SBA loan credit score – what is required?

Loans administered by the U.S. Small Business Administration (SBA) are popular for small businesses because of their low interest rates and long payback terms.

In order to qualify for an SBA loan, the borrower must meet certain qualifications, including a minimum personal credit score.

Learn more about the minimum recommended credit score for each SBA loan plus tips on improving your score below.

Minimum SBA credit score requirements by loan type

Credit scores are one of the main ways a lender will determine your creditworthiness – how likely you are to pay back your loan or how risky it is to lend you money. The SBA doesn’t set a required minimum credit score to get an SBA loan, but having a higher score will usually make it easier to get any kind of financing. SBA-approved lenders can set their own credit score minimums for the loans they manage, so it’s important to understand their requirements before you apply.

In general, you can expect a better chance of having your SBA loan approved if your credit score is in the high 600s. However, some SBA loan programs will determine your creditworthiness based on other factors as well.

7(a) loans

As the most common and popular SBA loan type, the SBA 7(a) loan program can be used for multiple purposes and borrowers can get up to $5 million, depending on their qualifications. The SBA sets maximum interest rate limits for these loans, which are based on a Prime rate plus a percentage – 8.0 percent for fixed-rate loans and 6.5 percent for variable loans. Repayment terms will vary based on what the borrower intends to use the loan for, but can be anywhere from five to 25 years.

To get an SBA 7(a) loan, the lender may have their own credit score requirements, but the SBA will determine your eligibility based on the FICO Small Business Scoring Service (SBSS). This system uses a number of different elements, including your personal credit score, business financials and more, to calculate a number between 0 and 300. Your SBSS score can change over time, just like a personal credit score. The SBA requires a SBSS minimum score of 155 in order to qualify for a loan of up to $350,000.

504/CDC loans

The SBA 504/CDC loan program is another popular loan program meant to help small businesses finance major fixed assets such as commercial real estate, property improvements or large equipment purchases. These loans are managed by both an SBA-approved lender and a Certified Development Company (CDC) and the borrower is required to put up at least 10 percent as a down payment. You can get up to $5.5 million for your projects, although the SBA stipulates that it must create jobs or meet other requirements for economic and community building. The CDC’s portion of the funding (40 percent) will have an interest rate based on five- and 10-year Treasury rates, while the third-party lender will negotiate the rate with the borrower.

While the SBA doesn’t state a specific credit rating to qualify for an SBA 504/CDC loan, you have a better chance of getting the loan if your credit score is 680 or above. Your cash flow will also have a significant impact on whether or not your loan application is approved.

Microloans

For smaller loans of $50,000 or less, SBA microloans are very popular. They can be used for many business purposes, and interest rates usually fall between eight to 13 percent with repayment terms of seven years.

The program is targeted to business owners from historically underserved populations, such as minorities, women and veterans, who may have poor or no credit history and lower incomes. Because of this, the lender may not even consider your credit score when determining your eligibility. They may instead consider your collateral, personal guarantees and cash flow as well as your business plan.

Disaster loans

The SBA created the Economic Injury Disaster Loan (EIDL) program to help small businesses that have suffered significant economic injury in declared disaster areas (think hurricanes, floods, fires or even COVID-19). These loans can be as high as $2 million with interest rates capped at 4 percent, and small business owners can use them for normal business expenses. This includes anything from rent and utilities to payroll and healthcare benefits for employees.

If your business property has suffered physical damage, you can also qualify for an EIDL loan of up to $2 million for property repairs, including inventory, equipment or machinery. These loans have a slightly higher interest rate cap at eight percent but their repayment rates can be as high as 30 years.

Because these loans are meant for businesses that were affected by a disaster, the SBA is pretty generous with them. The minimum credit score to qualify is in the high 500s, which is below average and considered “fair”. It would generally be difficult for a business owner with a fair credit score to get funding from other sources, so these loans can really be a lifeline to small businesses in tough times.

CAPLines

Unlike other SBA programs, the CAPLines program is a line of credit. There are four CAPLines, each with their own purpose: working capital, contract, seasonal and builders. Qualified borrowers can get approved for credit lines as high as $5 million and terms of up to a decade. Interest rates are based on the Prime rate plus 8.0 percent fixed or plus 4.75 percent variable.

The SBA does not dictate a minimum credit score for CAPLines programs, but having a personal credit score of 680 or above can improve your chances.

Export loans

For small businesses looking to expand their business into export territory, the SBA offers Export Express loans. You can get up to $500,000 with repayment terms of up to seven years for a line of credit or 25 years for a term loan. Interest rates are tied to the Prime rate and can range from an additional 4.5 – 6.5 percent depending on how much money you borrow.

There’s also the SBA Export Working Capital loan which allows small business owners to borrow up to $5 million for working capital, production or inventory. Interest rates are determined by the lender and can be negotiated by the borrower. If you use the loans as line of credit, you must repay it after a year.

When determining eligibility for SBA Export loan programs, lenders will look at your business credit score as well as your personal statement, which includes your character and experience, as well as your credit history. There’s no minimum credit score to qualify for an SBA Export loan.

Additional SBA loan requirements

Beyond your credit score, in order to qualify for an SBA loan, you must meet certain qualifications. These include:

Your business must be physically located in the United States or territories
Your business must meet the standard definition of “small business” based on SBA guidelines
Your business must be for-profit
Your business must be in an approved legal industry
You must have invested your own time, money and/or equity in the business before applying for the loan

Depending on what loan you apply for, you may be required to offer collateral or a down payment as well. Also, because the loans are managed by third-party lenders, they may have their own requirements, such as financial history, minimum time in business and others. It’s important to understand the requirements and documentation before you apply, so check with your lender.

How to improve your credit score

If your credit score is impacting your ability to qualify for an SBA loan or other types of business financing, there are ways you can work to improve it.

Build a credit history. One of the most important factors in credit score is the length of time it’s existed. There’s no way to speed up time, but you can keep older accounts open as long as possible. Some people make the mistake of closing out accounts like credit cards when they’re paid off, but it’s better to keep them open. If you don’t have accounts that report to credit bureaus, like student loans, home mortgages or car payments, open a credit card and spend a little money on it each month to start building your credit score.
Pay your bills on time. On-time payments are another major factor in your credit score. Make sure you pay the monthly minimum for your credit card bill and other bills on time every month to help increase your credit score. Just one missed monthly payment can take a few points off your score, and lenders will notice that you missed payments when they consider giving you a loan.
Increase your credit limit. Another factor in your credit score is how much of your available credit you’re using at any time. The best way to handle this is to pay off your credit cards and decrease your debt, but you may be able to increase your credit limit by opening another credit card or asking a financial institution to increase your limit.
Take out a personal loan. If you qualify for a personal loan, you can take out a small one and pay off the monthly minimum each month to help build a payment history and increase your credit score. This can be particularly helpful if you have high-interest credit card debt, as you can use the loan to pay that off and consolidate your debt into a single payment, which may also give your score at least a temporary boost.
Get added to someone else’s credit card account. If you can’t qualify for a credit card or other financing that will report to the credit bureaus, you can become an authorized user on a friend or family member’s credit card account to help build your credit. They’ll be responsible for making payments on the account, so you have to make sure you trust them to do that, but it will help build your credit.
Add your rent to your credit score. If you pay your rent online and have made at least three rent payments in the past six months, you may be able to add your rental payment history to your credit report through services such as Experian Boost. Your rent has to be high enough to qualify, but this can be another way to add more payment history to your credit score.
Build credit using a secured. If your score is low enough that you can’t qualify for a credit card or loan to build your credit, you can use a secured credit card, which requires you to pay a cash deposit when you open the account. Unlike drawing from a credit line, which is how a credit card works, a secured card draws from the cash you put down. These cards report to credit bureaus and can help you build credit. However, if you don’t pay your bill, they simply take your deposit, so if you have trouble keeping on top of payments, this may not be a good choice for you.

Other ways to improve your chances of funding

Improving your credit score will make you more attractive to lenders, but there are other ways to help improve your chances of getting funding from an SBA loan or other sources. A few ways you can improve your chances include:

Increase your annual revenue through sales or by cutting expenses.
Stay in business a few years longer so you have a longer history.
Develop a solid business plan to present to lenders.
Put more personal equity into your business.
Organize your finances so you can report them quickly.
Make sure you have all of your documentation in order.
Choose a lender you have a relationship with (whether it’s your personal banking or business banking).

What documentation was required?

Borrowers are required to submit documentation to prove they met the terms for forgiveness. Some of these documents include:

Payroll reports
Bank account statements showing how much payroll was paid
Tax forms, including payroll tax filings (Form 941) and state wage reporting and unemployment insurance tax filings
Payment receipts, cancelled checks or account statements showing contributions to health insurance or retirement plans for employees
Business mortgage interest payments, such as lender amortization schedule and receipt of payments
Business rent or lease payments, including current lease agreement and receipts
Business utility payments
Copies of invoices, orders, purchase orders and receipts for covered operating expenses
Property damage payments
Receipts or invoices for supplier costs
Worker protection expenditures

Each of these documents must show that you would have made this money or claimed a deduction in 2019, meaning before the pandemic. For the payroll expenses, a self-employed individual would need to provide their 2019 From 1040 Schedule C and 2019 IRS Form 1099-MISC.

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Written by

Kat Cox

As a B2B finance content specialist, Kat Cox's goal is to distill complicated financial issues into useful information for small business owners, to save them time they could be using to build their companies. Her work has been featured in Forbes and on financial health platform Nav.com. When she's not writing blogs, web copy, or fiction, Kat can be found walking her dog or singing karaoke in Austin, Texas.

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