SBA loans are among the most popular options for small business loans. Why? They offer low interest rates, predictable monthly payments, and a variety of loan programs that suit different business needs.
Because the U.S. Small Business Administration guarantees a good part of these loans, they are attractive to the banks and other lenders approved to offer them.
That being said, SBA loans do have eligibility requirements, and the loan process can feel intimidating. Each SBA loan has a slightly different set of rules and requirements, which we’ll cover at a higher level in this article.
SBA Loan Requirements
We’ll soon look at specifics for different types of SBA loans, but all of them have some overarching requirements:
- Acceptable personal and business credit
- For-profit business status
- U.S.-based location and operations
- Owner-supported and funded
- Similar credit not available elsewhere
- Meet SBA size standards
- Operate in an SBA-acceptable industry
- Owned by an eligible person
Keep reading to get details on each of these requirements, as well as an overview of more specifics for different programs.
How to Qualify for an SBA Loan
Except for Disaster Loans, the U.S. Small Business Administration doesn’t make loans; it guarantees them. Instead, these loans are made by SBA-approved lenders.
Step 1: Build Your Credit
Most SBA loans do not have a minimum credit score requirement, but instead require “acceptable” credit. We’ll explore credit score requirements for SBA loans in a moment.
If personal or business credit scores have room for improvement, you’ll want to work on them. For example, you may want to open a couple of business credit cards, then pay your balance on time and perhaps even in full every month to start building a credit history. Take time to review your business credit reports and address any mistakes or problems.
Step 2: Create a Business Plan
You may not need a business plan to get an SBA loan. Not all loans or lenders require them. However, some will. And even if they don’t, the information in your business plan can provide you and the lender with the information you need to demonstrate your ability to repay the loan.
Step 3: Document Collateral
You can’t be turned down for an SBA loan just because you don’t have collateral. But most SBA loans require you pledge collateral, such as real estate or equipment, if available. Know ahead of time what assets you have that can be used as collateral against the loan and research market value.
It’s also worth noting that most SBA loans require a personal guarantee. That means you will be responsible personally to repay the debt if the business doesn’t pay it back.
Step 4: Gather Financial and Legal Documents
Your lender may require business bank account statements, business financial statements, and even personal financial statements, so prepare to gather them. You may need to enlist your tax professional’s help for some of these, but at a minimum, your bookkeeping should be up to date. We’ll talk more about required documents in a moment.
The sooner you start working on these tasks, the better-prepared you’ll be once you apply. For example, building your credit isn’t an overnight feat, so start to build or strengthen your credit profile before you urgently need funding.
What Documents Do You Need for SBA Loans?
Each loan program may have specific requirements, but these are the most common documents required for 7(a) loans, and many will apply to other SBA loans as well.
Business Financial Statements may be required including:
- Year End Profit and Loss (P&L) statement for the last three years
- Year End Balance Sheet for the last three years, including a detailed debt schedule
- Reconciliation of Net Worth
- Interim Balance Sheet
- Interim Profit & Loss Statements
- Projected Financial Statements that include month to month cash flow projections, for at least a one-year period.
Other documents that may be required include:
- Business income tax returns for the last three years (if applicable)
- Articles of incorporation
- Partnership agreement
- Business plan and/or business overview and history
Business owner resumes
- Business lease
SBA Loan Requirements Overview
While the SBA loan program features a handful of different loan products, most share the same general requirements for anyone looking to borrow. (SBA Disaster Loans are different as we’ll point out in a moment.)
These have not changed substantially over time since the basic program requirements are part of the Small Business Act. In addition, how these requirements are interpreted and implemented does change somewhat from time to time. The latest update of SBA Standard Operating Procedures is effective September 1, 2023.
Know that there may be some leeway with some of these requirements; if, for example, you don’t have a solid business credit history but have a decent personal credit score, you may still qualify.
Personal Credit Scores
You might be surprised to learn that your personal credit history matters when applying for an SBA loan. Most applications ask for your Social Security number and request permission to run a credit check for each owner with ownership of 20% or more of the business. Expect your score to be a factor in your approval.
For most loans, the SBA requires “acceptable credit,” but does not set a minimum credit score requirement. Many lenders, however, will require a personal credit score of at least 680—700 or more.
Business Credit History
While your personal score matters for SBA loans, your business credit may be a factor as well. SBA Small Loans require the lender to obtain a FICO SBSS score. This score uses both personal and business credit data to create a single score, ranging from 0-300. The current minimum SBSS score for 7(a) Small Loans is 155.
SBA Small Loans are loans for $500,000 or less, but not including SBA Express, Export Express, CAPLines, Export Working Capital Program (EWCP), and Community Advantage Pilot Program loans.
If a borrower doesn’t meet that minimum score requirement, the loan application must undergo a more extensive credit review.
For-Profit Business Status
SBA loans are typically only available to “for profit” businesses. Charities and nonprofits are not usually eligible for such funds. (There were some exceptions made for PPP and COVID-19 EIDL loans.) If you aren’t a for-profit business, consider looking into other government grants or loans available at Grants.gov.
Only businesses that are both owned and operated in the U.S. qualify for SBA loans. You must have a physical location and mailing address in the United States.
Demonstrating that you have put your own funds into your business shows the SBA and lenders that you are invested in its success. This is referred to as “equity injection.” Equity injections are only required for certain SBA loans; primarily 7(a) loans to startups less than a year old and when there is a change of ownership. But lenders may have their own equity injection requirements.
SBA loans are designed to help small businesses that would have trouble getting similar funding elsewhere. This is referred to as the “credit elsewhere test.” You don’t necessarily have to provide rejection letters to prove this, though. Your SBA lender will document this factor.
There are several industries where the SBA will not guarantee a loan. These may be referred to as “restricted industries.” These include businesses that:
- Are primarily engaged in lending
- Earn a passive income from real estate rental income and don’t provide additional services (except Eligible Passive Companies)
- Life insurance carriers
- Offer pyramid sale distributions or compensations
- Get over one-third of their annual revenue from gambling services
- Enforce restrictive membership rules
- Primarily offer religious services
- Are government-owned (Native American tribal affiliations may still be eligible)
- Sell live adult entertainment services
- Lobby or engage primarily in political activities
- Package SBA loans
- Are speculators (oil wild-catting or research and development)
Note that industry is usually identified by a SIC or NAICS code. Make sure yours is correct on your business credit reports.
An owner is anyone with 20% or more ownership of the company. Each owner should expect to meet ownership requirements.
Those with certain criminal records may have trouble qualifying. The SBA prohibits loans to those who are Incarcerated, on probation, or on parole, (an individual with a deferred prosecution, conditional discharge, order of protection, or who is on a sex offender registry is treated as if the individual is on probation or parole); or who are currently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction.
Those who are delinquent or have defaulted on a federal loan (including federal student loans) or federal financing program may not be eligible, though there are exceptions.
Additional SBA Loan Requirements
In addition to the specifications above, SBA lenders may have other criteria to help them determine whether you’re a good credit risk.
- Capital Requirements – How much money do you seek? Having a number in mind, along with your intended use for the cash, will help the bank see your vision for the future and their funding. It also demonstrates that you understand the requirements set by the SBA on how loan proceeds can be used. A cash flow report can help here.
- Financial future – Do you have your business forecasts for the next few months? How about the coming year? Be ready to show the bank that you’ve budgeted for the future, including how you’ll pay back the loan.
- Collateral – If you don’t have business assets to secure a loan, many SBA business loans require you to put up your home, vehicle, property, or other personal assets as a loan guarantee against non-payment. Make a list of real or fixed assets. The lender may not require you to completely collateralize a loan, but they will require all the collateral that you have.
Businesses that are delinquent or have defaulted on a federal loan (excluding federal student loans) or federal financing program may not be eligible, though there are exceptions.
Owners of 50% or more of the business who are delinquent on any obligation to pay child support are generally not eligible.
Time in Business
Technically, most SBA loans are available to startups as well as established businesses, but lenders can set their own requirements. Many lenders will want to see that you have an existing business for at least two years, though some are more flexible.
In other words, startups may be eligible for most SBA loans but it’s up to the lender to decide whether to make the loan.
Eligibility for Export Express loans is limited to businesses that have been in operation, although not necessarily in exporting, for at least 12 full months. However, there are exceptions.
SBA Loan Types Overview
Because the Small Business Administration offers a variety of loan programs, each may have its own set of requirements. The list for each program is very long and spelled out in Standard Operating Procedures. Here’s a breakdown of each of the most popular SBA loan types.
SBA 504 Loans
Looking to buy, renovate or expand primarily owner-occupied commercial real estate? The SBA 504 loan program requirements should be of special interest to you. This loan is also called the CDC loan and is popular with borrowers looking to invest in real estate, construction, or equipment. There is no cap on the loan amount for these loans but the maximum SBA debenture is $5 million.
These loans must be repaid in 10-20 years, depending on the loan offered, making them a suitable option for long-term financing. SBA lenders generally want to see a 10% down payment on the loan from the borrower. Real estate purchased must be at least 51% owner-occupied (and more for new construction).
SBA 7(a) Loans
SBA 7(a) loans are the most popular type of SBA financing. They include term loans and lines of credit that can be used for a variety of purposes such as working capital, buying equipment, purchasing a franchise, buying commercial real estate, inventory, refinancing debt in certain situations and even starting a business. A variety of loans fall under the SBA 7(a) program.
For Standard 7(a) loans, the maximum loan amount is $5 million.
The maximum loan amount for SBA Small Loans and SBA Express loans is $500,000.
SBA Express Loans offer revolving lines of credit up to $500,000 with repayment terms of up to 7 years.
SBA Export Working Capital Loans offer revolving lines of credit with terms of up to 36 months up to $5 million.
SBA International Trade Loans offer loans up to $5 million.
SBA microloans may be a good choice if you need less than $50,000 for your for-profit business. These small loans are available to for-profit businesses, including home businesses. (The only non-profit organizations eligible are daycare businesses.) These loans may be used to finance a brand-new business, subject to lender approval.
The SBA doesn’t make SBA microloans. Instead they are made by SBA intermediaries, which may include nonprofit lenders such as Community Development Financial Institutions (CDFIs).
You’ll have up to seven years to repay the loan. In addition to committing to being on-time with your SBA loan payment, you may also be required to engage in training or development programs that are available to your business as part of the microloan terms. This is known as “technical assistance.” The loan program is designed not just to give you money, but to also help you expand your business knowledge and grow your company in a way that positions your business more competitively in the marketplace.
Entrepreneurs can use SBA microloan funds for working capital, inventory, supplies, furniture, fixtures, machinery or equipment. They may be used to refinance business debt if it will improve the cash flow of the borrower.
SBA Disaster Loans
SBA Disaster Loans, including Economic Injury Disaster Loans (EIDL), are made directly by the SBA to affected individuals and small businesses. The SBA Disaster Loan requirements differ from those described in this article. Learn about financial and credit requirements for SBA Disaster loans here.
SBA Loan Rates and Credit Scores
With most types of small business loans, your credit scores not only determine whether you qualify but may also affect the interest rate you pay. Most SBA loan rates are quite affordable to begin with, and maximum rates are set by the SBA. However, some SBA loan rates may be determined in part by credit. For example, a portion of CDC 504 loans are made by a bank or financial institution which can set the rate for that portion of the loan.
What Disqualifies A Business From Getting an SBA Loan?
The main reasons a borrower may be disqualified from getting an SBA loans are:
- Poor credit
- Prohibited industry
- Not qualified as a small business
- Can’t demonstrate ability to repay the loan
- Criminal history
SBA Loan Requirements FAQs
Here are some frequently asked questions about SBA loans.
Are There Separate SBA Loan Requirements for Startup Companies?
As mentioned before, most SBA loans don’t have a time in business requirement, but lenders who make these loans often do. As a result, the microloan program is considered the default when it comes to SBA loans for startups.
However, around 20% of SBA 7(a) funds go to startups, so if you meet other requirements and have a solid business plan, you may want to seek out one of these loans. Owner equity injection requirements will apply to startup loans.
What Are the SBA 7(a) Loan Collateral Requirements?
As stated above, lenders generally prefer collateral in the event that you default on the loan. However, the SBA does not permit a lender to reject an application simply because collateral is not available.
If collateral is available, though, you may be required to pledge it to qualify. Expect a smaller loan to have smaller collateral requirements; loans under $25,000 generally do not require collateral.
How Much of a Down Payment Is Required for an SBA Loan?
Certain SBA loans may require a “down payment” in the form of equity injection. A minimum of 10% is common. Depending on the requirements of the specific loan, this equity injection may come in the form of cash that isn’t borrowed, a personal loan that can be serviced without using funds from the business, assets other than cash (verified by an independent appraisal) and/or debt that is on full standby (no payments of principal or interest for the term of the SBA-guaranteed loan).
Is It Hard To Get an SBA Loan?
Yes and no. Compared to some other business loan options, SBA loans usually have higher eligibility standards. But when compared to traditional loans, like bank loans, they are often similar in terms of the application process.
At the same time, these loans are designed to help businesses that can’t get similar credit elsewhere, so you may have more luck getting an SBA loan than a comparable traditional loan from a financial institution. Just expect to put in some effort.
How Long Does It Take To Get Approved for an SBA Loan?
SBA loans aren’t known for quick-turnaround times. If you’re seeking to get approved within days—and receive your cash within a week or less—these loans might not be for you. An alternative lender might be a better choice for quick financing. Expect to spend time preparing your documents, applying, and hearing back about the status of your SBA loan. Some SBA lenders may give you a reply within 3-10 business days, but getting the funds will take longer. SBA Express loans can sometimes get approval within 24-48 hours from the SBA, but the loan won’t close that quickly. If you need money faster, again, alternative loans might be a better option.
Conclusion: Preparing for Your SBA Loan Application
As a small business owner, you’ll want to understand your financing options so that if your business needs financing to meet cash flow needs or to grow your business, you’re ready to choose the best option.
Among those options, SBA loans should be on your radar. They offer small businesses some of the best loan programs and terms available today. To prepare for the possibility of applying for an SBA loan, make sure your bookkeeping is up to date so that you can provide the necessary financial documents. Check your business and personal credit scores so you know where you and your business stands.
Even if right now you don’t plan to apply for an SBA loan program, focusing on creditworthiness and organizing your finances can help you apply for business financing with confidence.
This article was originally written on July 2, 2019 and updated on September 5, 2023.