Qualifying For An SBA Loan
Qualifying for an SBA loan is no cakewalk. The Small Business Administration (SBA) is not a direct lender. Rather they regulate small business loans by bank and lenders and provide guarantees of repayment in case of loan default. Consequently, the SBA has set forth requirements for both the business involved and the applicants’ seeking financing in order to find a balance between investing in American small businesses and limiting commercial financial losses.
The application process is neither simple nor easy but it is worthwhile. Loan terms are usually more advantageous to the borrower than conventional loans. An SBA loan can be used for a variety of purposes including purchasing business opportunities, acquiring commercial real estate, equipment, inventory, ground-up construction, working capital, etc.
Applying for an SBA loan requires organization and diligence in the presentation to be considered favorable by the lender for qualifying for an SBA loan. While there may be a great deal of preparation involved, a thorough application increases one’s chances of loan approval and moves the process along expeditiously. Organizing and thoroughly producing all relevant documents is fundamental to effectively apply for and secure an SBA financing.
An SBA loan applicant should be prepared to provide any and all required documents requested by the lender such as licenses, leases and registrations. The applicant must also show their business plan, their marketing plan, how the business will be organized, the state and projections of the business’ finances and relevant personal information.
Prior to applying for an SBA loan, the applicants must clearly communicate their valid reasons for pursuing financing as well as why they are creditworthy. While presenting the applicant’s facts regarding the business and their personal profile is required, it is also important that they persuasively convey the information to convince the lender that they are a safe bet for loan approval.
SBA lenders want to be assured that the applicants have the ability to repay the loan. This is key. It is particularly important for SBA loan applicants to show a strong credit history, good money management skills, relevant business background, managerial skills and the like. Presenting these favorable factors significantly increase an applicant’s chances of qualifying for an SBA loan.
Eligibility Criteria For Qualifying For An SBA Loan
The SBA offers several types of small business loan programs. By far, the most popular is the SBA 7a loan. The 7a loan is typically used for acquiring business opportunities, working capital, etc. The following eligibility criteria will focus only on the SBA 7a loan.
Eligibility criteria by the SBA involves both the target business and the loan applicant. Here’s a list of both criteria sets. These are the main highlights and by no means an exhaustive list. For additional information, check the SBA criteria terms or speak with one of our SBA Loan Brokers.
Businesses That Qualify For An SBA Loan
While most small businesses in the United States are eligible for financial assistance from the SBA, some are not. Qualifying for an SBA loan, SBA eligible businesses must:
- The business must be legally organized as a sole proprietorship, corporation, partnership or LLC.
- The business must operate for profit
- The business must be operating legally in compliance with federal, state and local laws
- The business must be in United States or its territories
- The business must be a small business which means the business:
- has fewer than 500 employees
- generates less than $7.5 million revenue on average each year for the past 3 years
- Net income must be under $5 million
- The business must be in an SBA-eligible industry, Excluded businesses include:
- Speculative (investments)
- Illegal businesses
- Non-profit businesses
- Religious organizations
- Pyramid schemes
- Real Estate investment firms
- Dealers of rare coins
- Firms that offer ending activities
- Insurance companies
Applicants That Qualify For An SBA Loan
- The Applicant must show “invested equity” which means showing an investment of time and money into the business.
- The Applicant needs to show that non-SBA financial options were pursued but proved to be unsuccessful.
- The Applicant may not be on parole.
- Clear credit history with no recent bankruptcies, foreclosures or tax liens.
- The Applicant needs to prove a sound business purpose for the loan
- Must prove that how the intended funds will be used is approved by the SBA.
- The Applicant may not be delinquent on any federally-backed existing debts such as taxes, FHA loans, student loans, etc.
- All applicant’s on the loan application must show personal credit scores of 640 to 680 (not required directly by the SBA but will be required by lenders)
- If applicants’ have a business, their business FICO credit score must be 140 to 160
Special considerations apply to some types of businesses and individuals, some of which include:
- Franchises are eligible except when a franchiser retains power to control operations.
- Legal aliens are eligible dependent on immigration status in determining the business’ degree of risk
Mission Peak Brokers has a 99% loan closing rate. We know what it takes to qualify for SBA loan approval and will work with you towards your goals. Contact us to get started on your SBA loan application today