Throughout the Covid-19 pandemic, the Small Business Administration (SBA) supported small businesses with government-backed Paycheck Protection Program (PPP) loans and forgiveness programs. 

As vaccines become increasingly widespread and government lockdowns ease, businesses should expect this type of support to wane. The window for PPP loans is set to close on May 31st, 2020. 

Even if you haven’t had the chance to secure a PPP loan, qualifying for an SBA loan is still a possibility. 

SBA loans come with a number of benefits, such as lower interest rates, longer repayment terms, and smaller down payments. You can use SBA money to refinance debt or tackle new growth opportunities. 

That said, qualifying for an SBA loan isn’t as easy as it may seem. Requirements are rigid and there is little flexibility or room for errors. 

If you’re wondering whether SBA loans are a possibility for your business, you’ve come to the right place. We’ll go over everything you’ll need to know about qualifying for an SBA loan as well as other solid financing options.

Qualifying for an SBA loan based on type

There are multiple different types of SBA loans, each one serving a different purpose. These include the SBA 7(a), 504, microloans, disaster loans, among others.

SBA 504 loans are commercial real estate financing loans. They can be used to buy or build new facilities, equipment, and more. They can’t be used for purchasing inventory, consolidating debt, or investing in rental properties.

Microloans typically provide $13,000 in funds, but never more than $50,000. They are reserved for small businesses and certain non-profits looking to expand. Disaster loans are another type of SBA loan that’s only available to small businesses affected by a declared disaster.

SBA 7(a) loans are by far the most flexible and popular financing option. Take a look at why these types of loans are so popular and the qualifications you’ll need to get approved.

SBA 7(a) loans

SBA 7(a) loans feature a maximum loan amount of $5 million which may be used for a wide range of business expenses. You can buy inventory, new equipment, refinance existing debt, acquire other businesses, and purchase real estate.

SBA 7(a) loans are available through banks, credit unions, and even fintech marketplaces like National.

There are several types of SBA 7(a) loans, including:

  • Standard 7(a)
  • 7(a) Small Loan
  • SBA Express
  • Export Express
  • Export Working Capital
  • International Trade
  • Preferred Lenders
  • Veterans Advantage
  • CAPLines

Each SBA 7(a) loan type features slight variations when it comes to structure, terms, and qualifications. In some cases, there’s room to negotiate the interest rate and other terms with your lender.

Different SBA 7(a) loan types are also intended for distinct purposes. For example, International Trade loans are for businesses directly affected by foreign trade while veteran-owned businesses may access reduced rates.

How do you qualify for an SBA loan: The basics

It doesn’t matter if you’re looking into a Standard 7(a) loan or an SBA Express loan, the underlying qualifications for any type of SBA funding are largely similar. The most basic requirements include:

  • Meet SBA’s size standards for what constitutes a small business. This is based on the number of your employees and your total annual income, or annual receipts. You can read more about SBA size standards here.
  • For-profit business
  • Must be located and operate within the United States
  • Have invested equity
  • Demonstrable need for financing
  • Zero outstanding debt to the U.S. government
  • Owners aren’t on parole

Credit score qualifications for an SBA loan

The SBA puts enormous emphasis on both your personal and business credit score. These two metrics help lenders understand how responsible you are when borrowing money and whether they can expect you to repay your loan.

If your business credit score is low or if it hasn’t been established, your personal score will have more weight. Otherwise, you might be denied financing altogether.

In order to receive the best chances for approval, your personal and business credit scores should be at least 700. Anything lower and you may not be able to qualify for SBA financing. Even then, the interest rates you receive will be more pricey and the terms less favorable.

Having a higher credit score will almost always give you greater negotiating power when it comes to sitting down with a lender. Which is why you’ll want to get your hands on your credit report before you apply for financing.

You can access your business credit score through bureaus like Experian, Equifax, and Dun & Bradstreet. If your credit score is low and you have doubts about your eligibility, take the time to improve your score before applying for SBA financing.

Get your ducks in a row

Having a solid credit score is only one part of the picture. You’ll have to meet additional requirements if you’re going to get approved for an SBA 7(a) loan. A great place to start is by looking over the SBA 7(a) application checklist.

You’ll want to make sure you have the following documents prepared ahead of time:

  • Profit and loss statements going back 3 years
  • Balance sheets going back 3 years
  • Income tax returns going back 3 years
  • Reconciliation of net worth
  • Loan application history
  • Business certificate and licenses
  • Business lease
  • Business plan, detailing why you need the funds and how you plan to use them
  • Monthly cash flow projections for at least a one year period

If you’re unable to provide any of the documents outlined above, you may face difficulty securing an SBA 7(a) loan. Being on parole, having limited business history, and cash flow disruptions can also keep you from getting financing.

If you’re thinking about securing an SBA 7(a) loan through National, you’ll only need 2 years of business history, a credit score of at least 685, and $100,000 in gross annual sales. Learn more about qualifying for an SBA loan here.

Qualifying for an SBA loan with collateral

In some cases, lenders may ask you to put up collateral for your SBA loan. Collateral is any asset with significant value and can include inventory, equipment, real estate, invoices, and more.

Collateral gives lenders additional security and peace of mind. In case you can’t repay your loan, the lender has the right to seize your asset.

Unfortunately, collateral loans can put borrowers at a disadvantage. You’ll have to forfeit the asset you’ve used as collateral if you’re unable to make payments.

How to qualify for an SBA 7(a) loan during COVID-19

An SBA 7(a) loan is a great resource for small businesses. These loans come with lower interest rates and longer repayment terms – but they can be very difficult to qualify for. There’s little wiggle room if you don’t meet the strict requirements the SBA imposes.

The good news is that there are other financing solutions available. One example is National, an online marketplace of over 75 different fintech lenders – many of which feature more relaxed requirements than the SBA.

At a minimum, you’ll need only 6 months of business history and $120K in annual revenue to apply. Worried about your credit? We have solutions for all different kinds of credit scores.

You can browse various small business loans and business lines of credit to select the rates and terms best suited to your needs. Plus, funding can come as fast as 4 hours!

SBA Loan Application