SBA loans are one of the best small business loan options on the market. Compared to other forms of financing, they typically have lower down payments, long repayment terms, and reasonable interest rates—plus, they can be used for nearly any business purpose.
However, applying for one is a lengthy and often complex process. You’ll need to meet a variety of requirements—some of which will vary based on your lender and the SBA loan program—not only to submit your application, but also to qualify for the loan.
To help you get started, we’ve compiled this guide. We’ll walk you through the standard SBA loan requirements so you have all the information you need to evaluate your eligibility and prepare an application.
A Quick Guide to SBA Loan Requirements
When it comes down to it, SBA loans have some of the most extensive requirements of any business loans on the market. Nevertheless, these products are often considered the gold standard of financing for small business owners—they are long-term, low-rate, flexible, government-guaranteed loans for the most qualified borrowers.
This being said, since SBA loans have very favorable terms, they are highly competitive—which is why the application process is so rigorous and time-consuming.
Ultimately, the SBA loan requirements range from the very simple—your business is based in the U.S.—to the more complex—your business’s financial and legal documents. Plus, the exact requirements you’ll need to qualify and submit an SBA loan application will vary based on the lender you’re working with, as well as the particular program you’re applying for.
Therefore, the best way to speed up the process and increase your chances of qualifying is by understanding all of the requirements before you apply.
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 SBA loans, and the following industries are barred from receiving one:
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 if you’re unsure if your business qualifies.
Another of the most basic SBA loan requirements is that you’ve exhausted your other financing options.
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.
The SBA measures business size in three ways:
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.
In terms of personal information, you’ll need to be able to show that you, as the business owner, have invested your own time or money into your business. Along these lines, 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.
Additionally, you’ll also 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.
Use our guide to learn more about these (and more) essential SBA forms.
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.
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.
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.
Along with your personal background (which we discussed above), a resume will be on your list of SBA lending requirements. 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.
Along with a resume, a business plan is an important part of the SBA loan requirements. 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 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.
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.
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.
With this in mind, 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.
Do SBA loans require a personal guarantee?
In short, although lenders evaluate collateral on a case-by-case basis, 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.
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:
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:
Use our SBA 504/CDC loans guide to learn more about these loans and their requirements.
If you apply for CAPLines lines of credit, there are also some additional SBA requirements:
Use our guide to SBA lines of credit to learn more about this program and related requirements.
At the end of the day, these SBA loan requirements can feel intimidating. However, 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:
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.