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Updated: December 18th, 2023
Now that reopening is within grasp for some states; business owners are adapting to a new normal. Whether you have reopened yet or not, the chances are that your cash flow has taken a significant hit as lockdown measures have, in many cases, crippled sales. Whether you need funds to pay suppliers, change locations, replenish inventory, or something else, you could be among the millions of business owners looking for COVID-19 financing.
Government loans have taken the spotlight amid the various stimulus programs in motion. These include those backed by the Small Business Administration (SBA), such as the SBA 7(a) loan. These loans have features that are conducive to the times. For example, interest rates can’t exceed the agency’s maximum, and there are longer repayment terms vs. some competing products. Not to mention, SBA loans have the backing of the agency.
Be willing to wait, however, as the traditional SBA loan process can take weeks or longer. That is unless you go through an online lender like Funding Circle. The standards for qualifying for an SBA loan can be overwhelming. So, we’ve gathered much of the SBA qualification information for you.
First, keep in mind there’s no one-size-fits-all SBA loan. Instead, there are a few different types of SBA loans: The SBA 7(a), 504, microloans, and disaster loans, to name a few. The COVID-19 pandemic, meanwhile, has only increased your options for SBA-backed financing. This has taken the form of the government’s CARES Act and Paycheck Protection Program (PPP).
The most popular SBA loan is the SBA 7(a). You can mostly apply for this loan through a major bank, regional bank, or credit unions. The government’s COVID-19 response paved the way for fintech companies like Funding Circle to enter the SBA fray. While SBA qualifications can vary, depending on your needs, you’re likely to find one that is a fit.
Since the 7(a) is the most common SBA loan, let’s list a few of the features. Knowing these can help you determine which loan is best for you as you consider the necessary SBA qualifications. In general, the most you can borrow is $5 million. However, SBA Express Loans (which as the name suggests can deliver the loan to you faster) and Small Loan have a lesser cap of $350,000. Once approved, the terms are friendly for the borrower. This means you’ll be given anywhere from a decade (for equipment, working capital, or inventory) to 25 years (real estate) to repay the loan. The SBA backs a large percentage of these loans, which gives the lender greater confidence if a borrower defaults.
Qualifying for an SBA loan includes some basic requirements. They are:
One thing that might surprise you about SBA loan qualifications is that both your personal and your business credit will come into play. To be approved, you’ll want to have a personal credit score of at least 640. But don’t stop there, as the higher it is, the better your chances of getting approved.
Target 680 or higher for an SBA 7(a) loan. Lenders are more willing to lend to someone who has a solid personal credit history because it increases their chances of treating their business obligations in the same way.
A substantial business credit score can also go a long way in qualifying for an SBA loan. Your business credit score is a number between zero and 100. You can access it from any of the business credit bureaus, including Experian, Equifax, and Dun & Bradstreet.
To qualify for a traditional SBA 7(a) loan, you’ve got to tick certain boxes. First, you’ll want to get your financial and legal documents in order, as the lender will need to dig into these. You’ll be better off to be overprepared with documents so that your application can be processed as quickly as possible. Prepare the following:
To qualify for an SBA 7(a) loan through Funding Circle, your business should have an operating history of over three years, and you should generate annual revenue of at least $500,000. There shouldn’t be any federal tax liens against you, and you should boast a personal FICO score of at least 680. Your business’ assets should also be more significant than liabilities.
You can expect to provide collateral for your SBA loan, when possible. Putting up collateral isn’t necessarily a deal-breaker when it comes to SBA loan qualification, but it is a possibility. Collateral is another security layer because these assets can be sold for cash if you can’t repay the loan. Qualifying assets include “equipment, buildings, accounts receivable, and in some cases, inventory.”
If you are looking for an SBA loan designed to carry your business through the COVID-19 pandemic, Funding Circle was recently recognized as an official SBA lending partner. You can find out more about obtaining an SBA 7(a) loan and apply through Funding Circle here.
Jessica Holcomb is the Content Marketing Manager at Funding Circle, specializing in small business marketing and social media. She has a degree from the Fashion Institute of Design and Merchandising. Prior to Funding Circle, Jessica was a Marketing Manager at a successful social games company and a freelancer for many small businesses in the Bay Area. Her work can be seen in top retail, gaming, and financial small business resource sites.