Requirements for an SBA Small Business Loan

As an entrepreneur, you may have considered applying for financing from the Small Business Administration to start or expand your business. SBA loan programs can offer favorable terms like low-interest rates and long repayment periods. However, these loans come with strict eligibility standards you’ll need to meet. Before applying, it’s essential to understand the key SBA requirements that lenders will evaluate.

In this concise article, we’ll go over everything you need to know.

What Type of Business Qualifies for an SBA Loan?

First, the SBA specifies what constitutes an “eligible” business. You’ll need an operating for-profit business based in the United States or its territories. Passive or speculative investment companies and most non-profits usually don’t qualify. The SBA has some exceptions, however. For example, employee stock ownership plans (ESOPs) may sometimes secure SBA financing.

Size Standards and Other Qualifications

Your business must be considered “small” per the SBA’s size standards for your specific industry. These standards state the maximum annual sales revenues or number of employees to be eligible, varying from $750,000 to over $38.5 million in average annual receipts, depending on the sector. For example, a gas station qualifies if it has sales under $27.5 million annually.

All owners with at least a 20 percent stake in the business must also meet SBA character standards. This includes submitting personal financial statements and lacking criminal convictions or delinquent government debts. The SBA also expects you to make a reasonable personal financial contribution before securing financing.

Use of Proceeds and Ability to Repay

You must state specific business purposes, showing how the loan proceeds will be used constructively to grow the company. Using an SBA loan solely to refinance debts doesn’t typically qualify.

Convincing projections demonstrating future profitability and an ability to repay the borrowed amount are also crucial. This includes submitting historical and current financial statements like income, balance sheets, and cash flow projections. A credit score over 640 may be necessary, although minimum scores vary by lender.

Collateral and Equity Requirements

For the most popular 7(a) loan program, the SBA doesn’t require lenders to take collateral for loans under $25,000. Loans of $350,000 or less can require collateral but typically don’t mandate it. Above these thresholds, lenders will likely require business assets and/or personal assets as collateral.

Equity injections from owners are also often mandatory, especially for startups. The SBA expects you to contribute resources before asking others to invest in your business through debt financing.

The Specifics Depend on Loan Programs and Lenders

Keep in mind the specifics vary across the SBA’s various loan programs. For example, 504 loans and microloans have different requirements than standard 7(a) small business loans. Terms and qualifications can also differ from one lender to another. Be sure to consult with lenders on the particular loans you are considering so there are no surprises.

Best Place To Go For Your SBA Loan Guidance

If you still have questions, your best bet is to let us guide you. At Liberty Financial Group, we have a team of experienced professionals who specialize in understanding the ins and outs of SBA loans.

Why Partner with Liberty Financial Group?

Expertise in SBA Loan Requirements: We have a deep understanding of the insurance requirements essential for SBA loan approval. Let us help you navigate these complexities.
Customized Insurance Solutions: From life insurance to collateral protection, we offer tailored insurance options that align with SBA loan standards, ensuring your application stands the best chance of success.
Streamlined Process: Our team simplifies the insurance aspect of your SBA loan application, saving you time and reducing stress.

Our Services Include:

Life Insurance: Essential for meeting SBA loan requirements, our life insurance policies are designed to fit your business needs and budget.
Collateral Insurance: We provide comprehensive coverage options for your assets, ensuring they meet the collateral requirements for SBA loans.
Personalized Consultation: Our experts work closely with you to understand your business and recommend the best insurance strategies for your SBA loan application.