SBA loans are one of the best small business loan options on the market. They generally 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, not only to submit your application but also to actually qualify for a loan.
To help you get started, we’ve compiled this guide. We’ll go through the various SBA loan requirements and provide useful information about the most common SBA loans, why you might decide to apply for one, and what to do once you’re actually ready to apply.
The Ultimate Guide to SBA Loan Requirements
On the whole, the most important SBA loan requirements are that you can demonstrate excellent personal credit, strong business financials, and provide “adequate collateral.” Additionally, you’ll want to remember that since the SBA isn’t actually the entity lending your business money, the requirements you’ll need to meet will depend on the SBA lender you’re working with, as well as the specific program you’re applying for.
For example, depending on your lender, the SBA might require a personal guarantee for every owner with at least a 20% stake in the business. Along these lines, some lenders accept adequate, valuable collateral instead of personal guarantees, but some will require both.
Let’s dive into the details:
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 is dedicated to helping small businesses—so they’ll want to verify that your company is indeed small. Business size can be measured in three ways:
Your business can qualify as “small” under any of these definitions, and the SBA often changes what “small business” means. This being said, the average neighborhood business is almost certain to meet the definition, and if you have any doubts, try the SBA’s size standards interactive tool.
As a part of the SBA loan requirements, you’ll need to submit certain personal information.
First and foremost, 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. For SBA 7(a) loans, microloans, and CAPLines, this can be found in SBA form 1919 or SBA form 912. Lenders usually supply their own forms for 504 loans.
Small businesses present a greater risk than large corporations in paying back business loans, so lenders verify a lot of personal information about the owner when deciding whether to approve the loan. You should keep in mind that the SBA requires anyone who owns 20% or more of the business to sign a personal guarantee on the loan and submit their personal information as part of the SBA loan application.
This being said, 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 for one.
This is a pretty self-explanatory requirement, but lenders will want to know how long you’ve been in business before they approve your loan. With the exception of some of the CAPLines SBA lines of credit (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. Companies that have been in business for a while already are more likely to be able to pay back the loan. A young business, on the other hand, doesn’t have much proven long-term success. So, when you’re applying for an SBA loan, many lenders will require a minimum time in business of two years.
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.
In your application, you’ll provide your social security number and sign a credit authorization, which will allow the lender to obtain your credit report. But before you apply, you’ll want to get your own copy of your report, so you can see where your credit score stands. When you get your credit report, make sure you review it closely. If you see an error in the report, there are clear procedures for correcting the mistake.
All three personal credit reporting agencies use the FICO scoring system, which follows this rubric:
Don’t know your credit score? You can check here for free. If your credit score isn’t above 700, you might have some difficulty qualifying for one, 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.
Unless you’re seeking a loan to launch a brand-new business, your business credit report will also be part of the requirements.
Every established business has a business credit report that evaluates how well your business has met financial obligations to vendors, lenders, and suppliers. There are several business credit reporting agencies, but FICO Small Business Scoring Service (SBSS) is most important for SBA loans.
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.
If your business credit score isn’t quite that high, you can improve your SBSS by paying all your business’s bills early and by using credit smartly (via a small business credit card or line of credit).
Overall, the qualifications we’ve just discussed are going to be some of the most important requirements that you’ll need to meet. This being said, these are not the only requirements.
On top of the seven requirements listed above, you’ll also need to provide additional information about your business’s financials, as well as various guarantees and legal documents in order to apply and qualify for an SBA loan.
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. A resume is a great opportunity to describe all the work experience you’ve had before you started your own small business. Plus, you can use this document to show how you are prepared to run your company successfully.
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.
Your business plan should include all of the following:
Why is your company unique and important? Where do you see your company growing? You have faith in the success of your small business—but you need to convince the lender of your potential. A business plan is a perfect opportunity to convince the lender that you’re worth the investment.
Additionally, the use of loan proceeds is a particularly important section of your business plan. Remember, you have to use the capital for an eligible business purpose, and this varies based on loan type. SBA 7(a) loans and microloans allow for a wide range of uses. CAPLines are for short-term financing and cyclical working capital. And for the CDC/504 loan, your loan is limited to the purchase of major fixed assets.
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.
There are a lot of financial documents that are part of your SBA loan requirements. When you apply, lenders will likely ask for these two financial statements:
A business debt schedule, much like it sounds, is a list of all the debts your business currently owes.
This document is a common SBA requirement that 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.
Although collateral valuation won’t always be on your list of SBA requirements, you should be prepared to document the collateral you’re willing to offer in exchange for the loan.
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.
If the lender considers your loan higher risk, they’ll probably ask for a substantial amount of collateral for your loan. If your business plan and financial statements are strong, you might not need to put up much collateral.
Although lenders evaluate collateral on a case-by-case basis, a personal guarantee is a universal SBA requirement. A personal guarantee is a signed promise to pay back the loan with personal assets if the business can’t afford to pay back the loan.
If a business defaults on an SBA loan, the lender will first seize any collateral or business assets to repay the debt. If those aren’t available, then the SBA loan personal guarantee authorizes the lender to seize personal assets as well, such as your car, personal bank accounts, or even your home in some cases.
Last, but not least, you’ll need to provide some legal documents to support your loan application. These SBA loan requirements will vary from loan to loan, but these are a few documents you might have to submit:
If you apply for an SBA 504/CDC loan, you’ll need to submit the following:
If you apply for CAPLines lines of credit, there are also some additional SBA requirements:
SBA 7(a) loans and SBA microloans don’t have any specific SBA requirements (on top of the ones we’ve already discussed), but you should be prepared to quickly respond to lenders’ requests for more information if necessary.
All of these SBA loan qualifications can feel intimidating. However, all 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:
Taking the time to answer these questions will help you prepare the perfect SBA loan package.
As you can see, there are numerous SBA loan requirements that 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 submit an application and qualify for an SBA loan will vary based on the lender you’re working with, as well as the particular program you’re applying for.
Therefore, in comparison with many other business lending products, applying for an SBA loan is a long and detailed process.
So, you may be wondering: Why apply at all?
On the whole, an SBA loan is the gold standard of business funding for small business owners. They are long-term, low-rate government-guaranteed business loans for the most qualified borrowers. They offer a great deal of flexibility. You can use it to buy equipment, real estate, or inventory; to refinance existing debt; or to just get some extra working capital.
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 then, the best way to speed up the process and increase your chances of qualifying is by understanding all of the requirements, as we’ve discussed, before you apply.
As we’ve explored the different SBA loan requirements, we’ve mentioned that some qualifications will be specific to the loan program you’re applying for. And while we’ve mentioned a number of these programs—the 7(a) program, the microloan program, the 504/CDC program—we haven’t explained the differences between them.
Therefore, let’s take a step back and look at the four main programs that you should consider to find the right SBA loan for your small business.
The SBA 7(a) loan program is the most common program. If you want to start a new business or expand your existing small business, a 7(a) loan might be a great, flexible option for you.
Businesses take out 7(a) loans for a number of uses, like:
With an SBA 7(a) loan, you can borrow up to $5 million in capital to use for any of these reasons or other eligible business purposes.
Apart from the flexibility of the 7(a) loan, the other great part about an SBA 7(a) loan is that the interest rates and fees are much lower compared to other business financing options. The SBA sets the fees and maximum interest rates that lenders can charge.
Although these fees and rates change from time to time, they are kept at competitive market levels to encourage small business owners to borrow money and invest in their companies. Currently, the SBA loan rates for the 7(a) program, for instance, range from 6% to 8%.
The SBA 504/CDC program caters to small business owners who need loans for major fixed asset purchases, such as any of the following:
SBA 504/CDC loans involve two lenders: a bank and an SBA-approved certified development company (CDC). Each party lends a portion of your total loan amount. Since more than one lender is in the picture, there are, as you might imagine, some heightened SBA loan requirements for these business loans.
These are large dollar loans, usually going from around $125,000 all the way up to $20 million or more. The SBA sets maximum interest rates on the CDC portion of the loan, currently bringing the maximum rate to around 6%. Banks charge their own rates on their portion of the loan, but these usually don’t exceed single digits.
SBA microloans are for new or especially small businesses whose needs fall below most lenders’ minimums. Microloans work on a smaller scale—the maximum loan amount you can receive is $50,000.
SBA microloans are great for a few different needs, like:
Since microloans are for such a small amount of money, these loans typically don’t come from banks. Instead, community lenders and nonprofit institutions are the ones who usually issue microloans.
Interest rates on microloans are typically slightly above market rate because the borrower profile is a bit riskier. But overall, you can expect an interest rate from 8% to 13% for most microloans.
Finally, another popular SBA loan program is the CAPLines line of credit program. Through CAPLines, business owners can get business lines of credit to replenish working capital and cyclical cash flow gaps. There are even special CAPLines programs available to builders and small businesses that contract with the government or other external entities.
CAPLines can be great options for the following:
CAPLines offer up to $5 million in funding, but this is short-term financing. The maximum term on a CAPLines line of credit is 10 years. The interest rates and fees for CAPLines loans are the same as for traditional 7(a) loans.
As you can see, the differences between the four major programs are distinct—so it shouldn’t be too difficult to determine which solution will be best for your business.
Once you’ve decided on a program and know all of your SBA loan requirements, you’re ready to fill out your loan application and get your funding process going. First, of course, you’ll have to find an SBA lender to work with and then you’ll need to go through the loan underwriting process.
The underwriting process is the second of three steps—application, underwriting, and funding. During the underwriting process, the SBA takes all the required documentation and information you provided in your application and uses it to decide whether or not your business can successfully pay back your loan, plus interest, on time.
Once you have your SBA loan requirements in order and your application submitted, the underwriting process with the SBA can take as few as 30 days but as long as several months.
Compared to other small business loans, they tend to take longer to process. However, if you’re looking for a low-cost loan, waiting for the time it takes to get an SBA loan will be worthwhile.
Once the SBA has processed and assessed all your documentation and information, they’ll be sure they’re lending to a trustworthy borrower—and offer low interest rates accordingly.
The speed of your underwriting process will ultimately depend on the information you provide in your application. If you’re on top of your SBA requirements, you can put your business’s best foot forward and get funding quickly.