SBA Loan Qualification Requirements: How To Get An SBA Loan
SBA LOANS
When it comes to small business loans, the US Small Business Administration (SBA) isn’t just a federal agency. It’s an institution. For example, in 2017 the SBA helped connect entrepreneurs with 68,000 loans through the 7(a) and 504 loan programs alone. These two programs provided a total of $30 billion to American small businesses.
SBA loans are highly sought after because of their favorable rates and terms. An SBA loan is on par with the most lucrative financial products from big banks but is easier to acquire and more compatible for those beginning in business. The reason for this is that banks will want to see an established track record before approving a loan, while that’s not necessarily an SBA loan requirement.
This entrepreneur-friendly approach is no accident. The federal government set up the SBA to help more small businesses get up and running, which, as any entrepreneur knows, is a challenging thing to do. So the SBA serves as a spark plug for small businesses, which in turn strengthens our national economy.
How SBA Loans Work
With a traditional loan, you directly approach a lender and request financing. If the lender approves, they’ll give you the money. The SBA, on the other hand, serves as a mediator between you and a lender. You’ll work through the SBA to find a potential lender, who will then consider your request.
The kicker is that once you’re approved, the SBA guarantees a sizable portion of the loan, reducing the lender’s risk. Because they know they’ll get paid even if you were to default, lenders are much more willing to be generous with you. The SBA’s incentive means lenders will even compete for your business.
Because SBA loans are so beneficial for borrowers, they’re increasingly popular with entrepreneurs. Securing a loan with monthly payments, fixed interest rates, and generous repayment terms is rare indeed. And the process of paying off an SBA loan builds your credit, which improves your options when you need to pursue additional financing in the future.
General SBA Loan Qualifications
Since the SBA was created to serve a specific purpose, there are certain eligibility requirements a business must meet. These include:
- Be a for-profit business
- Operate within the United States or its territories
- Be unable to secure financing through other non-government means, excluding personal funds as of Aug. 1, 2023.
- Have sufficient equity to invest
- Meet size requirements for a “small business” as defined by the SBA
- Be in an eligible industry
- Demonstrate ability to repay the loan through a combination of credit score, earnings, and equity or collateral
To calculate your estimated monthly payment, visit our SBA loan calculator.
Your business won’t qualify if it’s involved in loan packaging, investment or lending, multi-sales distribution, speculation, gambling, or if the owner is on parole. Other excluded businesses include dealers of rare coins and stamps, charitable or religious nonprofits, and government-owned corporations.
Lender-Specific Requirements
In addition to the eligibility requirements outlined by the SBA, lenders will have their own requirements to qualify for an SBA loan. While these requirements will vary, minimum requirements generally start at:
- Minimum two years time in business
- Credit score of 650+
- Varying monthly revenue requirements
- Varying down payment requirements
Required Documentation
- Six months of business bank statements
- Driver’s license or state ID
- Voided check from your business account
- Month-to-date transactions
- Two years of business tax returns
- Two years of personal tax returns from any owners with 20% or more ownership
- Debt schedule
- Year-to-date profit and loss statement
- Year-to-date balance sheet
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