What Are the Requirements for an SBA Loan?
For up-to-date information on SBA loan requirements for Paycheck Protection Loans and Economic Injury Disaster Loans, refer to our coronavirus relief guide.
SBA loan requirements can be extensive compared to other small business loans. However, if you can meet the qualifications, government-guaranteed SBA loans are often the gold standard for small business financing because they typically have low down payments, long repayment terms, and reasonable interest rates.
Ultimately, SBA loan qualifications range from very simple (your business is based in the U.S.) to more complex (your business’s financial and legal documents). Plus, the exact requirements will vary based on the lender you work with and the particular SBA loan program—for example, an SBA 504 loan will require business details that a 7(a) application won’t.
To speed up the process and increase your chances of getting an SBA loan, understand all of the requirements before you apply. Use this guide to walk through the qualifications for different SBA loan programs and evaluate your eligibility, then find the best SBA lender that will fit your needs.
How to Qualify for an SBA Loan
Be a For-Profit U.S. Business in an Eligible Industry
The most basic SBA loan requirement is that you must have a U.S.-based, for-profit business in an eligible industry. Your business needs to be officially registered and operating legally. Nonprofit businesses aren’t eligible for most SBA loans—certain not-for-profit childcare centers may qualify for SBA microloans—and the following industries are barred from receiving one:
- Businesses primarily engaged in lending
- Businesses primarily engaged in political or lobbying efforts
- Life insurance companies
- Businesses making most of their revenue from gambling activities
- Speculative businesses (e.g., medical research, shopping center developer)
- Most passive income businesses (e.g., flea market, shopping center)
For a complete list, you can view the SBA’s eligibility questionnaire. On the top of the SBA’s requirements, lenders might have their own list of eligible and ineligible industries, so make sure you check with a lender before applying if you’re unsure if your business qualifies.
Be Unable to Access Credit Elsewhere
The SBA won’t guarantee your loan if you can find business financing with reasonable terms without their help. This doesn’t mean, however, that you necessarily have to have applied for other loans and been denied.
Instead, it simply means that a participating lender must be able to document for the SBA that other financing options are not available to you, whether that’s because of your borrowing history, time in business, or another factor.
Additionally, you’ll need to be able to show that you, as the business owner, have already invested your own time or money into your business. You may need to provide details regarding how much money you’ve invested in your business, how much of your business you own, and how much time you spend in any given week working specifically for your business.
Meet SBA Size Standards
The SBA measures business size in three ways:
- Number of employees based on industry: Based on what industry your company belongs to, a small business can mean anything under 100 employees all the way up to anything under 1,500 employees.
- Business revenue based on industry: Alternatively, you can qualify for an SBA loan as a small business based on revenue. Depending on what industry you’re in, this can mean anything from $750,000 to anything under $38.5 million.
- Business net worth: Businesses are considered small if they don’t exceed $15 million in net worth or $5 million in net annual income.
Your business can qualify as “small” under any of these definitions, and the SBA often changes what “small business” means. Refer to our guide for more information about the way the SBA defines a small business.
This being said, the average neighborhood business is almost certain to meet the definition, and if you have any doubts, you can use the SBA’s size standards interactive tool.
Meet a Lender’s Underwriting Criteria
SBA loan requirements will vary by lender. However, any lender is likely to look at the following qualifications.
Personal Character and Background
To qualify for an SBA loan, you’ll need to provide information about your personal background, including previous addresses, your citizenship status, and your criminal record.
Having a criminal record doesn’t automatically disqualify you from SBA financing, unless the crime is a felony of “moral turpitude” (i.e. involving violence or dishonesty). However, the lender will evaluate your application with more scrutiny. The SBA asks for your citizenship status because only U.S. citizens and permanent residents can qualify.
Time in Business
With the exception of some of the SBA CAPLines (which require a one-year minimum time in business), the SBA doesn’t have a fixed time in business requirement.
This being said, the longer your business has been operating, the more likely you are to get approved for the loan. So, when you’re applying for an SBA loan, many lenders will require a minimum time in business of two years.
There might be extenuating circumstances—especially if you have great credit and finances or are applying for an SBA microloan—but in most cases, two years is the minimum.
Personal Credit Report
In terms of SBA loan eligibility, your personal credit score is very important. Your personal credit score is a window into how you’ve managed your personal finances—and stellar personal credit gives the lender reassurance that you’ll be trustworthy with your business’s finances and be able to pay back the loan.
If your credit score isn’t above 700, you might have some difficulty qualifying, as this score tends to be an SBA loan credit score minimum. If that’s the case, you might want to take some time to improve your score before applying.
Business Credit Report
The SBA uses the FICO Small Business Scoring Service (SBSS) to evaluate your business credit score.
The SBSS score ranges from zero to 300. The SBA uses the SBSS score to prescreen 7(a) loan applications and will reject your application if your score is below 140. And lenders set their minimums even higher, usually at 160.
Provide Personal and Business Documentation
In addition to background details about you and your business, an SBA loan application will likely ask for in-depth documentation that includes the following:
Resumes of Company Management
This document will give lenders an idea of what your business background is and how experienced you are in your industry.
A resume is particularly important if you need an SBA startup loan, so make sure you’ve prepared this document fully and professionally.
Your business plan is a great chance to prove to the lender that investing in your small business is a smart decision.
One of the most important parts of your business plan when applying for an SBA loan is the use of proceeds section—as you have to use the capital for an eligible business purpose and this varies based on the SBA loan program.
Although SBA 7(a) loans and microloans allow for a wide range of uses, CAPLines and CDC/504 loans have much more specific purpose requirements.
Use our guide to learn more about writing a business plan for funding.
Personal and Business Income Tax Returns
Personal tax returns are a big part of your requirements for the same reason your personal credit score is—lenders want to scrutinize your personal financials to gauge whether you’ll be responsible when you take on your SBA loan. With personal tax returns, lenders will also verify your income.
Similarly, lenders will use business tax returns to verify your business’s income. Conventionally, lenders ask to see the past three years of personal and business income tax returns, so make sure to get these documents in order.
Business Financial Statements
There are a lot of financial documents that are part of your SBA loan requirements.
When you apply, lenders will likely ask for both your balance sheet and your profit and loss statement to evaluate your business’s financial health.
Business Debt Schedule
A business debt schedule is a common SBA requirement as it breaks down your debt by monthly payments and shows the interest and principal due each month.
If you have existing debt, you and your lender will want to consider your business debt schedule closely to make sure that taking out another loan makes sense for your business.
Most lenders will ask to see a year’s worth of personal and business bank account statements along with the rest of your SBA loan application.
This SBA requirement will show how much of a cash cushion you can maintain and how you manage your business’s daily finances.
Like many SBA loan requirements, the legal documents you need to submit will vary from loan to loan, but here are a few you may be asked to provide:
Offer Collateral and Personal Guarantee
Although this SBA loan requirement can vary based on the program, generally, the SBA requires lenders to obtain “adequate collateral,” when available, to secure an SBA loan. You’ll want to keep in mind that when you’re offering your business property as part of the collateral, you’ll need to offer a lender’s loss payable in your loan application.
Collateral can be anything that you’re willing to pledge if you can’t repay your SBA loan—whether that’s real estate, equipment, or inventory you use in your small business’s operations.
Lenders evaluate collateral on a case-by-case basis, but a personal guarantee is almost always a universal SBA requirement. SBA lending guidelines state that anyone who owns 20% or more of the business must sign a personal guarantee using SBA Form 148 or 148L.
Use our guide to learn more about SBA loan personal guarantees.
SBA 504/CDC Loan Requirements
Generally, SBA 7(a) loan requirements, as well as microloan requirements, will end here. With SBA 504/CDC loans, however, you’ll also need to submit the following:
- Environment impact statement, if applicable
- Evidence of meeting public policy or job creation goals
- Proof that any real estate you’ll buy with the loan proceeds is at least 51% owner-occupied
Use our SBA 504/CDC loans guide to learn more about these loans and their requirements.
SBA CAPLines Program Requirements
If you apply for CAPLines lines of credit, there are also some additional SBA requirements:
- At least one year time in business for a working capital line of credit
- Must be a builder to qualify for a builder’s line of credit
- Must have a history of successfully bidding on and completing contracts to qualify for contracts line of credit
- Must be able to demonstrate a seasonal pattern of business for a seasonal line of credit
Use our guide to SBA lines of credit to learn more about this program and related requirements.
The Bottom Line
SBA loan requirements can feel intimidating, but all SBA lenders try to answer the same basic questions and evaluate your business in essentially the same way. Therefore, when filling out your application, try to think from a lender’s perspective and provide some insight on all of the following questions:
- What does your business do, and how do you run it?
- Why are you applying for this loan?
- How do you plan on using the loan proceeds?
- Are your finances in order so you can pay back this loan on time, with interest?
- What other business debts do you owe that can impact your ability to repay this loan?
Ultimately, taking the time to answer these questions will help you prepare the perfect SBA loan package.
Plus, if you’re looking for more advice you can follow our step-by-step guide on how to get an SBA loan.
SBA Loan Requirements: Frequently Asked Questions
Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera.
Meredith launched the Fundera Ledger in 2014. She has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending and financial management.