Requirements for an SBA Loan

Requirements for an SBA Loan

You have decided you wish to pursue an SBA 7a Loan. Before beginning the SBA loan application, you want to make sure you meet the minimum requirements for the SBA 7a loan program. Because the SBA loan program is competitive, the SBA and lender want to make sure you are eligible. Peak Business Valuation, business appraiser Utah, works with lenders across the country helping business owners with SBA business valuations to obtain an SBA loan. Below we discuss several requirements the SBA and lender will look for when qualifying a business owner for an SBA 7a loan.

SBA 7a Loan Minimum Requirements

Be a Small Business:

A small business can range from anything under 100 employees to anything up to 1,500, depending on the industry.  In addition to employees, the SBA also considers a small business revenue and/or net worth. The SBA sets size standards or numerical definitions for every small business industry in the United States. For more information on your specific industry see the SBA’s Table of Small Business Size Standards.

Operate for Profit:

The SBA only gives loans to “for-profit” businesses. Non-profit businesses are not eligible for SBA loans. If you are a non-profit, consider looking into other forms of funding such as government grants or loans.

Operate in an Eligible Industry:

The SBA has specific guidelines for some industries. Certain types of businesses are not eligible for SBA assistance. See SBA Eligibility Questionnaire for eligibility.

Operate Business within the U.S. or its Territories:

The business must be located within the United States or its territories. And your business must be officially registered and operating legally.

Invest Personal Finances and Time into the Business:

The SBA wants to see that the owner has put some “skin in the game”. You must show that you have put time, money, and energy into building your business. This shows SBA lenders that you have an investment in the business’s success. This may include the applicant’s excess liquid assets. These excess liquid assets must be put toward the business project before any disbursement of government funding.

Use Alternative Financial Resources First:

The SBA requires the borrower to exhaust other financing options first. The SBA may choose not to provide financial assistance to an applicant with reasonable access to non-federal financing.

No Defaults or Delinquencies on Government Loans:

The SBA will not lend to any borrower who has previously defaulted on a government loan or has current delinquency.

Demonstrate a Need for the Loan Proceeds:

Besides the above requirements, the SBA will consider how the borrower wishes to use the loan proceeds. This may include refinancing debt, financing a change in ownership, financing real estate, among others.

Terms of the SBA Loan:

Last, the SBA has restrictions on the terms of the loan. Including the government guaranty percentage, timeframe, interest rate, and the loan amount. The SBA maximum guaranty percentage is 85% for loans less than $150,000 or 75% for loans over $150,000. The SBA outstanding loan amount cannot exceed $5 million.

The term length is based on the shortest appropriate term considering the applicant’s repayment ability and the useful life of the asset being financed. The typical term length is between 10 and 25 years.

A down payment is often required if the intended use of funds is to purchase a business, commercial real estate, or business-related equipment. A 10% down payment is the most common.

 

Additional Common Lender Requirements for an SBA 7a Loan

Many lenders have additional requirements for businesses seeking an SBA loan. Some of the common requirements for an SBA 7a loan are listed below:

  1. A Good Credit Score: Many lenders wish to see a good personal credit score. Your personal credit score demonstrates how you manage your personal finances. It also gives the lender assurance that you will be trustworthy with your business finances. And can show you have the ability to repay the loan. Your credit score will determine not only whether you qualify for the SBA loan, but also affect the interest rate you pay.
  2. 2 Years Business Operations: Many lenders want at least 2 years of business history. However, new businesses may qualify for microloans or even a 7a loan with some collateral. The time in business will vary by lender.
  3. Sufficient Cash Flow: Many lenders look for at least $100,000 in annual revenue. However, this may vary by lender, but essentially, they wish to see enough revenue to meet your debt obligations.

Meeting these minimum requirements will make you a stronger applicant. Some lenders may be flexible if you are underperforming in one area and overperforming in another. However, your best chance of getting approved is by meeting and exceeding all the qualifications. Peak Business Valuation, business appraiser Utah, can connect you with lenders who serve your industry and can meet your business needs.

Summary

SBA loans are one of the best financing options for small businesses. They offer competitive terms including low-interest rates, long repayment terms, and lower down payments. Applying for an SBA 7a loan can be a lengthy and complex process. But, understanding the minimum requirements can help you be more prepared for the application process and determine whether you may be eligible.

Peak Business Valuation, business appraiser Utah, works with SBA lenders across the country providing SBA business valuations. We can connect you with a lender who serves your industry. Peak provides lenders with SBA business valuations in nearly half the time of our competitors helping you close your SBA loan faster. Questions are always welcome! Please reach out via email or by scheduling your free consultation below.

 

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