSCR of 1.25x or greater.
Some lenders have a minimum revenue requirement and may look at the amount of annual revenue your company earns as a basis for determining your eligibility for an SBA loan. This information may also be used to determine the rate you qualify for.
Generally, it’s recommended that you be in business for at least two years to qualify for most small business loans. Otherwise, you’ll be considered a startup and may have more difficulty getting an SBA loan since startups tend to 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 you decide to move forward with a loan application, read our guide on how to get a small business loan to help you prepare.
Pros & Cons of SBA Loans
| PROS | CONS |
|---|---|
| Can offer more favorable rates and terms when compared with loan offerings from other lending institutions | Can require a lot of paperwork and various documentation |
| Can be helpful to small businesses with limited resources without access to traditional financing | Can have slower funding speeds in comparison with other small business loan types |
| Has various loan programs applicable to a variety of business financing needs | Can have various compliance requirements to keep track of |
SBA Loan Alternatives
Not all small businesses will meet the minimum eligibility requirements for an SBA loan. In the instance you don’t qualify or are simply exploring all of your financing options, consider the following alternatives.
- Startup business loans: For early-stage businesses with limited resources, getting a startup business loan can help finance your business needs in a variety of ways. Learn more in our guide discussing the different types of startup business loans.
- Equipment financing: Inclusive of both equipment loans and leases, equipment financing is a great option for business owners looking to acquire a specific asset to assist with their business operations. Depending on your business needs, you can finance the purchase of a piece of equipment or lease it if you’re not looking to own the asset. 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.
- Personal loan for business: If you don’t qualify for a small business loan but have good personal credit, you may be eligible for a personal loan. While available loan amounts may be lesser than that of business loans, you can typically use the funds with limited restrictions—making it a good option for borrowers needing a capital boost for their business. Check out our guide on the best personal loans for business funding to find a provider.
Frequently Asked Questions (FAQs)
Getting an SBA isn’t difficult as long as you meet the basic criteria outlined by the SBA and participating lender. Like with any form of financing, you’ll need to supply various forms of supporting documentation in addition to an application, along with any other information as requested by the lender. That said, SBA loans sometimes can take longer than other types of small business loans due to their government-backed nature, so keep that in mind if you need funding quickly.
Down payment requirements can vary depending on the loan type and lender. Generally, you can expect to put down anywhere from 10% to 30% when applying.
SBA loans have varying requirements depending on the loan program you choose. However, common factors taken into consideration are business industry, size and age of the business, annual revenue, DSCR, intended use of funds, and business and personal credit score.
Bottom Line
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.
