Getting an SBA Loan Just Got Harder

Getting an SBA Loan Just Got Harder

Getting an SBA Loan Just Got Harder

A recent update to the SBA’s  Standard Operating Procedure (SOP) for lenders participating in the Small Business Administration (SBA) loan guarantee program could make getting an SBA-guaranteed small business loan a little more challenging if you and your small business have less than perfect credit.

According to the update, this SOP will go into effect on Oct. 1, 2020. The pertinent part of the update regarding credit qualification criteria is as follows:

All 7(a) Small Loan applications will begin with a screening for a FICO® Small Business Scoring ServiceSM Score (SBSS Score).

The SBSS Score is calculated based on a combination of consumer credit bureau data, business bureau data, Borrower financials, and application data (The SBSS Score is not to be confused with the Small Business Predictive Score (SBPS) used by the SBA’s Office of Credit Risk Management). The minimum credit score is based on the lower end of the risk profile of the current SBA portfolio. As of the effective date of this SOP, the minimum acceptable SBSS score is 155, but that score may be adjusted up or down from time to time. Loans will an SBSS score lower than 155 must be fully underwritten under Standard 7(a) procedures. SBA will post on its website the minimum acceptable SBSS credit score for 7(a) Small Loan applications at www.sba.gov/partners/lenders/7a-loan-program.

Although this formally increases the minimum SBSS score, it doesn’t mean you  can’t get an SBA loan if your score doesn’t meet the 155 threshold. In fact, most SBA lenders are already looking for scores of 160 or above. It simply means that your loan application will go through a manual review and can’t be approved automatically under delegated authority.

Are There Alternatives to an SBA Loan?

There are a number of reasons a small business borrower might consider other options to an SBA loan (including the minimum credit criteria mentioned above). Time to funding, term length, and other factors could impact a decision regarding which business loan would be a good fit for your business and your individual situation.

With that in mind, if you don’t qualify for an SBA loan or the terms of an SBA-guaranteed loan don’t meet your needs, there are other options. You can get matched to those options based on your real data at Nav.

This article was originally written on September 3, 2020.

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ABOUT AUTHOR

Ty Kiisel

Ty Kiisel is a Main Street business advocate, author, and marketing veteran with over 30 years in the trenches writing about small business and small business financing. His mission at Nav is to make the maze of small business financing accessible by weaving personal experiences and other relevant anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.

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17 responses to “Getting an SBA Loan Just Got Harder

  1. Yes!! This is not cool at all!!! The people of today that have businesses can’t work!! The Government made a Mandatory Shut Down for all businesses!!! So what do Small Business People Do with Not do Good Credit!!! Not fair!!! We are in Pandemic Still and you guys still want to check out Credit with a Fine Tooth Comb!!! Please get out of here with this!!!! People need to live!!! I’m done

  2. There were many companies that were declined during the first round of EIDL loans because of poor credit. The unfortunate part was these companies waited weeks & weeks for any word from the SBA only to find out they were denied. The SBA should have made this a “first” step from the beginning instead of the “last” step. So many businesses were misled.

    1. Thanks for reading the blog. The minimum personal credit threshold for an SBA loan is going to be about 650, so a 550 personal credit score likely won’t be high enough to qualify for an SBA loan. Fortunately, there are other loan options available, but there are fewer options for a borrower with a 550 score. Expect to pay a higher interest rate and for terms to be much shorter than the low interest, long-term loans associated with the SBA.

      Now that you know what the minimum personal credit score threshold is, my advice would be to work on your personal score to make improvements. It won’t happen overnight, but good credit practices over time will help you make gradual improvement to your score.

  3. With the economy going crazy like this who will keep a perfect credit score might as well you tell people to close their business and keep your goddamn loans

    1. It is tough right now and that can’t be minimized. Unfortunately, with a weak credit profile it is unlikely a business will qualify for an SBA loan. Although it’s admittedly difficult, monitoring and guarding your personal and business credit profile has never been more important. A free Nav account could be a good place to get started.

      1. That’s quite interesting. I was told by the SBA, that they DO NOT report to ANY of the credit bureaus, verbatim. Can you provide a link to an article or something from the SBA validating your claim?

        I explicitely inquired as it pertains to this PRIOR to taking the loan as I did NOT want my personal scores impacted. As I said, I was told, on two separate occasions, that they don’t report to any of the bureaus.

        I will be LIVID if what you’re stating is true.

        1. Are you talking about EIDL or PPP? EIDL loans are made by the SBA and the SBA does not report to personal credit. PPP loans are made by individual lenders and traditionally SBA loans under the 7(a) program can be reported. If your PPP loan is forgiven it’s doubtful it will report.