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SBA loans are some of the most sought-after forms of small business financing, because of their favorable rates and terms. They also provide small businesses with a premium financial product, without necessarily having the established track record required by banks and traditional financial institutions. For a broader overview of how SBA loans work and what to expect, start with our SBA Loans overview.
However, the SBA loan program has strict eligibility criteria to qualify for 7(a) and 504 loans. As an added layer, the SBA-approved lender who provides your SBA loan will also have their own set of criteria for approval.
In this guide, we’ll break down the general eligibility requirements outlined by the Small Business Administration (SBA), specific criteria for each loan program, and common lender requirements that your small business will have to meet in order to qualify for this government-backed financing.
You’ll learn:
- General SBA loan eligibility requirements (for any SBA loan regardless of type)
- Specific qualification requirements for 7(a) and 504 loans
- What lenders look for, and their requirements to approve an SBA loan
General SBA loan requirements
Before you can be considered eligible for any SBA loan program, there’s a standard list of eligibility requirements your small business must meet.
Business operations requirements
In order to qualify for an SBA loan, your small business must be:
- An operating business. There are some exemptions for Eligible Passive Companies (EPCs), according to the use of the loan proceeds.
- A for-profit business, officially registered and operating legally.
- Located in, primarily operating in the United States, and authorized to do business in the state or territory where applying for a loan. If the business operates internationally, the loan proceeds can only be used exclusively for U.S. operations.
Size standards
To qualify for an SBA loan, businesses must meet the SBA’s definition of a small business. The business can qualify for this definition in one of two ways - by industry size standards, or by alternative size standards.
Learn more about how the SBA defines a small business.
Industry restrictions
The SBA identifies some business industries, types or characteristics that make them ineligible for SBA loan financing. There are some exceptions to each, but for the most part, if your business is any of the following, you won’t qualify.
- Nonprofit
- Government-owned organization
- Lender, or engages in loan packaging, lending, investment or financing
- Apartment building, mobile home park or nonmedical residential facility
- Developer or landlord leasing land and/or buildings
- Marijuana producer or engaged in the production or sale of marijuana products (some exceptions for hemp products that meet federal definition.)
- Church, synagogue, mosque, or other religious organization
- Business that restricts patronage for any other reason beyond capacity (ex: women’s health club)
Further, if your business engages in any of the following, you won’t qualify.
- Political or lobbying activities
- Gambling
- Illegal activities
- Live adult or lewd performances, services, presentations or displays
- Pyramid or multilevel sales distribution plans
Citizenship requirements
The SBA updated its citizenship eligibility requirements to limit SBA loans to businesses with 100% direct and indirect owners and guarantors who are U.S. citizens, U.S. nationals, or lawful permanent residents ("green card" holders).
A business is ineligible for an SBA loan if any owners or guarantors are “Ineligible Persons”, including foreign nationals, asylum seekers, refugees, visa holders, nonimmigrant aliens, and/or DACA recipients.
“Credit Elsewhere” rule
If you apply for an SBA loan, you must be able to demonstrate that some or all of the desired funding is not available elsewhere on reasonable terms from non-government sources. In other words, you would not be able to be secure a loan for the amount from a bank or financial institution based on your credit history or other business characteristics. As of June 2025, lenders now assess personal liquidity of owners and guarantors when making the determination if you would be able to meet credit standards from non-government sources.
Going forward, lenders will now certify to the SBA that some of all of the loan is not available from:
- Personal liquidity of owners with 20% or more equity, their spouses and minor children, (with exceptions for reasonable funds to cover future medical, educational and retirement.)
- Conventional lenders or other non-government sources
Your lender will also need to provide detail on the specific factors that demonstrate weakness in your credit for the SBA. Going forward, your lender will not be able to use only your credit score to determine credit weakness.
Business character requirements
In order to be eligible for an SBA loan, your business cannot have any owner incarcerated, on parole, or probation. Criminal history may also prevent qualifying for a loan, depending on the nature of any convictions.
Your business also must be current on any existing government debt obligations, and can not have defaulted on any federal debt that resulted in a loss to the government. This includes prior SBA loans.
Finally, anyone applying for an SBA loan must be current on all federal, state and local taxes, and must have filed federal tax returns to be eligible.
Allowed use of funds
SBA loans have requirements around how funds are used. You can use any SBA loan to:
- Acquire, lease or improve land
- Purchase, convert, expand or renovate one or more existing buildings
- Build new buildings
- Buy or lease equipment or machinery
Each SBA loan program has additional specifications around allowed use of funds. You'll find more detail in the following sections for each loan program.
Guarantee and collateral requirements
Guarantee requirements
All individuals who own more than 20% of the business are required to submit an unlimited personal guarantee to secure an SBA loan, with the exception of SBA Disaster Loans under $200,000. This includes all SBA 7(a) loans, 504 loans, and most microloans.
If you use jointly-owned property as collateral for a loan, your spouse may also have to sign a limited guarantee.
Collateral requirements for SBA loans
Collateral is required for SBA loans in excess of $50,000. Here’s how it works:
To qualify for an SBA loan, there isn't a fixed amount of collateral you have to have. Lenders must use what's reasonable available to secure the loan, even if it doesn't cover the full amount.
So you aren’t required to have a minimum amount of collateral, but you are required to make what you have available depending on the size of your SBA loan.
SBA program specific qualification requirements
In this section, we’ll cover additional requirements beyond the core SBA requirements that apply to 7(a) loans and 504 loans.
SBA 7(a) loan requirements
Once you’ve determined you meet the general SBA loan qualification requirements, there are a few more specific to the SBA 7(a) loan program you’ll need to meet.
Eligible uses of proceeds for 7(a) loans
In addition to the general requirements for use of proceeds, 7(a) loan proceeds can be used for:
- Debt refinancing
- Ownership changes
- Inventory
- Supplies and raw materials
- Working capital
Equity injection rules for 7(a) loans
Equity injections may be required in a few scenarios when applying for a 7a loan. If you’re:
- Starting a brand new business
- Buying an existing business
You’ll typically be required to provide an equity injection (put some of your own money into the business).
Equity injections can be:
- Cash you put into the business
- Seller financing
- Equipment or assets you’re contributing
If you aren’t starting or buying a business, you may not need an equity injection. Your lender will look over whether the existing equity in the business is strong enough. If it is not, you may still be asked to inject equity.
Cash flow requirements for 7(a) loan
When evaluating your application for an SBA loan, lenders will work off the assumption that loan repayment will happen from the businesses cash flow - not assets or collateral. So, if your financials don’t reflect a reasonable ability to repay the loan from cash flow, you won’t be approved.
Credit requirements fo 7(a) loan
The SBA does not require any minimum credit score, time in business, or average monthly sales for 7a loans. However, SBA lenders often have their own requirements for businesses to meet, which we will discuss below.
One notable credit requirement exception is a minimum business credit score (FICO score) of 165 for businesses applying for a SBA 7(a) small loan. As of June 1, 2025, this increases from the minimum of 155.
SBA 504 Loan Requirements
These loans are intended for small business owners who want to expand their operations. In a nutshell, 504 loans (aka Certified Development Company loans) are laser-focused on real estate.
Eligible uses of proceeds for 504 loans
504 loans are strictly for fixed asset projects, such as:
- Buying land or buildings
- Constructing or renovating facilities
- Purchasing long-term machinery or equipment
Unlike a 7(a) loan, you can’t use a 504 loan for working capital, inventory, refinancing debt that isn’t for financing fixed assets, or buying a business.
Equity injection requirements for 504 loans
Most 504 loan borrowers are required to contribute at least 10% of the total project cost. This is because the loan is a two-part structure between a Certified Development Company (CDC) and a bank or private lender.
The bank typically finances 50%, the CDC finances 40% via the SBA, and you contribute 10-20%.
In some scenarios, you may need to contribute more (15-20%). For example, if your business is a startup (less than 2 years old), or the project involves special-use or limited-market property.
Economic development objectives requirements for 504 loans
504 projects must meet at least one of the following economic development objectives to be eligible for financing:
- Job Creation or retention - the project must create or retain at least 1 job per $90,000 of SBA-guaranteed financing ($140,000 for small manufacturers and energy public policy projects.) In addition, 75% of the jobs must be located in the same community as the project.
- Public Policy goals - The project meets one of the community development or public policy goals outlined by the SBA, including revitalizing a business district of a community, expanding exports, supporting minority, veteran, or women-owned businesses, meeting energy efficiency standards or reducing energy consumption, or supporting rural development.
Net worth and income limits for 504 loans
In order to qualify for an SBA 504 loan, businesses must meet the SBA’s size standards as mentioned before. However, it’s important to note that these cover restrictions on net worth and net income under the Alternative Size Standard. Your business (including associates), must have:
- A tangible net worth of $20 million or less
- An average net income (after federal taxes) for the two full fiscal years before applying of $6.5 million or less. This excludes any carryover losses.
SBA disaster loans requirements
An SBA disaster loan is a low-interest way to recover from the physical and economic damage caused by declared disasters. These loans are open to a more diverse range of businesses than other SBA programs. There are no size restrictions, and private nonprofit organizations, homeowners, and renters can qualify.
You can use a disaster loan for repairing or replacing personal property, real estate, equipment, machinery, inventory, and business assets. Basically, these loans are meant to help you get your operation back where it was before the disaster struck. You’re not allowed to use the funds to try expanding your business beyond where it was pre-disaster.
Here are the 4 main types of disaster loans:
1. Home and Personal Property Loans
To qualify for one of these loans, you aren’t required to own a business. Instead, this program is meant to help a wide variety of victims of a disaster.
2. Business Physical Disaster Loans
For times when a business or organization sustains damage during a disaster, these loans offer up to $2 million to assist in replacing and restoring damaged property. To qualify, you must live in the declared disaster area.
3. Economic Injury Disaster Loans
Not all damage from disasters is of the physical kind. These loans are meant to assist those who may not have experienced physical damage but have still been negatively impacted. If you qualify, you’ll get as much as $2 million to pay for expenses you would’ve been able to handle if not for the disaster.
4. Military Reservists Economic Injury Loans
These loans are meant for business owners who are employing one or more military reservists called to active duty. The SBA provides financing that makes it possible to continue your business operations.
If you have questions about whether or not you are in a presidential and SBA-declared disaster area, you can search by state and territory with the SBA’s online database. Common examples of disasters added to the database include fires, tornadoes, flooding, earthquakes, and drought.
For those who qualify, it’s important to follow the SBA loan requirements as carefully as possible. The first step is registering with the Federal Emergency Management Agency (FEMA). You can do this by calling FEMA at 1-800-621-3362 or visiting DisasterAssistance.gov. Once you’ve received a FEMA registration number, you’ll be eligible to fill out the SBA online application.
Before starting the application, make sure you have this additional information on hand:
- Contact information for all applicants
- Social Security numbers for all applicants
- Employer Identification Number for business applicants
- Deed or lease
- Insurance information
- Business income
- Business account balances
- Business monthly expenses
Once you’ve clicked submit on the application, you’ll need to sit back and wait for the SBA to review your documents and dispatch an inspector. Following an on-site evaluation from the inspector, the SBA will have an estimate for the cost of your damage. You should know that the SBA considers disaster loans a priority, so if you qualify, you’ll get the good news in as little as 3 weeks.
SBA Express Bridge Loans (EBLs) requirements
The Express Bridge Loan (EBL) Pilot Program was created to complement the other disaster loans provided by the SBA. It empowers 7(a) lenders to provide financing on an emergency basis. Of course, the only way to qualify is if the need is tied to a disaster-related purpose.
The key words in the name are “express” and “bridge.” Essentially, these loans provide expedited money to businesses hurt by presidentially-declared disasters. These loans are smaller than most, tapping out around $25,000. The idea is that they help you bridge the gap between the disaster and the arrival of more substantial loans.
This SBA loan program requires that you are located in a primary county or contiguous county that’s been presidentially-declared a disaster area, your business had established a banking relationship with the lender as of the date of the disaster, the funds are used for the survival or reopening of your business, and that the application process must be concluded within 6 months of the qualifying disaster.
Lender requirements for SBA loans
In addition to the eligibility requirements outlined by the SBA, lenders will have their own requirements to qualify for an SBA loan. While these requirements will vary, minimum requirements generally start at:
- Minimum two years time in business
- Credit score of 650+
- $50,000k + annual revenue
As of June 1, the burden is on lenders to verify applicants eligibility for SBA loans, which means your lender will require more documentation from you in areas where the SBA previously handled verification.
Required Documentation
- Six months of business bank statements
- Driver's license or state ID
- Voided check from your business account
- Month-to-date transactions
- Two years of business tax returns
- Two years of personal tax returns from any owners with 20% or more ownership
- Debt schedule
- Year-to-date profit and loss statement
- Year-to-date balance sheet
SBA Loans aren't your only option
While SBA loans are undeniably great, always account for the fact that they take extra time and effort to obtain. You can’t simply stroll along and expect positive results. Do your homework to find the best option, then meticulously gather all the required documents.
Ultimately, the biggest SBA loan requirement is patience. If time is limited and you don’t want to wait for the lengthy SBA approval process, there are other excellent loans you may want to consider. These alternatives include short-term loans, cash advances, equipment financing, and accounts receivable financing.
Each loan product has its pros and cons, which is why it can be helpful to get an expert’s opinion. For questions about a broader range of loan products, including short-term loans and other non-SBA options, feel free to talk to the experts at Lendio. We can answer any questions you have and guide you to the best choice for your needs.
