When it comes to small business loans, the US Small Business Administration (SBA) isn’t just a federal agency. It’s an institution. For example, in 2017 the SBA helped connect entrepreneurs with 68,000 loans through the 7(a) and 504 loan programs alone. These two programs provided a total of $30 billion to American small businesses. SBA loans are highly sought after because of their favorable rates and terms. An SBA loan is on par with the most lucrative financial products from big banks but is easier to acquire and more compatible for those beginning in business. The reason for this is that banks will want to see an established track record before approving a loan, while that’s not necessarily an SBA loan requirement. This entrepreneur-friendly approach is no accident. The federal government set up the SBA to help more small businesses get up and running, which, as any entrepreneur knows, is a challenging thing to do. So the SBA serves as a spark plug for small businesses, which in turn strengthens our national economy. How SBA Loans Work With a traditional loan, you directly approach a lender and request financing. If the lender approves, they’ll give you the money. The SBA, on the other hand, serves as a mediator between you and a lender. You’ll work through the SBA to find a potential lender, who will then consider your request. The kicker is that once you’re approved, the SBA guarantees a sizable portion of the loan, reducing the lender’s risk. Because they know they’ll get paid even if you were to default, lenders are much more willing to be generous with you. The SBA’s incentive means lenders will even compete for your business. Because SBA loans are so beneficial for borrowers, they’re increasingly popular with entrepreneurs. Securing a loan with monthly payments, fixed interest rates, and generous repayment terms is rare indeed. And the process of paying off an SBA loan builds your credit, which improves your options when you need to pursue additional financing in the future. General SBA Loan Qualifications Since the SBA was created to serve a specific purpose, there are certain eligibility requirements a business must meet. These include: Be a for-profit business Operate within the United States or its territories Be unable to secure financing through other non-government means, excluding personal funds as of Aug. 1, 2023. Have sufficient equity to invest Meet size requirements for a "small business" as defined by the SBA Be in an eligible industry Demonstrate ability to repay the loan through a combination of credit score, earnings, and equity or collateral To calculate your estimated monthly payment, visit our SBA loan calculator. Your business won’t qualify if it’s involved in loan packaging, investment or lending, multi-sales distribution, speculation, gambling, or if the owner is on parole. Other excluded businesses include dealers of rare coins and stamps, charitable or religious nonprofits, and government-owned corporations. Lender-Specific Requirements 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+ Varying monthly revenue requirements Varying down payment requirements 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 7(a) Loan Requirements In the world of SBA financing, these loans are the rockstars. Because these loans have remained popular for decades and have actual worth, they’re much more like the Eagles than Nickelback. Each year, more entrepreneurs use the 7(a) program than any other offering from the agency. These loans are tailor-made for those who have been turned down for loans in the past, providing generous rates and terms. Another benefit is their flexibility, as they can be used for diverse purposes, including purchasing machinery, working capital, or buying real estate. As of May 2023, a 7a loan can also be used for a partial change of ownership. In this scenario, the original owner must stay on as an owner, officer, employee, or stockholder of the business. The good news is that most small businesses meet the SBA 7(a) loan SBA 7(a) loan requirements: General qualifying criteria as listed above Collateral must be provided for loans greater than $50,000 10% equity injection (down payment) for 7(a) loans above $500k that will be used for complete changes of ownership Down payment requirements based on the lender's criteria for similarly-sized loans For partial changes of ownership, the applicant's debt-to-worth ratio can't exceed 9:1 SBA Express Loan Requirements While 7(a) loans offer many stellar benefits, there are times when they’re not quite fast enough for your needs. As stated earlier, SBA loans are like the molasses of the financial world. So if you need capital fast, they’re probably not a good fit for the situation. The SBA is aware that small business moves fast, so they’ve created the SBA Express Loan to better fill that void. These loans are part of the 7(a) program but are on a streamlined timeline. Less paperwork is needed and the waiting period is shorter. As is often the case with expedited loans, the maximum dollar amount is lower than with other programs and the SBA only guarantees up to 50% of the loan. Of course, this loan is still through the SBA, so don’t be overly optimistic and think the money will appear in your bank account overnight. If approved, it’ll still probably take a month or so for you to receive the money. SBA Express Loan Requirements Include: Maximum loan amount of $500,000 Follow lender's existing collateral policy for loans over $50,000 No collateral requirements for loans up to $50,000 To meet the SBA loan requirements for usage, you’ll need to apply the funds toward increasing working capital, financing equipment, or debt consolidation. As long as your plan lines up with those uses and adheres to the program’s other requirements, you should be in great shape. 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 7(a) loans that are laser-focused on real estate. Here are the uses approved for an SBA 504 loan: Purchasing existing buildings Purchasing land and land improvements such as grading, street improvements, utilities, parking lots, and landscaping Constructing new facilities Modernizing, renovating, or converting existing facilities Purchasing long-term machinery Refinancing debt as part of an expansion of your business through new or renovated facilities or equipment The terms for these loans depend on what you’ll spend the money on. If you are purchasing land or structures, the term will be in the neighborhood of 20 years. If it’s machinery or equipment you’re buying, the term will often be half that. To qualify, your business must have a tangible net worth of less than $15 million. Additionally, you’ll need to prove that in the past 2 years, you’ve had an average net income of $5 million or less after federal income taxes. If your business is engaged in nonprofit, passive, or speculative activities, you probably won’t qualify. And, as always, use the SBA’s size standards to ensure you are eligible. SBA Disaster Loans 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 LoansTo 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 LoansFor 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 LoansNot 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 LoansThese 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) 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. 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. FAQs There are several types of companies that are ineligible to receive any type of SBA funding. These include: Real estate investment firms Firms dealing in speculative activities Rare coin and stamp dealers Lending institutions Companies involved in any illegal activities in its jurisdiction Gambling businesses Charitable, religious, and non-profit organizations It depends on whether or not you meet the program’s eligibility requirements. And even if you are eligible, applying for an SBA loan is not as quick and easy as applying for an online business loan. There is lots of paperwork to handle and it could take as long as several months to process your application. Working with an experienced SBA lender can be helpful in determining your likelihood of approval before you start the application process. The SBA has a loan program designed specifically for startup companies — the SBA microloan program. New businesses can borrow up to $50,000 to start a business. New businesses in underserved communities can also apply for an SBA Community Advantage Loan for up to $250,000.