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SBA Loan Guidelines

We discuss basic SBA loan guidelines here. As well as provide a more “real world” perspective, from a banker that actually originates and closes SBA loans on a day to day basis.

The first thing you need to understand is that SBA loans are funded by banks. A lot of people have the misconception that the SBA finances loans, but this is not the case. The SBA actually just provides a guarantee for banks, that they’ll get their money back should the borrower default. This guarantee enables banks to fund loans that they normally wouldn’t be able to or want to (such as start up loan with little collateral).

So the point is that you have to meet the underwriting guidelines of the funding bank. The vast majority of borrowers that get declined on SBA loans do so because they don’t meet the banks standards, not the SBA’s. This boils down to basic commercial underwriting: credit, cash flow (debt coverage ratios), collateral, experience, liquidity, business trends, etc. Of all of these, cash flow is most important and where most of the underwriter will focus.

Currently the vast majority of SBA lenders want to focus on transactions that include commercial real estate as the primary source of collateral. Homes and business goodwill can still technically be used but most banks aren’t interested in these types of deals. Its to hard to get their money back. Start up loans are almost impossible to get done, unless you have outstanding loan request.

SBA Loan Guidelines

If you’re looking for more of a generic list of the SBA loan guidelines, here you go:

Your business has to be for profit and a non-publicly traded company.
Net worth of the business (including affiliates) cannot be higher than $15 million.
The net income of the business cannot exceed $5 million over the previous two years, averaged out.
Here’s a big one, that we see pretty often – The personal liquidity of each principal cannot be higher than the proposed loan amount. For example, if you're requesting a $1,000,000 loan you can’t have more than $1,000,000 in cash (checking, savings, stocks, mutual funds etc. However, money in retirement accounts such as IRA or 401k's does NOT count.)
Must be a US citizens or resident aliens (Legal Permanent Residents) on the borrowers. If your request includes commercial real estate, than your business must occupy a minimum of 51% of the building. I.e. you can rent out up to 49% of the subject property, but not more than that. Keep in mind you can normally count common area space to help you get to the 51%.
Landlords/developers/passive holders of real estate don’t meet the guidelines.
Institutions involved in lending are not eligible (brokers and correspondent lenders are though).
Life insurance companies are not eligible (but insurance agents are).
No foreign owned businesses. No pyramid scheme type businesses.
Go figure, no illegal businesses (sorry drug dealers, you don’t qualify for SBA financing).
No casino/gambling businesses.
No churches or other religious institutions.
Individuals with “poor character”. Borrowers with criminal back grounds and or terrible credit won’t fit the guidelines.
No porn shops, strip clubs or other businesses providing sexual material.
Businesses that have previously defaulted on a Federal loan, including government backed home loans.

These are the basic SBA loan guidelines that you’ll have to meet. Basically if you own a typical small business, than you qualify. Probably 90% - 95% of borrowers/businesses do. As noted above, the real challenge is qualifying with banks underwriting.

MORE SBA Loan Information - Loan Programs:

Educational - SBA Loan Information

SBA Guaranteed Loan

SBA Loan Payment

SBA Start Up Loan

Small Business Loan Start Up

SBA Loan Packaging

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