Can You Have Multiple SBA Loans?
Yes, as long as your bank allows it, you can have multiple SBA loans outstanding at the same time, but the total amount borrowed can’t exceed SBA program limits. To qualify for multiple SBA loans, your first loan must be in good standing, and you must have positive cash flow, strong credit, and sufficient collateral. This applies to SBA 7(a) and 504 loans. You cannot have more than one PPP loan.
Sometimes, a single loan simply isn’t enough to reach your business’s goals. The borrowing power of multiple loans can amplify your business’s growth. Small business owners often apply for multiple SBA loans because these loans are affordable and have favorable repayment terms.
It’s certainly possible to have multiple SBA loans, although there are restrictions that you should be aware of. Each SBA loan program has borrowing limits. And of course, you have to meet the SBA’s and the lender’s eligibility requirements for every loan that you borrow.
Plus, just because you can take out multiple SBA loans doesn’t mean you should. Read on to learn from Fundera’s SBA loan experts about when it’s a good idea to get multiple SBA loans and when there might be a better solution.
What to Know About Having Multiple SBA Loans
Although many small business owners don’t know this, it is common to have multiple SBA loans. Once a small business owner successfully borrows money with an SBA loan, they often turn to the SBA again because of the favorable cost and terms of these government-backed business loans.
In general, a business must meet the following requirements in order to be eligible for multiple SBA loans:
- Each loan must meet the SBA’s eligibility requirements and the lender’s eligibility requirements.
- You can’t use a second SBA loan to pay back the first SBA loan, except in rare cases where the borrower has 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 650.
- Depending on loan amount, you must sign a personal guarantee on each loan and provide sufficient collateral.
There’s nothing in the SBA rules that limits you to one loan. Technically, you could have two, three, or even more SBA loans at one time.
“But based on their risk appetite,” says Maria San Luis, an SBA funding advisor at Fundera, “some banks have policies limiting business customers to one SBA loan or requiring a certain number of months to pass before you can apply for a second SBA loan.”
She recommends business owners check with their local bank or use a service like Fundera, which helps qualified applicants access SBA funding.
Borrowing Limits for SBA Programs
Here are the borrowing limits for different types of SBA loans:
- SBA 7(a) loans: $5 million maximum
- SBA Community Advantage Loans: $250,000 maximum
- SBA Express Loans: $350,000 maximum
- SBA 504 loans: $5 million maximum ($5.5 million for eligible “green” businesses)
- SBA microloans: $50,000 maximum
According to a rep we spoke with at the U.S. Small Business Administration, “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.”
The only way lenders can avoid these limits it to place you in a non-SBA loan product.
Let’s say you want to use an SBA 7(a) loan to expand your business to a new location. Here are some funding arrangements with multiple SBA loans that would work:
- One SBA 7(a) loan of $1 million, plus a second SBA 7(a) loan of $4 million
- Two SBA 7(a) loans of $2.5 million each
- An SBA 7(a) loan of $5 million, plus a non-SBA term loan of $1 million
Here’s a funding arrangement that wouldn’t work:
- Two SBA 7(a) loans of $3 million each (this wouldn’t work because the total funding amount is $6 million, higher than the SBA’s maximum limit)
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 years, let’s say 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
Each SBA loan program is designed to address different business needs. For instance, SBA 7(a) loans are designed primarily for working capital, whereas SBA 504 loans are designed for the purchase of real estate and equipment. So, you might be wondering, can you combine different types of SBA loans?
The answer again is yes, within limits. There are no SBA rules that prohibit you from combining different types of SBA loans. But, you have to keep the SBA’s overall program structure in mind.
For instance, 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. Let’s say you start by securing a Community Advantage Loan of $250,000 and an Express Loan of $350,000. If you applied for a SBA 7(a) loan, as well, then you’d be limited to $4.4 million ($5 million – $350,000 – $250,000).
Bringing an SBA 504 loan into the mix is even trickier. 504 loans tend to be used for really big investments in equipment, buildings, land, and other hard assets, so the SBA places more limitations on having multiple SBA loans.
A borrower can have both a 7(a) and 504 loan, but according to our contact 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.
How to Qualify for Multiple SBA Loans
Getting multiple SBA loans might be the answer to your business’s funding needs, but you have to qualify for each loan. Lenders—who do the bulk of underwriting—and the SBA place high importance on three fundamentals in your SBA loan application: cash flow, credit, and collateral. Whether you have one loan or apply for multiple, you need to satisfy these three requirements. Let’s dig into each in more detail.
The biggest challenge you’ll face when applying for multiple SBA loans is showing the lender that you have enough cash flow to pay back all debt. Cash flow is the pattern, timing, and frequency with which money enters and leaves your business.
Alex Goldklang, an SBA funding advisor at Fundera, says, “A good lender won’t approve a business for a second SBA loan if they don’t have positive cash flow, both to protect the business from overextending itself and to protect their own interests in getting their money back.”
Lenders will assess cash flow with a variety of documents, such as recent tax returns and financial statements. They use these documents to calculate the business’s debt service coverage ratio (DSCR). DSCR compares your business’s income to your business’s outstanding loan payments. Although the specifics vary, most lenders look for a DSCR greater than 1.25 to show that you can comfortably cover your monthly loan payments.
Some lenders will also look at your global debt service coverage ratio, which includes your personal income and personal debt in the analysis. “If your personal debt levels,” says Goldklang, “have increased since getting your first SBA loan, that will make getting the second loan more difficult.”
For the best chance of securing multiple SBA loans, make sure you’re well in the black both in your business and personal life.
Although requirements vary by loan program, in general you should have a personal credit score greater than 650 to qualify for an SBA loan. You FICO business credit score also comes into play, with the SBA requiring a minimum score of 140 for SBA 7(a) loans up to $350,000.
If your credit has declined since getting the first SBA loan, then qualifying for a second SBA loan can be an uphill climb. That said, the different eligibility requirements work together. If you have, for instance, excellent cash flow and a lot of collateral to offer, you might be able to get by with a slightly lower credit score.
According to Fundera’s San Luis, SBA lenders will file a lien on your business property for any size loan. “If you have multiple SBA loans and the bank feels that this has increased their risk exposure,” San Luis says, “then they can ask you for additional collateral.”
Additional collateral can come in the form of additional business assets, a life insurance policy, or real estate. For loans above $350,000, lenders might collateralize your personal property.
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.
Consider SBA Loan Alternatives
Many small business owners try for a second SBA loan, only to find that another loan product is a better choice for them this time around.
“The very fact that a borrower received SBA funding,” Goldklang says, “is a good signal for other lenders. Having an SBA loan in good standing shows other lenders that you are a well-qualified, responsible borrower.”
Alternative lenders are usually willing to take second position to an SBA loan. This means that if you were to default on the SBA loan, the SBA lender would get their money back first. If there are assets left over, then the alternative lender would get those. Alternative lenders, such as OnDeck and Kabbage, will take second position on an SBA loan because the chance of the borrower defaulting is low.
SBA loans are excellent for long-term business investments, such as buying a new building or hiring staff. In contrast, alternative lenders are great for short-term borrowing needs, such as purchasing the coming quarter’s inventory or making payroll for the month. For such options, instead of looking to another SBA loan, it might be better to consider a short-term loan or line of credit. These 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.
So, Should You Get Multiple SBA Loans?
It’s more common than you might think for small business owners to have multiple SBA loans. SBA loans are a low-cost loan product with small business-friendly terms. Who wouldn’t want more of a good thing? The key is to make sure that you’re borrowing within your means and that you’re fully in compliance with the SBA’s rules and any lender-specific policies. Also, make sure you consider non-SBA products to fuel your business’s goals. SBA loans can be fantastic option, but you might find that a different product is best for your business’s next chapter.
Priyanka Prakash, JD
Priyanka Prakash is a senior contributing writer at Fundera.
Priyanka specializes in small business finance, credit, law, and insurance, helping businesses owners navigate complicated concepts and decisions. Since earning her law degree from the University of Washington, Priyanka has spent half a decade writing on small business financial and legal concerns. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.