Can You Have Multiple SBA Loans? (And Should You?)

In short, as long as your lender allows it, you can have multiple SBA loans at the same time. The total amount borrowed, however, can’t exceed the limits of the specific SBA loan program — applicable to the SBA 7(a) loan program, 504 loan program, and microloan program.

You cannot, on the other hand, receive multiple Economic Injury Disaster loans, or EIDLs, for damages suffered as the result of a single declared disaster, like the COVID-19 pandemic. The SBA disaster loan program does allow you to get an EIDL and a physical disaster loan if your business suffered property damage in addition to economic damages from a single declared disaster.

To qualify for a second SBA loan, your first loan should be in good standing, and you’ll want to have positive cash flow, strong credit, and sufficient collateral.

Use this guide to learn more about the limitations of having multiple SBA loans — and when there might be a better financing solution for your business.

With the most common SBA loan programs, you are not technically limited to a single loan. When it comes down to it, you could have two, three, or even more SBA loans at one time.

To get a second SBA loan, however, you’ll likely need to meet the following requirements:

• Each loan must meet the SBA’s eligibility requirements, as well as the lender’s eligibility requirements.
• You can’t use the second SBA loan to pay back the first SBA loan, except in rare cases where you have new funding needs that the existing SBA lender won’t accommodate.
• Your current SBA loans must be in good standing.
• You can’t exceed SBA loan program borrowing limits.
• You must be able to demonstrate positive cash flow.
• You must have a good credit score, ideally over 690.
• Depending on the loan amount, you must provide sufficient collateral.
• You must sign a personal guarantee on each loan.

In order to qualify and apply for a second SBA loan, it’s important to understand the borrowing limits of the different SBA loan programs. Here are the maximum limits you’ll need to adhere to if you’re looking to get multiple SBA loans:

• SBA 7(a) loans: $5 million
  • SBA Express loans: $1 million (this maximum will fall to $500,000 on October 1, 2021, as program updates under the Economic Aid Act expire)
• SBA Community Advantage loans: $250,000
• SBA 504 loans: $5.5 million
• SBA microloans: $50,000

According to a U.S. Small Business Administration representative, “The total amount borrowed with a single SBA loan or a combination of SBA loans can’t exceed these limits. The aggregate balance must remain under these limits, even if you’re working with several different lenders.”

Of course, some SBA lenders may have policies that limit borrowers to a single loan in order to mitigate risk. Similarly, they may require a certain number of months to pass before you can apply for a second SBA loan.

You want to use an SBA 7(a) loan to expand your business to a new location. Let’s review some funding arrangements with multiple SBA loans that would work:

• One SBA 7(a) loan of $1 million + One SBA 7(a) loan of $3 million = Total of $4 million
• Two SBA 7(a) loans of $2.2 million each = Total of 4.4 million
• One SBA 7(a) loan of $5 million + One non-SBA term loan of $1 million = Total of $ 6 million (but only $5 million of the total is the SBA loan)

Here’s a funding arrangement that wouldn’t work:

• Two SBA 7(a) loans of $3 million each = Total of $6 million, higher than the maximum $5 million for SBA 7(a) loans

As you pay back an existing SBA loan, your opportunities for additional financing expand. For instance, let’s say you have a $5 million SBA 7(a) loan. Initially, you can’t apply for additional SBA funding because you’ve hit the maximum. But within a couple of years, you pay back $1 million. Now, you’re eligible to apply for $1 million in new SBA 7(a) funding.

Combining different types of SBA loans can get a little trickier. You can combine certain types of SBA loans, within limits.

For example, SBA Community Advantage loans and Express loans officially fall under the 7(a) umbrella, so they are subject to the overall $5 million maximum for 7(a) loans.

Therefore, if you have an SBA Express loan of $350,000 and want to apply for a second SBA loan, you would be limited to a maximum loan amount of $4,650,000 ($5 million – $350,000 = $4,650,000).

Bringing an SBA 504 loan into the mix is even more complex. SBA 504 loans are used for large fixed asset purchases and require involvement from a bank and a CDC, as well as the borrower.

Due to the structure of SBA 504 loans, the SBA places more limitations on this type of funding. A borrower can have both a 7(a) and 504 loan, but according to a representative at the U.S. Small Business Administration, “if the gross amount of the two loans exceeds $5 million, the 7(a) loan must be originated first.”

If you get the 504 loan first, you cannot exceed $5 million in total SBA funding, no matter which program the secondary funds are coming from.

If you think a second SBA loan is the answer to your business’s funding needs, you’ll need to complete the same application process you went through with the first loan in order to qualify.

With this SBA loan application, however, lenders will place even more importance on your business’s creditworthiness and financials — as you already have existing debt to repay.

Therefore, before you start the intensive application process, here are a few ways you can evaluate your business to determine if another SBA loan is the right financing option:

One of the biggest challenges you’ll face when applying for multiple SBA loans is showing the lender that you have enough cash flow to pay back all the debt. You’ll want to be able to show the lender that you have positive cash flow — indicating that you can keep your business running and honor your debt obligations.

Lenders will assess cash flow with a variety of documents, such as recent tax returns and financial statements. They may also calculate your debt service coverage ratio (DSCR).

DSCR compares your business’s income to your outstanding loan payments — ideally, you should have a DSCR of 1.15 or higher.

Some lenders will also look at your global debt service coverage ratio, which includes your personal income and personal debt in the analysis. You’ll want to be able to show that your personal debts have not increased since getting your first SBA loan.

If your credit has declined since getting your first SBA loan, then qualifying for a second SBA loan is going to be much more difficult. Although requirements vary, most lenders generally want to see a personal credit score of 690 or higher.

That said, the different eligibility requirements work together. If you have, for instance, excellent cash flow and substantial collateral to offer, you might be able to get by with a slightly lower credit score.

Multiple SBA loans can mean lenders feel that they’re taking on more risk by working with you. Therefore, in addition to requiring another personal guarantee and filing a lien on your business property, they may ask for physical collateral to secure the loan.

Additional collateral can come in the form of additional business assets, a life insurance policy, or real estate. The general rule of thumb is that the more debt you take on, the more collateral you need to pledge.

This usually isn’t a probably for second-time borrowers because existing debt helps you purchase inventory, equipment, and other assets that you can pledge as collateral in the future. But if you have an asset-light business or are still ramping up growth, then you could find it challenging to secure a second SBA loan.

In general, business owners shouldn’t overextend themselves, which is why the SBA and most lenders prefer to have a gap between SBA loans. Once you make good headway on paying back the first loan, there’s more opportunity to borrow additional funds. If you can show a lender that you have increasing business revenue and a history of timely loan payments, they’re much more likely to work with you.

Of course, you might also find there other types of financing that can better meet your current funding needs.

Alternative lenders are usually willing to take second position to an SBA loan. These lenders can offer short-term loans or lines of credit that can be good for purchasing the coming quarter’s inventory or making payroll for the month.

These products have higher interest rates than SBA loans, but you can pay them off quickly. Having a variety of different loan products allows you to address different funding challenges as your business grows.

It’s more common than you might think for small business owners to have multiple SBA loans.

That said, if you’re looking to apply for a second SBA loan, the key is to make sure that you’re borrowing within your means and that you’re fully compliant with the SBA’s rules, as well as any requirements from your lender.

Finally, make sure you consider non-SBA products to fuel your business’s goals. SBA loans can be a fantastic option, but you might find that alternative funding is best for your next chapter.