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SBA Loan Requirements

What are the real SBA loan requirements? What does it take to really get your SBA loan closed in this environment? We give you real world answers, from the perspective of a company that works on and closes SBA loans day in and day out.

(Note, we are experts at SBA loans and other commercial mortgages. We are actively seeking loan requests nationwide from $400,000 to $12,000,000 that include commercial real estate as the collateral for the loan. If you are looking for finance options, whether it be for a purchase or refinance transactions, please take a moment to fill out our Pre Approval Form now, to take the first step.)

Bottomline, virtually all small businesses are technically SBA loan eligible (List of the SBA requirements below) but the majority of borrowers don't meet the funding banks underwriting standards. As frustrating and confusing as this may seem, it is the reality of the situation.

It's important to understand that the SBA does not, and has never lent any money themselves. They act like an insurance company for banks that actually lend borrowers capital. So again, banks and other SBA lenders actually lend the money and you the borrower, have to meet their credit standards, just like with any of loan. The SBA does back these loans with a guarantee for the banks, in case of borrower default, but the bank is the lender and it is still very much on the "hook". The SBA is rough on banks that have a high percentage of defaulted loans. This is no cake walk for banks, they are under a lot of pressure to fund quality loans. If their default rates are high, they can be "kicked out" of the program or suffer fees and other penalties.

So what are the main reasons that banks deem borrowers as "Uncreditworthy"? It goes back to basic underwriting standards. What we see from borrowers as the main reasons for decline are: lack of collateral (Need to be at 80%), lack of experience (minimum 3 years experience), lack of decent historical cashflow (getting start up loans done is almost impossible now), low credit scores,and lack of post close liquidity top the list. Deals that aren't back by commercial real estate are very hard and borrowers that don't have 5 years of ownership experience in the exact same field are tough. Also, businesses that have declining gross sales over the last few years without any signs of improvements are going to have a difficult time.

SBA Loan Requirements and Qualifications

With that said, here are the generic requirements that the SBA itself dictates:

The small business seeking SBA financing must be a for-profit, non-publicly traded company.
Tangible business net worth (including affiliates) not to exceed $15 million.
Average net income of the business not to exceed $5 million over the previous two years.
Personal liquidity of each principal/guarantor not to exceed the total project costs of the proposed loan. I.e. if you're seeking a $500,000 loan you cannot have $500,001 in cash (checking, savings, stocks, mutual funds etc. However, money in retirement accounts such as IRA or 401k's does NOT count.)
Ownership must be comprised of 51% U.S. citizens or resident aliens (Legal Permanent Residents).
Business must occupy a minimum of 51% of the building. I.e. you can rent out up to 49% of the subject property, but no more.

SBA Eligibility Requirements - Ineligible Borrowers

Passive holders of real estate and/or personal property. I.e. no pure investors.
Lending institutions are not eligable (mortgage brokers and correspondent lenders are eligible).
Life insurance companies are not SBA loan eligible (however, franchised agents are eligible).
Businesses located in a foreign country or owned by aliens do not meet the requirements.
Businesses selling products/services through a pyramid plan.
Any and all illegal businesses.
No gambling concerns.
Businesses which restrict patronage.
Government owned entities are not SBA loan eligible.
Businesses engaged in promoting religion are not meet the SBA loan requirements.
Businesses owned by persons of poor character. This has a lot to do with personal credit scores and credit history.
Businesses providing prurient sexual material are not allowed.
Businesses that have previously defaulted on a Federal loan.
Businesses engaged in political or lobbying activities are not SBA loan eligible.

This is essentially it. If your business is not on this list than you are most likely eligible for an SBA loan. Now the real work begins and that's figuring out if you can meet the underwriting standards of the funding lender/bank. If you want to learn about commercial mortgage underwriting, which is what this is really all about, click on that link.

We specialize in SBA 7a and SBA 504 loans, nationwide from $500,000 to $12,000,000. If your transaction is backed with commercial real estate and is between this range, we invite you to fill out our pre approval form.