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NGExpert financial copywriter
Many small businesses use U.S. Small Business Administration (SBA) loan programs to finance their businesses, including growing or starting a business.
The SBA program is extremely popular, but it’s important to understand the SBA loan program requirements to make sure you qualify before you apply. Read on to learn more about SBA loan requirements and if an SBA loan is right for your small business.
Page written by Kat Cox. Last reviewed on August 12, 2024. Next review due October 1, 2025.
SBA loans provide small businesses who may have had trouble getting traditional financing with funds to help start, grow or operate their businesses. These loans are guaranteed by the federal government but administered by SBA-approved financial institutions and partners, including banks, credit unions and community organizations.
Because each lender sets their own requirements and qualifications for borrowers, it’s important to check with the lender you choose to determine what you’ll need to apply. But there are several general requirements for an SBA loan that you should expect to need to meet if you apply for any of their loan programs.
In order to qualify for an SBA loan, your small business must be registered as a for-profit entity operating in a legal industry. You can’t qualify if your business is involved in investments, lending, speculation, gambling, multi-sales distribution or loan packaging.
Your company also needs to be based in the U.S. or its territories and doing business there in order to qualify for an SBA loan. Some SBA loan programs are available to small businesses who are building an export business, but they must be located in the U.S.
Another requirement the SBA has for borrowers is that they must have already tried to finance their business in other ways before turning to the SBA. This means you have to be able to prove that you’ve invested your own equity, including your personal time and money, into the business before you apply. You can’t have debt from other financial lenders, either.
In order to qualify for an SBA loan, you need to be able to prove a need for the financing. This includes why you’re getting the loan, whether it’s for working capital, real estate, equipment or other purposes. SBA loan programs have strict guidelines on how you can use the money, so you need to be sure your reasons fall in line with those. You should have a business plan that shows exactly what your plans are.
The company must also meet the definition of a “small business” under the SBA’s guidelines, which includes having fewer than 500 employees and an average revenue of less than $7.5 million for the three years before you apply.
The SBA and its approved lenders will want to make sure you’ll be able to pay back the loan. You should be able to prove that your business growth projection includes more revenue that will cover the cost of the financing. SBA lenders will want month-by-month cash flow projections for at least a year.
If you’ve met the business requirements above, you’ll still need to be able to provide documentation for other requirements.
As with any lender, SBA loan administrators want to ensure that your creditworthiness is good enough to make sure you’ll repay the loan. They’ll usually ask for your credit score, and most lenders will look for a score above 680.
Your business credit history is another important factor in determining if a lender will give you financing. Your business should have no outstanding tax liens, foreclosures or bankruptcies. The lender will also be looking to see that your business has “good character”, meaning that you’re meeting any debt obligations and are running your business ethically.
For the most part, SBA loans require that your business has been in operation for at least two years before they’ll lend to you. Some of their loans that are meant for startups won’t require this.
You’ll need to be able to prove that you have enough cash flow to pay your debts, including the new financing. You should also have enough working capital to operate your business. Be prepared to provide your income statement and balance sheet, plus three years of tax returns.
If you’re getting a loan of $25,000 or more, you should be able to provide collateral. This can include equipment, personal assets or even the business itself. Some SBA commercial real estate loans require at least a 10% down payment, too.
To apply for an SBA loan, you’ll first need to pick your lender. The SBA provides a list by physical location, but if you have an existing relationship with a bank or credit union, they may be a good place to start. You’ll need to provide documentation for all of the items listed above, including a personal statement, financial documents (both personal and business), tax returns, business licenses and personal identification.
Each SBA loan program also has its own requirements. These requirements may change, so it’s important to check with your lender and the SBA before applying. But here are some general requirements to be aware of:
| SBA loan type | Specific requirements |
|---|---|
| SBA 7(a) | Collateral (for loans over $350,000), SBA Form 1919, SBA Form 21920 |
| Community Advantage | Collateral (might be required for loans over $25,000), SBA Form 1919, SBA Form 1920 |
| SBA Express | Collateral (may be required for loans above $25,000), SBA Form 1919 |
It’s a good idea to explore all your options before you apply for a business loan. SBA programs may be the right choice for you if you meet all of the above criteria. If you don’t qualify for an SBA loan, there are a lot of other options available to businesses, including traditional business loans, online business loans, business credit cards and business lines of credit.
Download the Swoop app today to find the right financing for your business. Simply answer a few questions and we’ll get started comparing your options.
Written by
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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