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Qualifying For An SBA Loan: What Small Businesses Need To Know

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Qualifying For An SBA Loan: What Small Businesses Need To Know

Updated: December 18th, 2023

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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.  

Qualifying for an SBA loan based on type

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)

SBA 7(a) loans

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. 

How do you qualify for an SBA loan: The basics

Qualifying for an SBA loan includes some basic requirements. They are: 

  • Meet the SBA’s definition as a small business. This standard is tied to how big your business is and the amount of average annual receipts, a list of which can be found here
  • Be a for-profit business 
  • Be located and do business in the United States 
  • Have equity, sweat equity or a combination of both invested in your business  
  • Avoid getting financing elsewhere while you’re pursuing an SBA loan 

Credit score qualifications for an SBA loan

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.

Get your ducks in a row 

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

  • Year-end P&L statement for the past three years 
  • Year-end balance sheet for the past three years 
  • Reconciliation of net worth
  • Projected financial statements, including monthly cash flow projections for at least a 12-month period
  • Business certificate/license
  • History of loans you’ve applied for 
  • Income tax returns for the past three years 
  • Business overview and history, including an explanation of how the funds will be used 
  • Copy of your business lease  

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.  

Qualifying for an SBA loan with collateral 

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.”  

How to qualify for an SBA 7(a) loan during COVID-19 

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

SBA Loans FAQs
The two most popular SBA loans––the SBA 7(a) and the SBA CDC/504 loan program––do require down payments, which range between 10%-20% of the total loan amount. The SBA does, however, offer no money down small business loans such as microloans, export working capital loans, and disaster loans. For more information about down payments required for SBA Loans, check out the following guide.
The SBA does not set standardized minimum credit score requirements. Instead, approved lenders such as Funding Circle determine the loan requirements, which will almost always include a minimum credit score. Typically, SBA credit score minimums fall somewhere around 620-640, however, which SBA program you apply for will have the largest impact on what credit score is needed. For more information on credit score requirements for SBA loans, read the following guide.
An SBA 7(a) Small Loan is a type of 7(a) loan and is identical to the 7(a) standard loan in many ways. The main difference is that the loan maximum is $350,000 rather than $5 million and there are no collateral requirements for loans of $25,000 or less. The SBA 7(a) small loan application process may be easier than a full standard SBA loan application if you pass the SBA credit prescreen.. The result can depend on your personal and business’ credit and finances. Failing the prescreen doesn’t mean you can’t get approved, but you’ll need to complete and submit a full SBA 7(a) standard loan application.


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