SBA Loan General Requirements
Doug Harding, Senior Business Consultant
Duquesne University/Palumbo/Donahue School of Business Development Center (SBDC)
Does your business need to get an SBA loan? What are the eligibility requirements that your firm needs to obtain such a loan from an SBA-approved lender?
SBA loan requirements can vary depending on the lender and the individual loan program. In general, to qualify for a business loan through an SBA-funded institution, your business needs to meet certain general SBA eligibility criteria. The general eligibility requirements include:
- The business operations must be a for-profit business, officially registered and operating legally in an eligible industry. Businesses not eligible include non-profit firms, firms involved in lending activities, any business whose principal activity is gambling and churches and other religious organizations.
- The business must be physically located and doing business in the U.S. for at least 2 years.
- The business owner must have invested personal equity into the business.
- The business must have tried to obtain other forms of financing before considering an SBA loan.
- The business must be able to support a need for loan funds with valid evidence.
- The business owner must be able to show a sound purpose to use the SBA funds.
- The business must be a small business defined by the SBA and is generally stated in the number of employees or average annual receipts, depending on the industry.
- The business needs to show strong annual revenue and cash flow projections with a debt service coverage ratio, which compares your operating income to your current debt, of 1.15 or higher.
- The business must be able to provide collateral to fully secure loans, when possible, such as real estate, equipment and inventory.
- The business cannot be delinquent on any existing government debt obligations and no partner with more than 20% equity in the business can be currently incarcerated, on probation, on parole or a defendant in a criminal proceeding.
- The personal FICO credit score of the business owner must be 690 or higher
- Your business credit history must be solid and have a score of 155 or above.
Depending on the type of SBA loan being sought, such as the 7(a) loan for short-term business financing, the 504 loan for fixed asset financing such as real estate and large equipment, and microloans, certain criteria will apply on top of those required by the actual lender as part of the SBA loan application process. Though your lender’s requirements and the loan program may vary, an SBA-funded loan application will require extensive documentation. The most common documents you will need to submit with your application include:
- Personal financial and background statements
- Personal financial statement (SBA Form 413)
- Statement of personal history (SBA Form 912)
- Current business income statement and balance sheet
- Federal income tax returns for the previous three years
- Cash flow projections (month-by-month, for at least one year)
- Real estate purchase agreements and appraisals or business valuations (when buying real estate with SBA loan proceeds)
- Articles of organization
- Business overview and history.
- Business leases and licenses
- Resumes for each business owner.
- Documentation of any lawsuits, judgments or bankruptcies
The processing time for an SBA-funded loan can take between 60 to 90 days to close, provided all documentation requirements are met.